Beautiful $100 Bond certificate from the
Conversion Office for German Foreign Debts printed in 1936. This historic document has an ornate border around it with a vignette of a man and woman worker sitting with the silhouette of a building under construction in the background. This item has a printed signature with the raised Nazi seal and is over 83 years old. Written in English and German.
Certificate Vignette
Federal Reserve Bulletin April 1934FOREIGN BANKING AND BUSINESS CONDITIONS
ANNUAL REPORT OF THE GERMAN REICHSBANK
The annual report of the German Reichsbank
for the year ended December 31, 1933, was
submitted to the general meeting of shareholders on March 9, 1934. The main text of the
report is given herewith:1
The year 1933 witnessed not only political
changes in Germany but also the beginning of
economic recovery, which has been so long
awaited.
The complete confidence of the
German people in their leader enabled the
Government to make a systematic attack on
the economic depression, and within a short
time to achieve extraordinary results. Measures for creating work, reduction of taxes, and
other means reduced the number of unemployed
by more than 2 million. The revival of the
spirit of enterprise laid the foundations of
genuine business recovery. In spite of a
further contraction in foreign trade, production
and turn-over increased in many important
lines and the income and purchasing power of
agriculture was strengthened. Medium-sized
industries, hitherto neglected but now under
the special protection of the State, were able
to strengthen their position and the number of
insolvencies declined sharply. The revenues
of the Reich showed a rising trend in spite of
numerous tax reductions, and expenditures for
the relief of the unemployed declined considerably. The burden of interest was somewhat lightened through a more abundant flow
of funds, through improvement in credit risks
in general, and through Government action.
In contrast].with earlier years, the tasks
intrusted to the Reichsbank were made appreciably easier by the support of governmental
authority and the improvement in business
confidence, so that it could employ far greater
initiative than before in aiding recovery.
Money market and credit policy.—The increase of domestic deposits with credit institutions was encouraging; credit requirements
The report, available in German, contains, in addition, tables and
charts showing the operations of the bank in detail. For earlier reports,
see BULLETIN for May 1933, April 1932, August 1931, May 1930, etc.
arising out of the business revival could be met
with little additional demand on the central
bank; and the sale of treasury bills and obligations by the Reichsbank was very active.
Nevertheless, credit requirements were always
so large in proportion to funds available on the
money market that interest rates for shortterm loans underwent no very great reduction.
It will not be possible for any marked reduction
to take place until the volume of funds flowing
into the market corresponds to the demand.
The same thing is true of the demand for longerterm credit. In spite of the noteworthy increase in deposits at the savings banks, amounting to almost Rm. 900,000,000 during 1933,
there was still a great dearth of investment
capital. This is the underlying reason for the
high level of interest in this section of the German market. The Reichsbank met the demand
for longer-term credit, so far as practicable,
with interim credits to tide over the emergency. The bank and the Government were in
complete agreement that maintenance of currency stability is essential to the continuous
success of the recovery measures and that every
kind of credit expansion must be strictly
controlled.
The Reichsbank was likewise able to arrange
interim credits in behalf of the various projects
to create employment, which could be financed
neither by taxes nor by loans. The Government and the Reichsbank were careful that
these demands for credit should not fall directly
upon the Reichsbank. It was felt that any
use of funds for creating work could be justified
only insofar as these funds were not diverted
from other productive purposes. In order to
reduce costs, the previous method of financing
through bank consortiums was gradually abandoned. Bills for creation of employment,
which are redeemable out of current Government funds, are acceptable for rediscount at
the Reichsbank and are a premier bank investment. As a result the Reichsbank held at the
end of the year less than half a billion reichsmarks, or about one third of the outstanding
total of these bills, the remainder being held
almost entirely by the banks.
The method of lending to agriculture underwent considerable change owing to measures
taken by the Government for relieving indebtedness. The Reichsbank made an effort to ease
the temporary difficulties arising out of the
change. Funds required for financing the
harvests and for other purposes were made
available, chiefly through the central credit
institutions for agriculture. Seasonal credits
for the sugar industry, which before the crisis
were arranged chiefly in foreign financial centers, are now provided by the Reichsbank in
the regular course of business.
