August 1924 636 FEDERAL BESEEVE BULLETIN" AUGUST, 1924 CURRENCY REORGANIZATION IN GERMANY Unrestricted issues of paper money in Ger- dition of the three banks, together with many, which had continued throughout the their actual balance sheets on June 30, 1924, post-war period, brought the German mark to is, therefore, here presented. It is indicative a complete collapse in October and November, of the transitional state of Germany's finan- 1923, when the value of the paper mark fell to cial and monetary system that the condition one-trillionth of its pre-war parity. The fall of reports of each of the banks are stated in differ- the value of the mark during the months immed- ent units—the Reichsbank uses the paper iately precedingits final collapsehadbeenso rapid mark, the Rentenbank the rentemnark, which that, though the Reichsbank put into circulation has a value of one gold mark equivalent to a a const antly growing volume of b ank notes, trade trillion paper marks, and the Gold Discount and industry were suffering from an acute short- Bank the pound sterling, with a value of about age of currency. Thus at the beginning of 20 rentenmarks. November the total value of money in circula- Tlie Eentenbank.—In the balance sheet of the tion in Germany, when expressed in gold, was Rentenbank the first item is the mortgage of only 300,000,000goldmarks, or about 5 per cent 3,200,000,000 imposed upon agricultural land of the total pre-war circulation. In these cir- and upon enterprises. On the liability side cumstances a reorganization of currency became 2,400,000,000 of this amount is charged to an essential requirement for the continuance of capital and 800,000,000 to a reserve fund. German industrial and commercial activity. The mortgages to be imposed on property in A temporary reorganization for the purpose the unoccupied territory have been estimated of supplying the immediate needs of the to aggregate 2,400,000,000 rentenmarks and country was effected in November through the this amount represents the limit of the establishment of the Rentenbank, which de- Rentenbank's present note-issuing power. rived its lending power from the imposition of a The Rentenbank's loans to the Government mortgage on agricultural land and on industrial aggregate about 1,200,000,000, the maximum and commercial enterprises.1 The chief func- permitted by law, of which about 200,000,000 tions of the Rentenbank were to provide a stable was used to pay off the treasury's obligations to domestic currency that would command the the Reichsbank, and 1,000,000,000 was em- confidence of the public and to assist the ployed to meet the Government's current ex- Government to pay off its obligations to the penses. Loans for commercial, industrial, and Reichsbank and to meet its current require- agricultural purposes, made largely through ments pending a more complete reorganization the Reichsbank, totaled about 870,000,000. of the entire fiscal and financial system of Rentenmark notes in circulation aggregated Germany. Borrowing by the treasury from 2,050,000,000 on June 30, of which, however, the Reichsbank, which had been the principal a portion was held as a cash reserve by the occasion for the issue of Reichsbank notes, came Reichsbank. Even after subtracting this re- to an end with the creation of the Rentenbank. serve rentenmarks constituted about 56 per With the domestic demand for currency and cent of the total currency in circulation, the fiscal needs of the Government thus tem- while Reichsbank notes were 36 per cent. porarily- provided for through the Renten- Following is the statement of the Rentenbank bank, a further step was taken in April, 1924, as of June 30, 1924: when the German Gold Discount Bank was organized for the purpose of assisting German Rentenbank, June SO, 1924 ASSETS industry and trade in securing necessary foreign Eentenmarks credits. One-half of the capital of the Gold Mortgage on agriculture and industry in favor of the Eentenbank 3,200,000,000.00 Discount Bank was subscribed by the Reichs- Eentenbank debentures on hand 2,399,804,000 Loans to the Government: bank on the basis of a foreign loan, and one-half Without interest _ 196,459,959.99 by a consortium of German banking institutions. With interest 1,000,000,000.00 For emergency purposes 3,000,000.00 The relationship between the Reichsbank, Loans for commercial, industrial, and agricultural purposes: the Rentenbank, and the Gold Discount Bank To the Reichsbank 800,000,000.00 is of particular interest at the present time, as To other banks of issue _ 70,203,052.43 Temporarily on deposit with the Reichsbank for pur- the three institutions are expected soon to be pose of inaugurating clearings in rentenmarks 100,000,000.00 consolidated and reorganized into one new Gash, postal orders, and due from banks 74,967,273.71 bank of issue along the lines proposed in the Furniture and fixtures 67,326.86 2 LIABILITIES Dawes report. A brief discussion of the con- Capital .