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SUBJECT FILE EUGENE MEYER F&uyML f e s £<et/ £Sc a r s /?f PARATfOA/s— f>R/h//£b MA 7 7 £A / ? 2 V '3 C > May 8th* 6th Revise. (Text as handed Germans) SECRET PART VIII. REPARATION. SECTION I. General Provisions. 231. THE Allied and Associated Governments affirm and Germany accepts the responsibility of Germany and her Allies for causing all the loss and damage to which the Allied and Associated Governments and their nationals have been subjected as a con sequence of the war imposed upon them by the aggression of Germany and her Allies. 232. The Allied and Associated Governments recognize that the resources of Germany are not adequate, after taking into account permanent diminutions of such resources which will result from other provisions of the present Treaty, to make com plete reparation for all such loss and damage. The Allied and Associated Governments, however, require, and Germany under takes that sEe will make compensation for all damage done to the civilian population of the Allied and Associated Powers and to their property during the period of the belligerency of each as an Allied and Associated Power against Germany by such aggression by land, by sea and from the air, and in general all damage as defined in Annex hereto. In accordance with Germany’s pledges, already given, as to complete restoration for Belgium, Germany undertakes, in ad dition to the compensation for damage elsewhere in this Chapter provided for, as a consequence of the violation of the Treaty of 1839, to make reimbursement of all sums which Belgium has bor rowed from the Allied and Associated Governments up to Nov ember 11, 1918, together with interest at the rate of five (5) per cent, per annum on such sums. This amount shall be determined by the Reparation Commission and the German Government undertakes thereupon forthwith to make a special issue of bearer bonds, payable in marks gold, on May 1, 1926, or at the option of the German Government, on the 1st of May in any year up to 1926. Subject to the foregoing, the form of such bonds shall be determined by the Reparation Commission. Such bonds shall be handed over to the Reparation Commission, which has authority to take and acknowledge receipt thereof on behalf of Belgium. 233. The amount of such damage for which compensation is to be made by Germany shall be determined by an Inter-Allied Commission, to be called the Reparation Commission and con stituted in the form and with the powers set forth hereunder and in Annexes 2 to 6 inclusive hereto. This Commission shall consider the claims and give to the German Government a just opportunity to be heard. The findings of the Commission as to the amount of damage defined as above shall be concluded and notified to the German Government on or before the 1st May, 1921, as representing the extent of that governments obligations. The Commission shall concurrently draw up a schedule of pay ments prescribing the time and manner for securing and dis charging the entire obligation within a period of thirty years 1 from tlie 1st May, 1921. If, however, within the period men tioned, Germany fails to discharge her obligations, any balance remaining unpaid may, within the discretion of the Commission, be postponed for settlement in subsequent years; or may be handled otherwise in such manner as the Allied and Associated Governments, acting in accordance with the procedure laid down in this part of the present Treaty, shall determine. 234. The Reparation Committee shall after the 1st May, 1921, from time to time, consider the resources and capacity of Germany and after giving her representatives a just opportunity to be heard, shall have discretion to extend the date, and to modify the form of payments, such as are to be provided for in accord ance with Article 233; but not to cancel any part, except with the specific authority of the several Governments represented upon the Commission. 235. In order to enable the Allied and Associated Powers to proceed at once to the restoration of their industrial and eco nomic life, pending the full determination of their claims, Ger many shall pay in such instalments and in such manner (whether in gold, commodities, ships, securities or otherwise) as the Repa ration Commission may fix, during 1919, 1920, and the first four • months of 1921, the equivalent of 20,000,000,000 gold marks. Out of this sum the expenses of the armies of occupation sub sequent to the armistice of the 11th November, 1918, shall first be met,and such supplies of food and raw materials as may be judged by the Governments of the Principal Allied and Associated Powers to be essential to enable Germany to meet her obligations for reparation may also, with the approval of the said Govern ments, be paid for out of the above sum. The balance shall be reckoned towards liquidation of the amounts due for reparation. Germany shall further deposit bonds as prescribed in Para graph 12 (c) of Annex II. 236. Germany further agrees to the direct application of her economic resources to reparation as specified in Annexes III, IV, V and VI, relating respectively to merchant shipping, to physical restoration and to coal and derivitives of coal and to dyestuffs and other chemical products; provided always that the value of the property transferred and any services rendered by her under these Annexes, assessed in the manner therein prescribed, shall be credited to her towards liquidation of her obligations under the above articles. 