Generally speaking, the volume of funds
made available to business in various ways by
the Reichsbank was larger in 1933 than in 1932.
A considerable increase took place in the portfolio of domestic bills as a result of the improvement in business. The emergency credits growing out of the monetary crisis of 1931 were
sharply reduced, chiefly as a result of the
improved position of the savings banks, and
bills at the Acceptance Bank declined by more
than half, whereas commercial credits rose. The
greater buying of forward drafts for hedging
purposes benefited German export trade. Few
demands were made upon the bank for credits
to finance deliveries of German merchandise to
Russia, and the Reichsbank holdings of Russian
bills have declined.
During the year complaints with respect to
inadequate credit accommodation were received
from time to time from the most diverse lines
of business. The Reichsbank looked into every
case that came to its attention. In most cases
where the applicant could prove that he was
responsible and that the credit was to be
used for commercial purposes, assistance was
afforded.
Gold and foreign exchange.—In order to
clear up its position, the Reichsbank decided
in April 1933 to repay the remainder of the
foreign credit of $70,000,000 which it had
obtained in June 1931; and in June 1933 to
repay the remainder of the foreign credit of
the Gold Discount Bank, amounting to $45,-
000,000. From the outset these credits had
accomplished nothing more than a purely
nominal improvement in the reserve against
note circulation; their repayment in no way
weakened Germany's international capacity to
pay, but rather strengthened it by saving
interest. The long-standing weakness of the
German foreign-exchange position was now
evident to all the world. Inasmuch as currency and trade policies abroad suggested no
improvement, Germany, in this field too, proceeded to find its own solution. To regulate
transfers on the service of the foreign debt, the
Government of the Reich on June 9, 1933,
issued regulations with respect to payments
on foreign obligations (Reichsgesetzblatt I, p.
349). These required German debtors to
make regular payments in reichsmarks, on and
after July 1, 1933, on all claims outstanding
previous to the crisis of July 1931, so far as
they were not covered by standstill agreements.
Payment was to be made to the Conversion
Office for German Foreign Debts, which was
under the supervision of the Reichsbank, and
the Reichsbank was authorized to determine
when disbursements should be made from the
balances created at the Conversion Office in
behalf of the creditors. After lengthy negotiations with representatives of foreign creditors,
who recognized that a strengthening of the
gold and foreign-exchange holdings of the
Reichsbank was necessary in their own interests, the bank determined to suspend all
transfer of sinking-fund payments; and of the
interest and dividends falling due in the second
half year of 1933 to transfer only one half, but
not over 4 percent per annum. In the case of
the Dawes and the Young loans special arrangements were made. Noninterest-bearing certificates of indebtedness of the Conversion
Office (scrip) in denominations of from 5 to 100
reichsmarks were delivered for the remaining
interest balances in the accounts of creditors.
All trading by means of scrip, like the trading
done through the various kinds of blocked
marks, was centralized in the Gold Discount Bank, which bought scrip from foreign holders
at half its face value and delivered it to German
exporters. In this way it was possible to give
the owners of these certificates the opportunity
of converting them into cash, and also to afford
the German export trade additional opportunities for export in competition with countries
with depreciated currencies.
The law of June 12, 1933 (Reichsgesetzblatt
I, p. 360), in regard to economic treason gave
exporters of capital and tax evaders one more
chance to declare their illegal foreign balances
and to convert their hoarded foreign exchange
into reichsmarks. Because of the strength
of the political situation at home, and the heavy
penalties threatened for noncompliance, the
law was successful in bringing about the surrender of approximately 100,000,000 reichsmarks. Including this special accession, the
holdings of the Reichsbank in gold and foreign
exchange eligible for note cover rose during the
second half of 1933, but only by about 120,000,-
000 to 395,000,000 reichsmarks.