-_ 2,400,000,000.00 Reserve fund 800,000,000.00 1 See FEDERAL RESERVE BULLETIN for December, 1923, p. 1281. Eentenmark notes in circulation 2,049,788,266.00 2 See FEDERAL RESERVE BULLETIN for May 1924, p. 382. Rentenbank debentures in circulation 196,000.00 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis August 1924 AUGUST, 1924 FEDERAL RESERVE BULLETIN 637 The Beichsbank.—In the Eeichsbank's weekly LIABILITIES Marks 11. Capital- ... 180, 000,000 statement for June 30, in reading which 12 12. Surplus _ 160, 502,000 ciphers should be omitted in order to convert 13. Notes in circulation 1,097,308,572,181,648, 408,000 14. Other demand liabilities: it into terms of gold marks, the principal items (a) Deposits of the Reich and of the several States (including are bills of exchange and checks in renten- deposits in rentenmarks, marks, amounting to over 1,000,000,000, a con- 263,528,715,750,000,000,000).. 493, 043,147, 640,091,005,000 (6) Private deposits (including siderable part of which represents accommoda- deposits in rentenmarks, 124,798,405,450,000,000,000) _. 280, 884,170, 633,040, 550,000 tion to agriculture; bills of exchange and 15. Due to the Rentenbank 800,000,000,000,000,,000,000 checks in paper marks totaling 840,000,000, and 16. Other liabilities (including liabilities in rentenmarks, 307,185,180,000,- rentenmarks in vault amounting to 278,000,000, 000,000) 416,582,471,796,711,220,000 a decided reduction from the total of 474,000,000 Contingent liability on indorsed domestic bills of exchange sold, 35,000,000,000,- on June 23. The item "other assets," amount- 000,000,000. ing to 702,000,000, is significant, because it includes the R eichsb ank' s holdings of foreign ex- The Gold Discount Bank.—This bank, also change bills. The item of 462,000,000 of gold is known as the Schacht Bank, began operations shown on the basis of its nominal pre-war value, in April of the current year. Of its subscribed and therefore appears entirely out of proportion capital of £10,000,000, about two-thirds has to the other items on the asset side. Of this been paid in and this amount practically gold reserve nearly one-half is regarded as a represents the volume of the bank's loans. special cover for the $50,000,000 loan issued at Though the bank has authority to issue notes the time of the Reichsbank's first effort at ex- against a 100 per cent cover in foreign credits, change stabilization early in 1923. The most it has not availed itself of this privilege. It important item on the liability side is note has established banking credits of £5,000,000 circulation totaling 1,097,000,000, which is to in London and $25,000,000 in the United States be compared with 224,000,000 on November 23, and has been in a position to assist German 1923. The large increase in note circulation manufacturers to obtain banking accommoda- has been due to a considerable extent to the tion abroad. This service has been extended, retirement of the bulk of the emergency notes however, only to those whose business opera- of various kinds which were in circulation at tions would enable them to repay in foreign the close of 1923. The other principal liability currencies such obligations as they incur is the 800,000,000 gold marks which the Eeichs- abroad. bank owes to the Eentenbank. Perhaps the With the scope of the operations of the most striking thing about the balance sheet, Gold Discount Bank thus limited, with the given below, next to the absolute amounts utilization of existing resources of the Eenten- which run into sextillions, is the fact that bank approaching its legal limit, and with the operations in rentenmarks and accounts with Eeichsbank endeavoring to maintain currency the Eentenbank, in spite of their relatively stability by means of credit control, German recent origin, are actually larger in volume credit and currency developments in the im- than most of the other items shown in the mediate future depend upon the action taken statement. in connection with the proposed establishment of a new bank of issue and the notation of a Reichsbank, June SO, 1924 foreign loan, both of which are at present the ASSETS 1. Metallic reserve (including German subjects of discussion at the international con- coins as well as gold in bars and for- ference meeting in London.