237. The successive instalments, including the above sum paid over by Germany in satisfaction of the above claims, will be divided by the Allied and Associated Governments in proportions which have been determined upon by them in advance on a basis of general equity and of the rights of each. For the purposes of this division the value of property trans ferred and services rendered under Article 243, and under An nexes III, IV, V and VI, shall be reckoned in the same manner as cash payments effected in that year. 238. In addition to the payments mentioned above Germany shall effect, in accordance with the procedure laid down by the Reparation Commission, restitution in cash of cash taken away, seized or sequestrated, and also restitution of animals, objects of every nature and securities taken away, seized or sequestrated, in 2 the cases in which it proves possible to identify them in the ter ritory belonging to Germany or her Allies. Until this procedure is laid down, restitution will continue in accordance with the provisions of the Armistice of the 11th Nov ember. 1918, and its Renewals and the Protocols thereto. 239. Germany undertakes to make forthwith the restitution contemplated by Article 238 and to make the payments and de liveries contemplated by Articles 233, 234, 235 and 236. 240. Germany recognizes the Commission provided for by Article 233 as the same may be constituted by the Allied and Asso ciated Governments in accordance with Annex II. and agrees ir revocably to the possession and exercise by such Commission of the power and authority given to it under the present Treaty. The German Government will supply to the Commission all the information which the Commission may require relative to the financial situation and operations and to the property, produc tive capacity, and stocks and current production of raw materials and manufactured articles of Germany and her nationals, and further any information relative to military operations which, in the judgment of the Commission may be necessary for the assessment of Germany’s liability for reparation as defined in Annex I. The German Government will accord to the members of the Commission and its authorized agents the same rights and immunities as are enjoyed in Germany by duly accredited diplomatic agents of friendly Powers. Germany further agrees to provide for the salaries and ex penses of the Commission and of such staff as it may employ; 241. Germany undertakes to pass, issue, and maintain in force any legislation, orders, and decrees that may be necessary to give complete effect to these provisions. 242. The provisions of this part of the present Treaty do not apply to the property, rights and interests referred to in Sections 3 and 4 of Part X (Economic Clauses) of the present Treaty except so far as concerns any final balance in favor of Germany under Article 243 (a). 243. The following shall 'be reckoned as credits to Germany in respect of her reparation obligations: (a) Any final balance in favor of Germany under Sec tions 3 and 4 of Part X (Economic Clauses) and Section V (Alsace-Lorraine) and of Part III (Political Clauses for Europe). (b) Amounts due to Germany in respect of transfers under Part IX (Financial Clauses), Part XII (Ports, Water-ways and Railways), and Section IV (Saar Basin) of Part III (Political Clauses in Europe). (c) Amounts which in the judgment of the Reparation Commission, should be credited to Germany on account of any other transfers under the present Treaty of property, rights, concessions or other interests. In no case, however, shall credit be given for property re stored in accordance with Article 238. 244. The transfer of the German submarine cables which do not form the subject or particular provisions of the present Treaty is regulated by Annex VTT hereto. 3 ANNEX I. Compensation may be claimed from Germany under Article 232 above in respect of tlie total damage, under the followingcategories. 1. Damage to injured persons and to surviving- dependents by personal injury to or death of civilians caused by acts of war, including bombardments or other attacks on land, on sea, or from the air, and all the direct consequences thereof, and of all opera tions of war by the two groups of belligerents wherever arising. 2. Damage caused by Germany or her Allies to civilian vic tims of acts of cruelty, violence or maltreatment (including in juries to life or health as a consequence of imprisonment, depor tation, internment or evacuation, of exposure at sea or of being forced to labor by Germany or her Allies), wherever arising and to the dependents of such victims. 