In December 1933 the Reichsbank felt compelled under these circumstances to reduce the
percentage of interest transfer for the first half
of 1934 from 50 to 30 percent. A serious weakening of the foreign-exchange reserve of the
Reichsbank was inevitable if the former arrangements were continued—wholly apart from
the probable further deterioration in the balance of payments. After negotiations with
foreign creditors, however, the Reichsbank
agreed that the German Gold Discount Bank
should purchase new scrip of the Conversion
Office at the rate of 67 instead of 50 percent as
before. In this way the holder of German
foreign loans receives on the average more than
three fourths of the nominal value of his interest
coupons, which under present conditions represent excessively high rates.
It was necessary to modify in many respects
the methods of controlling foreign exchange.
The flight of capital, temporarily increased as
a result of the political revolution and the more
recent export policy, made this imperative.
The patrol of frontiers was tightened. During
the year a series of foreign-exchange agreements
were concluded, some of them between governments, some between central banks of the participating countries, and covenants already
existing were amended or broadened. Using
earlier arrangements as a model, the Reichsbank made new agreements in August for
regulation of exchange transfers with the Turkish bank of issue as well as with the Bank of the
Temple Society, Ltd., at Jaffa; in October an
arrangement was made with Portugal.
An
understanding with Belgium for easing restrictions on tourists was reached in July. By
amending existing regulations, new arrangements with Czechoslovakia were made in April
for the transfer of payments with respect to
merchandise transactions, and in October for
the transfer of payments in other cases. A
transfer agreement with Hungary was reached
in August. Through the efforts of the Reichsbank German balances abroad that had been
frozen as a result of foreign-exchange restrictions were further reduced.
Standstill agreements.—The foreign indebtedness of Germany was again reduced by repayments and also as a result of the devaluation of the dollar and the depreciation of other
important currencies. The aggregate shortterm foreign debts of Germany amounted to
approximately 7,000,000,000 reichsmarks on
September 30, 1933. Of this total, some
2,500,000,000 reichsmarks w^ere covered by
standstill agreements. During the year covered by the standstill agreement that expired on
February 28, 1934, the total volume of standstill indebtedness w^as reduced by about 1,250,-
000,000 reichsmarks, which includes the reduction arising out of currency depreciation.
Of this amount, about 200,000,000 reichsmarks
represented reductions provided for in the
agreement, and about 500,000,000 repayments
of registered marks.
By the London negotiations in June which took account of the unfavorable foreign-exchange position, interest
rates on the standstill credits were lowered by
almost one half of 1 percent on the average;
that is, to almost the same extent as by the
renewal agreement last year. Moreover, the
standstill creditors relinquished their contractual right to repayment out of the Reichsbank's
holdings of foreign exchange, and agreed to a
postponement of payment on the maturing
installments of those credits which the Gold
Discount Bank had undertaken to guarantee
in exceptional cases by pledging the total assets
of German business. By the German Credit
Agreement of 1934, representing a 1-year renewal of the standstill, the postponement was
extended to instalments of the Gold Discount
Bank falling due in the future, and any reduction of credit lines was waived. Similar arrangements were concluded during the past
year in the Credit Agreement for German
Public Debtors, 1933, the renewal of which is
at present the subject of negotiations.
Rate of reichsmark exchange.—The reichsmark in the foreign exchanges remained very
close to parity throughout the year, and from
time to time rose above par. Occasional slight
periods of weakness, resulting from the illegal
outflow of German funds to foreign countries,
were quickly readjusted.
