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The United States Political Adviser for Germany (Murphy) to the Secretary of State

confidential

1655. Following are developments in negotiations concerning Berlin currency reform:

After negotiations between Soviet finance committee representative and US/UK and French committee representatives undertaken by Berlin city treasurer Magistrat passed resolution quoted below, to which Soviet finance representative made no objection and which was accepted by other Allied representatives. Translation is of resolution [Page 959]extraordinary session city administration (Magistrat) 7 July subject financing public economy Greater Berlin as follows:

  • “1. The entire public economy of the territorial corporation Greater Berlin, including directly operated units and city owned corporations (public enterprises) “will be conducted, as prior to the currency reform, as a unit in a single currency.
  • “2. All public receipts and disbursements will be booked in the currency valid in the Soviet occupation sector (Reichsmark), will be brought to one place, main cashier’s office and Berlin city bank (Stadtkontor) and will be administered according to the budget and economic plans.
  • “3. If Deutschemark sums are received or disbursed in the American, British, and French occupation sectors on the basis of regulations passed by the authorized military governments concerning currency reform, such sums are to be exchanged by an office subject to the military governments in question, in order that the public exchequer will receive and disburse only R-marks. The money required for such exchanges, in particular the D-mark, will be provided by the affected military governments. In exchange one D-mark will be equal to one R-mark.”

In accepting Magistrat resolution, Soviet representative promised release 25 million city funds in Soviet marks, making possible payment city payroll. Funds hitherto withheld allegedly because Magistrate violation Soviet order against recognition any currency except Soviet. Magistrates resolution which was accepted by four powers thus represents compromise whereby Soviets gain recognition Soviet mark as sole mark for Berlin city bookkeeping and western Allies obtain implied acceptance D-mark as supplementary currency in Western sectors, also avoidance of position having forced split in Magistrat and maintaining basis for continued quadripartite negotiation, emphasized as desired in recent communications to Soviets.

Funds released represent about one-quarter monthly city budget and one-half monthly payroll all sectors. Soviet representative promised city treasurer additional 15 million soon.

Subsequent to Soviet oral promise to release funds manager finance department, city Berlin, received following Soviet letter:

“According to instructions of the finance administration of SMA you are prohibited to make following expenditures in Reichsmarks or Rentenmarks with pasted coupons (Soviet marks):

  • “(1) All kinds of occupation costs for American, British, and French occupation powers, including maintenance costs for German personnel, the Black Guards, displaced persons, etc.
  • “(2) All expenditures in connection with American, British, and French occupation powers, among others the maintenance of the Magistrates departments for occupation costs in the western sectors.
  • “(3) Maintenance costs of administrative courts in the British and American sectors (none in French).
  • “(4) Maintenance costs for the German office for notification of deaths to the next of kin of former members of the Deutsche Wehrmacht and the office for registration of war victims.
  • “(5) Maintenance costs of the patent office.
  • “(6) Maintenance costs of the Institute for Physical Chemistry and Electrical Chemistry, the Physical and Technical Reichsanstalt, and the material Pruefungamt. Signed Lt. Colonel Rubanisty.”

Estimated monthly occupation costs personnel payroll approximates 8.5 million. Treasurer now attempting renegotiations with Soviets in Western sectors. Soviet prohibition would appear contradict Soviet assent to paragraph two Magistrat resolution in sense occupation costs always considered portion budget.

US/UK finance advisers agreed 9 July to found German organization to purchase Berlin products for sale Western zones. Purchases either in Soviet or deutschemarks. Proceeds and credit accruing from sales to finance further sales and purchases and reduce indebtedness to zones. Agree also establish revolving fund to finance trade with Western zones through Currency Commission acting as Landeszentralbank for Berlin, granting credit up to 90 percent against commercial papers discounted and credited to account of Bank Deutscher Laender, which furnishes initial deposit with Currency Commission.

In effort establish both Soviet and D-mark credit facilities in West independent of Soviet control and to prevent unwarranted drain on currency to Soviet sector finance advisers agreed recommend all transfers of funds of city bank branches to central banks on other than on Magistrate account be subject prior approval by Western military governments. Right to place liaison officers in central office of city bank (Stadtkontor) to ensure nondiscrimination in bank loans also under consideration. If Soviets object, flow of funds Western sectors to central bank could be blocked.

Murphy