3. Damage caused by Germany or her Allies in their own territory or in occupied or invaded territory to civilian victims of all acts injurious to health or capacity to work, or to honor, as well as to the surviving dependents of such victims. 4. Damage caused by any kind of maltreatment of pris oners of war. 5. As damage caused to the peoples of the Allied and Asso ciated Powers, all pensions and compensations in the nature ofpensions to naval and military victims of war (including members of the air forces) whether mutilated, wounded, sick or invalided, and to the dependents of such victims, the amount due to the Allied and Associated Governments being calculated for each of them as being the capitalized cost of such pensions and com pensations at the date of the coining into force of the present Treaty, on the basis of the scales in force in France at such date. 6 . The cost of assistance by the Governments of the Allied and Associated Powers to prisoners of war and to their families and dependents. 7. Allowances by the Governments of the Allied and Asso ciated Powers to the families and dependents of mobilized per sons or persons serving with the forces, the amount due to them for each calendar year in which hostilities occurred being ealeu lated for each government on the basis of the average scale for such payments in force in France during that year. 8 . Damage caused to civilians by being forced by Germany or her Allies to labor without just remuneration. 9. Damage in respect of all property wherever situated be longing to any of the Allied or Associated States or their na tionals, with the exception of naval and military works or ma terials, which has been carried off, seized, injured or destroyed by the acts of Germany or her Allies on land, on sea or from the air, or damaged directly in consequence of hostilities or of any operation of the war. 10. Damage in the form of levies, fines and other similar exactions imposed by Germany or her Allies upon the civilian population. 4 ANNEX II. 1. The Commission referred to in Article 233 shall be called “ The Reparation Commission ” and is hereinafter referred to as ‘the Commission/’ 2. Delegates to this Commission shall be nominated by the United States of America, Great Britain, France, Italy, Japan, Belgium and Serbia. Each of these Powers will appoint one Delegate and also one Assistant Delegate, who will take his place in case of illness or necessary absence, hut at other times will only have the right to be present at proceedings without taking any part therein. On no occasion shall the Delegates of more than five of the above Powers have the right to take part in the proceedings of the Commission and to record their votes. The Delegates of the United States, Great Britain. France and Italy shall have this right on all occasions. The Delegate of Belgium shall have this right on all occasions other than those referred to below. The Delegate of -Japan shall have this right on occa sions when questions relating to damage at sea and questions arising under Article 260 of Part IX (Financial Clauses), in which Japanese interests are concerned, are under considera tion. The Delegate of Serbia shall have this right when ques tions relating to Austria, Hungary or Bulgaria are under con sideration. 3. Such of the other Allied and Associated Powers as may be interested shall have the right to appoint a delegate to be present and act as Assessor only while their respective claims and interests are under examination or discussion, but without the right to vote. 4. In case of the death, resignation or recall of any Dele gate, Assistant Delegate or Assessor, a successor to him shall be nominated as soon as possible. 5. The Commission will have its principal permanent Bureau in Paris and will hold its first meeting in Paris as soon as practicable after the coming into force of the present Treaty, and thereafter will meet in such place or places and at such times as it may deem convenient and as may be necessary for the most expeditious discharge of its duties. 6 . At its first meeting the Commission shall elect from among the Delegates referred to above, a Chairman and a Vice Chairman, who shall hold office for one year and shall be eligible for re-election. If a vacancy in the Chairmanship or Vice-Chair manship should occur during the annual period, the Commission shall proceed to a new election for the remainder of the said period. 7. The Commission is authorized to appoint all necessary officers, agents and employees who may be required for the exe cution of its functions, and to fix their remuneration; to consti tute committees, whose members need not necessarily be mem bers of the Commission, and to take all executive steps neces sary for the purpose of discharging its duties; and to delegate authority and discretion to officers, agents and committees. 