Foreign Relations of the United States, 1946, The British Commonwealth, Western and Central Europe, Volume V

SWNCC 267 Series: Telegram

The Director of the Office of Military Government of the United States for Germany (Clay) to the Joint Chiefs of Staff

secret
priority

Berlin, 2 November 1946.

CC 6672. Reurad WX 93543.

1. Receipt acknowledged of your instructions to propose for quadripartite approval establishment of a commercial rate of exchange for specific purposes at $.10 equal 1 mark.

2. While we realize that your instructions closely restrict purposes to which commercial rate is to be applied, and while in all other cases world market prices are to remain governing, we find ourselves compelled to raise objections to the establishment of a commercial rate at this level for any purpose.

3. Your instructions constitute directive to sell certain German exports at price far below world prices and equally far below the price at which they could be sold. With reference to your instructions to us to price transit freight services on the basis of present mark tariffs multiplied by $.10, we call your attention to the fact that the Czechoslovakian Government, who are one of the principal buyers of these services, in an aide-mémoire dated 15 May,⁹⁰ prepared for presentation to the Allied Control Council and the four occupying powers, have proposed pricing these services on the basis of approximately $.20 equal 1 mark. We understand that contents of this aide-mémoire were transmitted to State Department in note of 16 May referred to urad June W 92781.⁹⁰

4. We are, however, less concerned with the question of possible monetary loss than with the harmful effect of proposed action on long range military government objectives.

5. Our primary objection to your instructions is that conformity to these instructions will, in our opinion, seriously prejudice if not make impossible the ultimate establishment of rate of exchange for the mark at any higher than $.10 equal 1 mark.

6. We offer for your most serious consideration our conviction that action at this time which seriously prejudices, if it does not render impossible, the fixing of the ultimate rate for the mark at any level higher than $.10 is action inimical to what we understand to be basic US political objectives in Germany for the following reasons:

a. That economic class in Germany on which we most depend for the accomplishment of our objectives of bringing into existence a peaceful and democratic Germany is that class of small fixed income receivers and small savers who tend to be law abiding and who will suffer the most, comparatively, from any disorderly rise in legal prices.

b. An ultimate rate for the mark of not higher than $.10 will mean, even without any further rise in world prices expressed in dollars, an ultimate price level in Germany approximately three times present legal prices.

c. Hence when action is taken now which makes it almost a certainty that the ultimate rate for the mark will be not higher than $.10, and which thereby makes it equally almost a certainty that ultimate legal prices will have to be at least three times higher than they are today, price control of an orderly movement of legal prices to such level, under conditions as they exist in Germany today, is rendered in practice impossible.

7. We therefore reiterate our previously expressed opinion that:

a. The use of $.10 rate should not be extended beyond the strictly military purpose for which it was created, and

b. An interim commercial rate presently established should be no less than $.30 equal 1 mark.

8. We invite your attention to the nature of the relationship between a present interim rate and the general problem of currency reform as covered by our cable CC 5635.⁹²

9. The plan contained in CC 5635 is predicated on the present existence of Germany’s present internal price structure and the possibility of maintaining that internal price structure through the proposed currency reform with a general rise, through upward adjustment of separate items of no more than, say 20%, which would make precisely appropriate a change from an interim rate of $.30 to the proposed rate of $.25.

10. It is in view of the circumstances enumerated above that we feel compelled to recommend that we be permitted to propose for quadripartite approval the establishment of an interim rate, for certain specific and closely restricted uses, of $.30 equal 1 mark.

11. If you cannot agree to an interim commercial rate of $.30 co-existently with the present military rate of $.10, we then recommend that you discuss with the governments of other occupying powers or authorize us to discuss quadripartitely here the readjustment of the troop pay rate to the rate of $.30 equal 1 mark.

12. USFET has given specific concurrence to paras 10 and 11 above.

13. We would propose that purchases by US Occupying Forces from the German economy through post exchanges or similar Army installations would have no direct relation to the rate of exchange since such goods would be priced in US dollars on the basis of US or world prices less intervening charges such as transportation costs, customs duties et cetera, which would not arise through a sale of the merchandise abroad.

[For documentation relating to discussions on Germany at the Third Session of the Council of Foreign Ministers in New York, November 4–December 12, see volume II.]

90. Not printed.
90. Not printed.
92. Dated May 23, p. 556.