Foreign Relations of the United States, 1948, Germany and Austria, Volume II

Department of Defense Files: Telegram

The Department of the Army to the United States Military Governor for Germany (Clay), at Berlin

top secret
priority

Washington, April 28, 1948.

Warx 80633. From CSCAD cite Econ. Personal for Clay.

State, Treasury and Army have considered subj of currency for Berlin Western Sectors and to assist in your resolution of this problem there are described below some alternative procedures, each in relation to specified situation, for your consideration and comment. This is in no sense directive or final pos but intended to develop exchange of views and acceptable solution.

1. It would be most desirable to maintain uniform currency for Berlin which would circulate freely in all sectors. Unless Soviets carry out conversion in their zone, this objective can most easily be accomplished by continuing use of RM as common currency for Berlin, without regard to conversion policy followed in Western Zones.

2. If conversion of RM takes place in Soviet zone, it is probable that “Sov mark” (our designation for new Soviet currency) will circulate alongside RM in Berlin, and may in fact substantially displace RM in Berlin. This most likely to occur if Soviet convert in their sector Berlin.

3. To avoid possibility of Sov mark becoming de facto Berlin currency through default, and to avoid emergence of dual currency in Berlin through similar default, it would be desirable at time of projected Soviet conversion, to reach immediate agreement with Soviets on uniform currency for Berlin, and on conditions under which that currency will be made avail to all sectors. Possible course would be to reach agreements on sp Berlin mark subj to quadripartite control, since this would safeguard prestige and sovereignty considerations and enable us to exercise some control over circulation and availability of new mark.

4. It is considered here that, failing agreement with Soviets for use of sp currency for Berlin, agreement to use Sov mark would not be acceptable even on condition that provision were made for financing of our occupation costs, nor on condition that adequate currency sups and banking facilities would be made avail in Western Sectors. Agreement to use Sov mark would not appear acceptable politically because currency issuance is sovereign power and it would be necessary to define accordingly area of circulation of currency as legal tender. If Soviets should suggest use of Soviet currency in Western Sectors, it should be made clear that we do not agree thereto and that we stand ready to introduce sp currency for Western Sector of Berlin if acceptable agreement cannot be reached with Soviets on uniform currency for all of Berlin as mentioned in Para 3 above.

5. Should it prove impossible to reach acceptable agreement with Soviets on use of uniform currency for all of Berlin, recommendation is that perforated DM be used in Western Sectors of Berlin. Perforated DM could be quickly introduced simultaneously or following Soviet conversion and these DM could be readily differentiated from DM used in Western Zones. This would permit invalidation of DMs issued in Berlin should it become necessary. Realize difficulty of having two currencies in one city but this may be unavoidable.

6. If decision is made to introduce perforated DM in Western Sectors of Berlin, presumably on conversion terms similar or identical to those in Western Zones, issuance of perforated DMs in exchange for Sov marks presented for such exchange should not be officially undertaken in Western Sectors. Conversely, however, consideration should be given to devising means whereby German officials could make provision for outpmt [exchange?] of Sov marks on hand for perforated DMs presented for such exchange in Western Sectors. Further, Western Sectors should unofficially permit free circulation of both perforated DM and Sov marks irrespective of action taken by Soviets in their sector to control circulation of perforated DMs. Permission for Sov marks to circulate in Western Sector would, consistent with pos stated in 4 above, be extended unilaterally. This would be done in interest and for convenience of population of Western Sector. There is some danger that free circulation of Sov marks in Western Sectors would have inflationary effect, but it is believed that desirability of maintaining industrial and commercial unity in Berlin would override this consideration unless inflation becomes severe.