8. All proceedings of the Commission shall be private, un less, on particular occasions, the Commission shall otherwise determine for special reasons. 9. The Commission shall be required, to hear, if the Ger man Government so desire, within a period which it will fix from time to time, evidence and arguments on the part of Germany on any question connected with her capacity to pay. 1 0 . The Commission shall consider the claims and give to the German Government a just opportunity to be heard, but not to take any part whatever in the decisions of the Commission. The Commission shall afford a similar opportunity to the Allies of Germany, when it shall consider that their interests are in question. 11. The Commission shall not be bound by any particular code or rules of law or by any particular rule of evidenc or of procedure, but shall be guided by justice, equity and good faith. Its decisions must follow the same principles and rules in all cases where they are applicable. It will establish rules relating to methods of proof of claims. It may act on any trustworthy modes of computation. 1 2 . The Commission shall have all the powers conferred up on it, and shall exercise all the functions assigned to it by the present Treaty. It shall in general have wide latitude as to its control and handling of the whole reparation problem as dealt with in this part of the present Treaty and shall have authority to interpret its provisions. Subject to the provisions of the present Treaty, the Commission is constituted by the several Allied and Associated Governments referred fto] in paragraphs 2 and 3 above, as the exclusive agency of the said Governments respectively for receiving, selling, holding, and distributing the reparation payments to be made by Germany under this Part of the present Treaty. The Commission must comply with the fedlowing conditions and provisions:— (a ) Whatever part of the full amount of the proved claims is not paid in gold, or in ships, securities, and commod ities or otherwise, Germany shall be required, under such con ditions as the Commission may determine, to cover by way of guarantee by an equivalent issue of bonds, obligations or other wise. in order to constitute an acknowledgment of the said part of the debt; (b.) In periodically estimating Germany’s capacity to pay, the Commission shall examine the German system of taxa tion, first to the end that the sums for reparation which Ger many is required to pay shall become a charge upon all her revenues prior to that for the service or discharge of any domestic loan, and secondly, so as to satisfy itself that, in gen eral, the German scheme of taxation is fully as heavy propor tionately as that of any. of the Powers represented on the Com mission. ( c . ) In order to facilitate and continue the immediate re storation of the economic life of the Allied and Associated coun tries, the Commission will as provided in Article 235 take from Germany by way of security for and acknowledg ment of her debt a first instalment of gold bearer bonds free of all taxes or charges of every description established or to be 6 established by the Government of the German Empire or of the German States, or by any authority subject to them; these bonds will be delivered on account and in three portions, the mark gold being payable in conformity with Article 202 of Part IX (Financial Clauses) of the present Treaty as follows: 1. To be issued forthwith, 20,000,000,000 marks gold bearer bonds, payable not later than the 1st May, 1921, without interest. There shall be specially applied towards the amorti zation of these bonds the payments which Germany is pledged to make in conformity with Article 235 after deduction of the sums used for the reimbursement of expenses of the armies of occupation and for payment of foodstuffs and raw materials. Such bonds as have not been redeemed by the 1st May, 1921, shall then be exchanged for new bonds of the same type as those provided for below. (Paragraph 12 (c) 2.) 2 . To be issued forthwith, further 40.000,000,000 marks gold bearer bonds, bearing interest at 2i/2 per cent, per annum between 1921 and 1926, and thereafter at 5 per cent, per annum with an additional 1 per cent, for amortization beginning in 1926 on the whole amount of the issue. 3. To be delivered forthwith a covering undertaking in writing to issue when, but not until, the Commission is satis fied that Germany can meet such interest and sinking fund obligations, a further instalment of 40,000,000,000 M. gold 5 per cent, bearer bonds, the time and mode of payment of principle and interest to be determined by the Commission. The dates for payment of interest, the manner of applying the amortization fund, and all other questions relating to the issue, management, and regulation of the bond issue shall be determined by the Commission from time to time. Further issues by way of acknowledgment and security may be required as the Commission subsequently determines from time to time. ’ • (d .) In the event of bonds, obligations, or other evidence of indebtedness issued by Germany by