The capital market.early in the year the
capital market reflected the hesitation of investors toward long-term obligations. Subsequently, measures taken by the Government
and Reichsbank to loosen up the capital market were successful in bringing about an upturn. By a cabinet decree of May 31, 1933, a
commission under the chairmanship of the
president of the Reichsbank was appointed
with power to regulate and supervise all matters relating to the money and the capital
markets. The adherence to the principle of
currency stability and the rejection by the
authorities of any further compulsory reduction
of interest rates also helped to restore confidence. Recovery measures in behalf of agriculture safeguarded the interests of holders of
mortgages. By the law of September 21, 1933,
communal finances underwent a thorough reorganization through the consolidation of the
short-term domestic debts of the communes at
a rate of interest which, though moderate, was
acceptable to the creditors (law of Sept. 21,
1933, Reichsgesetzblatt I, p. 647). The use
of the open-market powers, authorized by the
amendment of October 27, 1933, to the bank
law (Reichsgesetzblatt II, p. 827) enabled the
Reichsbank to participate actively in the capital, market. This assisted in narrowing the
margin between the excessively high rates on
the capital market and the low rates prevailing
for short-term funds. There soon occurred a
substantial rise in security quotations, and
since the end of September a general and steady
revival in the German stock exchanges. With
faith in the new Government, the confidence of
investors and capitalists increased; obligations
of the Reich and the States approached parity
or rose above it; city and communal obligations
rose considerably above their depression quotations. The mere announcement of the bank
law amendment was a factor of strength.
By the middle of November the Reichsbank had
acquired tax warrants in the amount of almost
200,000,000 reichsmarks, and by this means
effectively relieved the tension at the banks and
in the money market. Thereafter the Reichsbank continued to buy further moderate
amounts of securities eligible as note cover,
until at the end of the year its holdings reached
259,000,000 reichsmarks. In addition it eased
the regulations with respect to collateral loans;
this gave greater freedom of action to holders of
securities eligible as collateral, and assisted
the capital market. The conversion of dollar
obligations into reichsmark loans, promoted
by the Reichsbank, protected the creditor
against further depreciation, gave the debtor a
reduction of interest, and contributed to the
strength of the capital market. Toward the
end of the year the easing of the situation had
progressed to such an extent that the Government was able to offer a voluntary conversion
loan, though bearing a high rate of interest.
Most of Germany's foreign obligations showed
a temporary advance toward the end of the
year from their previous low levels.
The bank law.—After the consent of the
Bank for International Settlements at Basel
had been obtained, a law amending the bank
law was approved by a special meeting of the
shareholders of the Reichsbank on October 27,
1933. This law, taking account of the necessities of the time, is intended to give the German
central bank greater freedom of action by means
of open-market operations.
The Reichsbank
is given the right to buy and sell all descriptions
of domestic securities eligible as collateral for
loans under paragraph 21, sections 3b and 3c
of the bank law, and to include in the legal
note cover call loans secured by collateral.
The General Council is abolished, inasmuch as
it lost its reason for existence in 1930 upon the
retirement of the foreign members. The
president of the Reichsbank and the members
of the board of directors will hereafter be appointed by the President of the Reich—the
former with the advice of the directors of the
Reichsbank, the latter on the suggestion of
the president of the Reichsbank. They can at
any time be recalled by the President of the
Reich for sufficient reason. The general meeting of shareholders, at the suggestion of the
board of directors of the Reichsbank, decided
at the same time to change the bylaws so that
in future, with the consent of the central committee of the Reichsbank, a part payment may
be made on October 1 (in 1933 on Nov. 1) up
to 6 percent—that is, up to three fourths—of
the minimum dividend guaranteed by law.
Banking investigation.—For the purpose of
restoring an effective banking and credit system,
the German Committee of Banking Inquiry
1933, composed of 15 members under the chairmanship of the president of the Reichsbank,
was appointed by the Government.
The
committee convened in public session for the
first time on September 6. In preparation for
these discussions, individual opinions of qualified experts regarding the problems to be considered had been carefully worked out, and the
statistical material prepared in the Reichsbank
in collaboration with the Statistical Office of the
Reich was made available. On November 21
the committee began its regular work, and the
individual problems were taken up one after
the other, sometimes in public sessions, sometimes privately. In dealing with this farreaching work of reform, which touches all
business groups so deeply, the strong desire for
recovery was reflected in a new spirit of solidarity. The results of the inquiry will shortly
be submitted to the Government in the form
of recommendations.