Page 17

ing the principles which will de-
termine the approval or rejection of
contracts, and has established branch
offices in the most important trading
centers of the merged zones, mainly
the state (land) capitals. Finally, the
Agency is prepared to act as seller
of goods if a foreign buyer is pre-
vented by government restrictions
from entering into legal contracts
with German nationals.
The neccessity of setting up the
bizonal export-import organization
and the hardship of the winter
months have delayed the beginning
of the new program. Despite these
handicaps, foreign trade has started
to rise. In the first quarter of 1947,
contracts for exports were negotiated
to the amount of $ 22 million. Ex-
port deliveries, which, however,
include coal, reached $34 million.
Imports, excluding basic necessities
imported by the occupation authori-
ties, were approved tho the sum of
$ 10 million. These amounts still are
far below the levels that must be
reached in order to fulfill the bizonal
program, but they represent a mate-
rial improvement in comparison with
preceding periods.
Money and Exchange
When the occupying powers enter-
ed Germany, the collapse of the cur-
rency appeared imminent. Money in
circulation had increased to approxi-
mately six times the prewar level.
The German people's recollection of
the hyper-inflation that followed the
first World War added to the dangers
of the situation.
Despite the oversupply of money
the scarcity of goods, the occupying
powers took over the existing Ger-
man system of price and wage con-
trols and have been able to prevent any
serious rise in legal prices and wages.
The official cost-of-living index stood
in December 1946 at approximately
120 percent of 1938. It is true that
only the meager official rations can
be purchased at these prices. The
supply of black market goods, how-
ever, is probably smaller than the
amount of goods distributed through
legal channels. Furthermore many
black market transactions take the
form of barter, especially for cigaret-
tes, rather than the form of sales at
high money prices.
The maintenance of the official
price and wage level at virtually
prewar figures has had some unfore-
seen consequences. At the beginning
of the occupation, a military ex-
change rate of 10 marks per dollar
was established, as compared to a
prewar exchange rate of 2Y2 marks
per dollar. This rate was introduced
merely for the administrative use of
the occupying authorities, especially
in calculating payments in marks to
the troops. Its application for gen-
eral purposes, however, would have
tended to upset the entire price and
wage system. German domestic prices
even before the war were man-
aged in such a manner that they had
lost all relation to world market
prices. No uniform exchange rate, and
least of all the military rate, would
represent a generally applicable ratio
between domestic prices as expressed
in marks, and world market prices in
dollars.
Thus a difficult problem has arisen
in connection with the pricing of ex-
port and import goods. The German
exporter receives for his sales the
legal domestic price in marks. Simi-
larly, the German importer has to
pay for his purchases the legal do-
mestic price in marks. On the other
hand, the foreign importer of German
goods pays, and the foreign exporter
of goods receives, the world market
price in dollars.
Therefore, the occupation author-
ities have decided for the time being
to refrain from fixing a uniform con-
version factor for the translation of
mark into dollar prices, and vice
versa. Instead we have issued a long
list of various conversion factors, re-
ffecting for all major commodities the
actual relation between legal domes-
tic prices in marks and world market
prices in dollars. For instance, the
conversion factor for carbon brushes
is 30 cents, and for pharmaceuticals
80 cents per mark. This means that
a certain quantity of carbon brushes
that sells domestically for 100 marks
has to be priced for exports at $ 30,
but pharmaceuticals that sell demo-
stically for 100 marks have to be
priced for exports at $ 80. As a prac-
tical matter, this is the best that can
be done until major monetary reforms
are undertaken in Germany and a
more normal price system is develop-
ed there. These problems have been
under quadripartite (four zones) dis-
cussion for some time and it is to be
hoped that an early agreement will be
reached.
Banking
In December 1946, Military Gov-
ernment established a new central
banking organization (on Land level)
in the American zone. Following the
principle of decentralization, each
German state received its own cen-
tral bank, which took over the assets
of the former Reichsbank as far as
they were located in its area. The
organization of the central banks was
largely influenced by the model of
the central banks was largely influ-
enced by the model of the Federal
Reserve System. As soon as the eco-
nomic unification of Germany is im-
plemented, the state central banks
will be coordinated by a central board,
which will issue currency through
the medium of the state central banks.
Until such time, however, the central
banks have no power to issue bank
notes or any other currency.
In consequence of our principle of
decentralization, commercial banks in
the American Zone have been order-
ed to sever their connection with
central offices in Berlin. Depositors
are free, however, to dispose of their
accounts both within the American
and in transactions with the British
and   French  Zones,  except  for
blocking measures applied in the
process of denazification. From the
beginning of occupation to the end
of 1946, deposits in the American
Zone increased by 75 percent. Most
of the rise in deposits had to be kept
by the banks in cash or with other
credit institutions since no other in-
vestment opportunities are available.
Total assets of the banks in the Amer-
ican Zone were 75 billion marks on
June 30, 1946, of which one-third was
kept in cash or bank balances, and
two-fifths in Treasury bills and other
government securities, the service of
which has been suspended since the
end of the war.
Problems and Prospects
All these achivements are merely
the first step on the road to rehabili-
tation. The obstacles that still have
to be overcome are no doubt as great
as any which we have encountered
so far.
16 JUNE 1947
WEEKLY INFORMATION BULtETIN
17