way of security for or acknowledgment of her reparation debt, being disposed of out right, not by way of pledge, to persons other than the several Governments in whose favor Germany’s original reparation in debted] less was created, an amount of such reparation indebted ness shall be deemed to be extinguished corresponding to the nominal value of the bonds, etc., so disposed of outright, and the obligation of Germany in respect to bonds, shall be confined to her liabilities to the holders of the bonds, as expressed upon their face. ( e .) The damage for repairing, reconstructing and rebuild ing property in the invaded and devastated districts, including reinstallation of furniture, machinery and other equipment, will be calculated according to the cost at the dates when the work is done. (/'.) Decisions of the Commission relating to the total or partial cancellation of the capital or interest of any verified debt of Germany must be accompanied by a statement of its reasons. 13. As to voting, the Commission will observe the followingrules : 7 When a decision of the Commission is taken, the votes of ail the Delegates entitled to vote, or in the absence of any of them, of their Assistant Delegates, shall be recorded. Absten tion from voting is to be treated as a vote against the pro posal under discussion. Assessors have no vote. On the following questions unanimity is necessary: (a.) Questions involving the sovereignty of any of the Allied and Associated Powers, or the cancellation of the whole or any part of the debt or obligations of Germany. (b •) Questions of determining the amount and conditions of bonds or other obligations to be issued by the German Gov ernment and of fixing the time and manner for selling, nego tiating or distributing such bonds. (c*.) Any postponement, total or partial, beyond the end of 1930, of the payment of instalments falling due between the 1 st May, 1921, and the end of 1926 inclusive. ( d ) Any postponement, total or partial, of any instal ment falling due after 1926 for a period exceeding three years. ( e .) Questions of applying in any particular case a method of measuring damages different from that which has been previously applied in a similar case. (/.) Questions of the interpretation of the provisions of this part of the present Treaty. All other questions shall be decided by the vote of a majority. In case of any difference of opinion among the Delegates, which cannot be solved by reference to their Governments, upon the question whether a given case is one which requires a unanimous vote for its decision or not, such difference shall be referred to the immediate arbitration of some impartial person to be agreed upon by their Governments, whose award the Allied and Associated Governments agree to accept. 14. Decisions of the Commission, in accordance with the powers conferred upon it, shall forthwith become binding and may be put into immediate execution without further proceed ings. 15. The Commission will issue to each of the interested Powers, in such form as the Commission will fix:— 1. A certificate stating that it holds for the account of the said Power bonds of the issues mentioned above, the said certificate, on the demand of the Power concerned, being divisible in a number of parts not exceeding five; 2 . Prom time to time certificates stating the goods de livered by Germany on account of her reparation debt which the Commission holds for the account of the said Power. The said certificates shall be registered, and upon notice to the Commission, may be transferred by indorsement. A\ hen bonds are issued for sale or negotiation, and when goods are delivered by the Commission, certificates to an equi valent value must be withdrawn. 16. Interest shall be debited to Germany as from 1 st May, 1921, in respect of her debt as determined by the Commission, after allowing for sums already covered by cash payments or their equivalent, [or] by bonds issued to the Commission or covered under Article 243. The rate of interest shall be 5 per 8 cent, unless the Commission shall determine at some future time that circumstances justify a variation of this rate. The Commission, in fixing on 1st May, 1921, the total amount of the debt of Germany, may take account of interest due on sums arising out of the reparation of material damage as from 1 1 th November, 1918, up to 1st May, 1921. 17. In case of default by Germany in the performance of any obligation under this par tof the present Treaty, the Com mission will forthwith give notice of such default to each of the interested Powers and may make such recommendations as to the action to be taken in consequence of such default as it may think necessary. 18. The measures which the Allied and Associated Powers shall have the right to take, in case of volutnary default by Ger many, and which Germany agrees not to regard as acts of war, may include economic and financial prohibitions and reprisals and in general such other measures as the respective Govern ments may determine to be necessary in the circumstances. 