862.515/6–448

Memorandum by the Assistant Secretary of State for occupied Areas ( Saltzman ) to the Under Secretary of State ( Lovett )

top secret

Subject: Financial Reform, Western Germany

For your information, General Clay, in a Top Secret cable of June 2 to the Under Secretary of the Army, states that the first step had been taken on June 2 in a program which will lead up to financial reform on June 20. Between now and the date of reform, the various commands, the rationing offices and the banks are to be briefed, and bank notes transported to necessary destinations in the three zones.1

The reform is to be divided into two stages. The first stage will be published on June 19 for implementation on June 20. This stage involves the surrender of old currency notes and the distribution of new notes on a per capita basis to the population. The second stage will be published on June 26 for implementation on June 27. In this stage the percentage conversion of old money holdings will take place and provision will be made for treatment of the private debt and other measures of reform. General Clay has especially warned of the secrecy of the second step as well as of the first in order to avoid premature publicity. He states that the three Military Governors have agreed to inform the Soviet Military Government by letter on June 18 of the reform to take place on June 20.2

Following is a summary of the principal features of the prospective currency reform:

a.
The general ratio of conversion of old money is 10% to be converted, 10% blocked and 80% canceled. Special provision will be made for a one-to-one conversion of 60 or 80 marks per physical person and per employee, as the case may be.
b.
Private debt is to be treated at the same ratio as in a. above. Foreign Reichsmark creditors are to be given the choice of accepting a similar reduction or of awaiting settlement by peace treaty. Foreign exchange debts are to remain unresolved pending the conclusion of a peace treaty.
c.
No redemption of or interest on the Reich debt to be provided for at this time. Appropriate blocking measures to be taken pending the determination of the fate of Reich obligations. Disposition of foreign holdings to be left to peace treaty.
d.
The capital structure of financial institutions is to be adjusted to reflect new conditions under the policies of the Bank Deutscher Laender and the supervision of the Land Central Banks.
e.
Laws required in connection with the first step of the currency reform on June 20 are now being drafted by German technicians, subject to Military Government approval. Legislation is also to be enacted by the German Economic Council, within 90 days after the initiation of reform, in order to provide for capital increment and equalization taxes; also for an equalization fund with the revenue of such taxation in order that the currency reform may be as equitable as possible. The German Economic Council is also to consider measures relative to compensation for loss of external assets and loss resulting from reparation deliveries.
f.
General Clay is taking the necessary steps relative to the conversion of military holdings of marks and to funds for encashment of prisoner of war certificates and military payment orders.

The Military Governors are continuing to consider any points of reform not yet resolved and attention is being given by a State–Treasury–Army group to any further messages to go forward to General Clay in connection with the above subject.

Charles E. Saltzman
  1. In the message summarized here, General Clay also reported that the process of currency conversion could not be stopped without great embarrassment and loss of prestige (Department of Defense Files).
  2. In his message CC–4602, June 8, from Berlin, not printed, General Clay explained that it had been decided to notify Soviet authorities on June 18 of the currency reform because this was the shortest reasonable time to inform them of the serious consequences of the measure (Department of Defense Files).