Military government weekly information bulletin
Number 97 (June 1947)
Szymczak, M. S.
The United States' stake in German economic recovery, pp. 13-18 PDF (3.9 MB)
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
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