19. Payments required to be made in gold or its equiva lent on account of the proved claims of the Allied and Asso ciated Powers may at any time be accepted by the Commission in the form of chattels, properties, commodities, businesses, rights, concessions, within or without German territory, ships, bonds, shares, or securities of any kind, or currencies of Ger many or other States, the value of such substitutes for gold being fixed at a fair and just amount by the Commission itself. 2 0 . The Commission, in fixing or accepting payment in specified property or rights, shall have due regard for any legal or equitable interests of the Allied and Associated Powers or of neutral Powers or of their nationals therein. 21. No member of the Commission shall be responsible;, ex cept to the Government appointing him, for any action or omis sion as such member. No one of the Allied or Associated Gov ernments assumes any responsibility in respect of any other Government. 2 2 . Subject to the provisions of the present Treaty this An nex may be amended by the unanimous decision of the Govern ments represented from time to time upon the Commission. 23. When all the amounts due from Germany and her Al lies under the present Treaty or the decisions of the Commisison have been discharged and all sums received, or their equivalents, shall have been distributed to the Powers interested, the Com mission shall be dissolved. ANNEX III. 1 . German}" recognizes tlie right of the Allied and As sociated Powers to the replacement, ton for ton (gross tonnage) and class for class, of all merchant ships and fishing boats lost or damaged owing to the war. Nevertheless, and in spite of the fact that the tonnage of German shipping at present in existence is much less than that lost by the Allied and Associated Powers in consequence of the German aggresion, the right thus recognized will be en forced on German ships and boats under the following con ditions : The German Government on behalf of themselves and so as to bind all other persons interested, cede to the Allied and Associated Governments the property in all the German mer chant ships which are of 1,600 tons gross and upwards; in onehalf, reckoned in tonnage, of the ships which are between 1,000 tons and 1,600 tons gross; in one-quarter, reckoned in tonnage, of the steam trawlers; and in one-quarter, reckoned in tonnage, of the other fishing boats. 2. The German Government will, within two months of the coming into force of the present Treaty, deliver to the Re paration Commission all the ships and boats mentioned in paragraph 1 . 3 . The ships and boats mentioned in paragraph 1 include all ships and boats which (a) fly, or may be entitled to fly, the German merchant flag; or ( b ) are owned by any German national, company or corporation or by any company or cor poration belonging to a country other than an Allied and Asso ciated country and under control or direction of German na tionals; or ( c ) which are now under construction (1) in Ger many, (2) in other than Allied and Associated countries for the account of any German national, company, or corporation. 4. For the purpose of providing documents of title for the ships and boats to be handed over as above mentioned, the German Government will: ( a . ) Deliver to the Reparation Commission in respect of each vessel a bill of sale or other document of title evidencing the transfer to the Commission of the entire property in the vessel, free from all encumbrances, charges and liens of all kinds, as the Commission may require; (b .) Take all measures that may be indicated by the Re paration Commission for ensuring that the ships themselves shall be placed at its disposal. 5 . As an additional part of reparation, Germany agrees to cause merchant ships to be built in German yards for the account of the Allied and Associated Governments as follows:— (a.) Within three months of the coming into force of the present Treaty, the Reparation Commission will notify to the German Government the amount of tonnage to be laid down in German shipyards in each of the two years next succeeding the three months mentioned above; ( b . ) Within twenty-four months of the coming into force of the present Treaty, the Reparation Commission will notify to the German Government the amount of tonnage to be laid 10 down in each of the three years following the two years men tioned above; ( c . ) The amount of tonnage to be laid down in each year shall not exceed 200,000 tons, gross tonnage. ( c l.) The specifications of the ships to be built, the condi tions under which they are to be built and delivered, the price per ton at which they are to be accounted for by the Repara tion Commission, and all other questions relating to the account ing, ordering, building and delivery of the ships, shall be deter mined by the Commission. 