Paris Peace Conf. 184.01102/99

Lieutenant Hugo G. Campagnoli to Professor A. C. Coolidge 47

Subject: Reasons given by the Czecho-Slovaks for their stamping of the bank-notes in Czecho-Slovakia.

Interview with Minister Tusar and Dr. Venicek, Finance Commissioner, representing Czecho-Slovakia at the Austro-Hungarian Bank.

The principal reasons for the stamping of the banknotes by the Czecho-Slovakia Government are, first, to eliminate the new country from the combined bankruptcy of the other states of the former Dual Monarchy; and, second, to protect the industrial and financial system of Czecho-Slovakia. The Dual Monarchy had on October 31, 1918, a debt of 130,000,000,000 kronen. Of this amount 101,000,000,000 were incurred during the war. Therefore, prior to this the country had a debt of about 29,000,000,000 kronen. From statistics we find that over one-half of the wealth of the Dual Monarchy is in debt.

Valuta Frage:

At the beginning of the war there were 2,500,000,000 kronen in circulation, but the circulation has increased tremendously during the four and one half years of the war so that at the beginning of 1918 it amounted to 36,000,000,000. During the last year alone 18,000,000,000 were printed. There are at the present time ten or twelve billion kronen banknotes in Czecho-Slovakia, about 1,200,000,000 in Ukrainia, and about 800,000,000 in Serbia. Poland has a great amount of banknotes, while the foreign countries are supposed to hold approximately 500,000,000 in Austrian banknotes. All of these lump sums were exported to other countries so as to increase the value of the krone. The Czechs opposed greatly the increase of the paper currency, but had no power to stop it although they held one-third of the shares of the stock of the Austro-Hungarian Bank in their hands. They had no representative in the directory [Page 332] of the Austro-Hungarian Bank before and during the war. On October 31, 1918, the Austrian Government had very little money, and the expenses of the demobilization began. Dr. Redlich, then Finance Minister, through the Austro-Hungarian Bank had 2,000,000,000 notes printed, and was supported by the country in general. This amount, however, lasted only until the middle of December, and then again the Government was obliged to look for more funds. They took the measure of selling the army supplies, and other measures of the same type to pay partly the coupons of the other loan and the pensions due. On January 1st, only 100,000,000 kronen were left of that amount, which was supposed to last until the end of January. In December the Austro-Hungarian Bank asked for permission to print further 2,000,000,000 kronen, and to the protests of the Czecho-Slovak Government they gave the reason that the old Parliament had authorized the Austro-Hungarian Bank to print 12,000,000,000 kronen. Redlich had used 10,000,000,000, so that they asked to have the other 2,000,000,000 printed. The Czechs, who since the revolution were represented by a commissioner, gave their veto to increasing further the banknotes. However, this was of no avail, as during the month of December 1,200,000,000 kronen notes were printed, and up to the present time since October 31, 3,000,000,000 new notes were put in circulation. The Magyars as their part of the authorized 12,000,000,000 issue, claimed 34 percent, of it, and were not opposed because of favorable agricultural conditions, and the Ausgleich etc. Austria itself took 66 percent. Hungary, however, left her part largely untouched. Soon after the revolution they demanded their share. The Czecho-Slovaks, the Jugo-Slavs, and the Rumanians put in a veto for their share of these notes because they hold occupied sections and maintained that the present government is not the same as the old. To this the Magyars objected and declared that their government assumes the responsibilities of the old and is entitled to these notes. This means that the present Magyar Government assumes responsibility not only for the debts but for the indemnity which Austria-Hungary is expected to pay. These are some of the reasons which cause the Czechs to fear the financial government, and saw in it positive future bankruptcy. Again, the Government, through the Austro-Hungarian Bank, issued Kassencheine, which were substituted in part for the banknotes, and were to be used mostly by the commercial companies. One quarter billion of these Kassencheine were printed immediately and then increased so that by the 15th of March 1919, combining them with the regular Austro-Hungarian banknotes and the banknotes issued by the private banks, the sum of paper money printed in the old Dual Monarchy would approach the sum of 50,000,000,000 kronen.

[Page 333]

War Bonds:

The bank lombarded the war bonds up to 75 percent, of their real value. The Czechs from the beginning did not want to buy war bonds, in fact they did not trust in them but, against their own will, they were forced to purchase them. Austrian speculators soon began to go to Bohemia and bought their war bonds at the price of from 62 to 66 kronen and returned to Vienna, where they were able to get 75 kronen on a 100 kronen bond as loan, thus making a good profit. In other words, the war bonds were greatly speculated in during the war. The main reason why the Czechs sold the war bonds was, as said above, that they did not trust them and preferred the banknotes, although of very little value. Secondly, the Czechs saw that there was great danger in remaining any longer in a financial combination with German Austria, Hungary, Poland and Ukrainia, and therefore they preferred to withdraw before the general bankruptcy came, which was only a matter of time.

New Valuta:

The Czechs are now ready to export goods, namely sugar, china, etc., and are anxious to have their own currency and as soon as possible be able to balance it to a better value. They see at this time an opportune moment to withdraw from the financial combination and stamp the kronen held by the people in Czecho-Slovakia. The exportation to Switzerland, Italy, etc., would of course raise the value of the krone, and if stamped in time the difference in the exchange would only be to the profit of the Prague Government and not in Vienna or Budapest. The krone value in Zurich at present is around 26 francs, and as we know very well it will go down further, mainly on account of the continued printing of the kronen. But this will only happen in the case of the countries where no stamping has as yet been done. Therefore, to protect their own industrial and financial system, the Czecho-Slovaks intend to stamp their own money. It is expected that the difference between the Jugo-Slavs’ and the Czechs’ stamping will be great. That is, the Czechs appear to be thinking over the matter in a more intelligent and practical manner. The Finance Minister of the Czechs collected the extra floating banknotes, about two billion, as a loan and prepared that amount ready to stamp for circulation. The probable method will be to exchange all the small notes at once, while great amounts will only be paid in half. This is only for the present moment. The people have not paid any taxes for a number of years, quite contrary to the English system where some of the war industries were taxed about 80 percent. The government therefore expects to tax the war made rich when they come to have their notes stamped. By changing the notes the Finance Minister will be able to determine who holds the money of the land and tax accordingly. Of course, many [Page 334] wealthy people will escape their full quota of taxes because during the war they bought jewels and real property to a large extent and believed that it would not be taxable. The present circulation of banknotes is, as I have already said, from ten to twelve billions, but it is predicted that circulation will be made smaller. However, this will have to be done in a careful manner, as there may be an unhealthy shrinkage which may cause a crisis. The best way out would be to issue rentes or government bonds for the remainder not paid out. Dr. Preiss, in Paris, dealt with the Dutch, the Americans and the French and is reported to have obtained a gold loan, so that Dr. Rasin when informed of it went ahead and had the arrangements made for the stamping of the notes. It is believed that probably at a later date the exchange of the Czech currency will rise to the equivalent of the French franc and that the new franc value will replace the old stamped kronen.

H. G. Campagnoli
  1. Transmitted to the Commission by Professor Coolidge under covering letter No. 88, February 17; received February 24.