Deutsche mark: The German Currency
The Deutsche Mark or the German Mark was the currency of West Germany first from 1948 to 1990 and then it became the official token of exchange of the entire state after its reunification but only until the year 2002. With the establishment of the European Economic and Monetary Union, the German Mark was replaced by the Euro.
The Mark was a result of the Allied occupation which had aimed at replacing the Reichsmark and also the intense political mistrust which the rest of the Allied forces had towards the Soviets.
Deutsche Mark was further subdivided into values of one hundred cents and the currency was issued in coins and notes. It is said that only four series of bank notes were issued in its five decades worth of existence.
Understanding the Context
The monetary history of modern day Germany essentially begins to post the Second World War. During this period the German economy was typically in ruins like most of Europe, but with severity stamped all over. Just after the war, there was an abundance of currency and the banks were brimming with debt. An instant paralysis had plagued the economy because trading at the fixed value prices of the Reichsmark had become largely unattractive.
Also, the Bretton Woods System collapsed in the year 1973 thus making the currency of the United States of America, the dollar no longer convertible into gold. As a result, it suffered because of depreciation in its value due to inflation. Its value as the international currency was also affected and thus began the increase in relevance of the German Mark within the European economy as the Dollar enjoyed in the global economy. In comparison to the Pound Sterling of Britain which has a far grander 1300-year-old history, the German Marks historical prestige is a bit more modest.
All of this began in a period just after the conclusion of World War II. The Reichsmark, the medium of exchange in Nazi Germany was no longer functional. As far as trade is concerned, it was only operational in the black market which was placed on the peripheries of the official German price control mechanism. Other mediums of exchange such as that of barter prevailed and flourished. This meant that the city dwellers were made to walk into the grey areas of the economy with all sorts of goods on hand and use them as a medium of exchange for other essential commodities like food and food products.
In the post-War era, the allied forces had initially intended to inject the German economy with monetary reforms in the year 1946. But, an agreement that was signed between France, Soviet Union, Great Britain and the United States changed the scene. Essentially the difficulty arose when France, Britain and the United States of America could not entrust the Soviet Union with the task of printing currency. They believed that the Soviets would end up printing extra currency so that they could also impose an inflation tax on the ailing German economy. In the due course, the rift between the western powers and the Soviet Union widened further. A decision was reached which entrusted the task of replacing the Reichsmark with a new currency that is the Deutsche Mark. This event was a closely guarded secret for the longest time under the code name – Operation Bird Dog.
The Western powers on the 20th of June 1948 went on to issue 40 Deutsche Marks in exchange for 40 Reichsmarks to the residents of the Western Zones. Two months down they were further allowed to exchange 20 Reichsmarks and receive 20 Deutsche Marks in return. The exchange rate was fixed at a ratio of 1:10. This meant that for every 10 Reichsmarks an individual would receive 1 Deutsche Mark. Additionally, the debts as well were brought in sync with the above-mentioned configuration. This included bank debts, mortgages, bank loans and policies with respect to insurances. Further adjustments took place within the balance sheets of various businesses along with bank deposits considering the same parameters. This resulted in the deflation of the sheer size of the liabilities, bringing them down to a meagre one-tenth level. German authorities realised that the said changes would require the drafting of new contracts and therefore a decree was made for the same. With respect to the patterns and structures of the Federal Reserve System, a central bank was conceived out of the residual apparatuses of the Reichsbank. The new institution thus came to be known as the Bank of Deutscher Länder or the Bank of German States. The same transformed as the Deutsche Bundesbank in the year 1957. Price control, which had nearly strangulated the German economy, was lifted on the 24th of July 1948. The new currency and systematisation resulted in goods reaching the stores after a very long time period. Enquiries had also resulted in the authorities realising that most of the goods were in mass underground storages.
Now, the political tension of the time cannot be simply ignored. Soviets were almost thumbed into accepting the currency reforms. The reasons for this action were not quite simple. One of the most important causes was that the Allies were determined to prevent the Reichs Marks from flooding the Soviet Zone in the Western zones of the region. The Soviet Union thus distributed the Deutsche Mark East and for quite some time the western Deutsche Mark was in circulation at parity alongside the Deutsche Mark East. By the time July 1948 reached its end, the Deutsche Mark East that was in circulation was devalued to about half the value of the Deutsche Mark. It featured as another factor for the East-West divide.
Charles Kindleberger, a prominent economist of the time believed that the reforms of 1948 were one of the best feats of social engineering of all time.
The evolution of the Deutsche Mark was regarded as pivotal when it came to the larger economy of Europe. During the 1970s West Germany managed to maintain its inflation levels to modest levels. In the very next decade, the 1980s that are, disinflation processes became possible in Europe because of West Germany. Therefore in many ways, the movement of Europe towards a form of economic unity was achieved primarily because of the Deutsche Mark. In the due course, one could see the pivotally blunt position of the Deutsche Mark. Furthermore, when the turbulent period of the 1990s arrived when both the economies of East and West Germany have united the associated value the Deutsche Mark did decrease but in the decades that followed it was able to scale and reach its previous levels. But, in the meantime, it received heavy competition from France in terms of price stability.
The European System of Central Banks on the new year’s day of 1999 brought forth the Euro, the European currency. Indeed the whole of Europe was not a part of this endeavour nevertheless, all the participating countries were made to drop their own currencies.
The adoption of the Deutsche Mark
20th June 1948, 1st July 1990 and the 1st of January 2002 are among the most important dates particularly within the monetary history of Germany. The Deutsche Mark or the German Mark first became the official currency or the sole legal tender of West Germany on the 20th of June 1948. Later on in the year 1990, with the reunification of Germany the status of the Deutsche Mark changed. This time, it was encompassing East Germany as well and thus became the official currency of the whole of the German state. Moving further down in time, towards the end of February 2002 this currency (the Deutsche Mark) had almost totally disappeared because of the state’s adoption of the Euro. The Deutsche Mark and its 53 years’ worth of history were marked by some very important events and it being a symbol of stability in the international domain and economic prosperity of Germany.