6 . Germany undertakes to restore in kind and in normal condition of upkeep to the Allied and Associated Powers, with in two months of the coming into force of the present Treaty, in accordance with procedure to be laid down by the Repara tion Commission, any boats and other movable appliances be longing to inland navigation which since the 1st August, 1914, have by any means whatever come into her possession or into the possession of her nationals, and which can be identified. With a view to making good the loss in inland navigation tonnage, from whatever cause arising, which has been incurred during the war by the Allied and Associated Powers, and which cannot be made good by means of the restitution pre scribed above, Germany agrees to cede to the Reparation Com mission a portion of the German river fleet up to the amount of the loss mentioned above, provided that such cession shall not exceed 20 per cent, of the river fleet as it existed on the 1 1 th November, 1918. The conditions of this cession shall be settled by the Arbitrators referred to in Article 339 of Part XII (Ports, Water-ways and Railways) who are charged with the settle ment of difficulties relating to the apportionment of river ton nage resulting from the new international regime applicable to certain river systems or from the territorial changes affect ing those systems. . 7. Germany agrees to take any measures that may be indictated to her by the Reparation Commission for obtaining the full title to the property in all ships which have during the war been transferred, or are in process of transfer, to neu tral flags, without the consent of the Allied and Associated Governments. 8 . Germany waives all claims of any description against the Allied and Associated Governments and their nationals in respect of the detention, employment, loss or damage of any German ships or boats, exception being made of payments due in respect of the employment of ships in conformity with the Armistice Agreement of the 13th January, 1919, and subsequent Agreements. The handing over of ships of the German Mer cantile Marine must be continued without interruption in ac cordance with the said agreement. 9. Germany waives all claims to vessels or cargoes sunk by or in consequence of naval action and subsequently salved, in which any of the Allied or Associated Governments or their nationals may have any interest either as owners, charterers, insurers or otherwise, notwithstanding any decree of condem nation which may have been made by a Prize Court of Germany or of her Allies. 11 ANNEX IV. 1. the AUied and Associated Powers require, and Gerliiany undertakes, that in part satisfaction of her obligations ex pressed in this part of the present Treaty she will, as hereinafter provided, devote her economic resources directly to the physical restoration of the invaded areas of the Allied and Associated I oa\ ers, to the extent that these Powers may determine. 1. I lie Governments of the Allied and Associated Govern ments may file with the Reparation Commission lists showing : ( a . ) Animals, machinery, equipment, tools and like ar ticles of a commercial character, which have been seized, con sumed or destroyed by Germany or destroyed in direct con sequence of military operations, and which such Govern ments, for the purpose of meeting immediate and urgent needs, desiie to have replaced by animals and articles of the same nature which are in being in German territory at the date of the coming into force of the present Treaty; (/>.) Reconstruction materials (stones, bricks, refractory bricks, tiles, wood, window-glass, steel, lime, cement, etc.), ma chinery, heating apparatus, furniture, and like articles of a commercial character which the said Governments desiie to have produced and manufactured in Germany and delivered to them to permit of the restoration of the invaded areas: ;> >. The lists relating to the Articles mentioned in 2 ( a ) above shall be filed within sixty days after the date of the coming into force of the present Treaty. The lists relating to the Articles in 2 (/v) above shall be filed on or before the 31st of December, 1919. 1h < lists shall contain all such details a sarc customary in com mercial contracts dealing with the subject matter, including speci fications, dates of delivery (but not extending over more than four years) ; and places of delivery, but not price or value, which shall be fixed as hereinafter provided by the Commission. . Immediately upon the filing of such lists with the Commission, the Commission shall consider what of the materials and animals mentioned in the lists provided for above shall be re quired of Germany. In reaching a decision on this matter the Com mission shall take into account such domestic requirements of Germany as it deems essential for the maintenance of Germany’s social and economic life, the prices and dates at which similar articles can be obtained in the Allied and Associated countries as compared with those to be fixed for German articles, and the general interest of the Allied and Associated Governments that the industrial life of Germany be not so disorganized as to affect adversely the ability of Germany to perform the other acts of reparation stipulated for. Machinery, equipment, tools and like articles of a commercial character in actual industrial use are not, however, to be demanded of Germany unless there is no free stock of such articles respectively which is not in use and is available and then not in excess of thirty per cent, of the quantity of such articles in use in any one establishment or undertaking.* 1 * Note for Drafting Committee: these words “date of the signature” must remain unaltered. 12 The Commission shall give representatives of the German Government an opportunity and a time to be heard as to their capacity to furnish the said materials, articles, and animals. The decision of the Commission shall thereupon and at the earliest possible moment be communicated to the German Government and to the several interested Allied and Associated Governments. The German Government undertake to deliver the materials, articles and animals as specified in the said communication, and the interested Allied and Associated Governments severally agree4 to accept the same, provided they conform to the specification given, or are not, in the judgment of the Commission, unfit to bo utilized in the work of reparation. 5. The Commission shall determine the value to be at tributed to the materials, articles and animals, to be delivered in accordance with the foregoing, and the Allied or Associated Power receiving the same agrees to be charged with such value and the amount thereof shall be treated as a payment by Ger many to be divided in accordance with Article 237 of this part of the present Treaty. In cases where the right to require physical restoration as above provided is exercised, the Commission shall ensure that the amount to be credited against the reparation obligations of Ger many shall be the fair value of work done or materials supplied by Germany and that the claim made by the interested Power in respect of the damage so repaired by physical restoration shall be discharged to the extent of the proportion which the damage thus repaired bears to the whole of the damage thus claimed for. 6 . As an immediate advance on account of animals referred to in paragraph 2 (a) above Germany undertakes to deliver in equal monthly instalments in the three months following the com ing into force of the present Treaty, the following quantities of live stock: I. TO THE FRENCH GOVERNMENT: 500 stallions (3 to 7 years), 30.000 fillies and mares (18 months to 7 years); typo, Arden nois, Boulonais or Belgian, 2.000 bulls (18 months to 3 years), 90.000 milch cows (2 to 6 years), 1.000 rams, 100,000 sheep, 10.000 ewes. II. TO THE BELGIAN GOVERNMENT: 200 stallions (3 to 7 years), , 5.000 mares (3 to 7 years), -Large Belgian Type 5.000 fillies (18 months to 3 years), ' 2.000 bulls (18 months to 3 years), 50.000 milch cows )2 to 6 years), 40.000 heifers, 200 rams, 20.000 sheep, 15.000 sows. 13 ANNEX V. The animals delivered shall be of average health and con dition. To the extent that animals so delivered cannot be identified as animals taken away or seized, the value of such animals shall be credited against the reparation obligations of Germany in accordance with paragraph 5 of this Annex. 7. Without waiting for the decisions of the Commission re ferred to in paragraph 4 of the Annex to be taken, Germany must continue the deliverv to France of the agricultural material re ferred to in Article* III of the Renewal of the Armistice of 16 January, 1919. 1. Germany accords the following options for the delivery of coal and derivities of coal to the under-mentioned signatories °f the 1,r® ^ . ^ y ^ ^ ertakes t0 deliver to France seven million tons of coal per fear for ten years. In addition, Germany under takes to deliver to France annually for a period not exceeding ten years an amount of coal equal to the difference between the annual production before the war of the coal mines of the Foul and Pas de Calais, destroyed as the result of the war, and the production of the mines of the same area during the years m question, such delivery not to exceed twenty million tons m any one yeai ot the first five years, and eight mill Hon tons m any one year of the succeeding five years. . . . It is understood that due diligence will be exercised m thi restoration of the destroyed mines in the Ford and the Pas de a'&3S' Germany undertakes to deliver to Belgium 8,000.000 tons of coal annually for ten years 4. G e r m a n y u n d e r t a k e s to deliver to Italy up to the fo ow ing quantities of coal: • TulyX t0June S ....................:: f 2 SfiS SS IS 1922 :::::................. w2 tons. fi)22 1923 ............................ mllllon tons 1923 1924 and each of the f°Hgy 2 million tons. lowing five years ....................... y \ At least two-thirds of the actual deliveries to be land-borne. 5. Germany further undertakes to deliver annually to Luxemburg, if directed by the Reparation Commission, a quantity of coal equal to the pre-war annual consumption of German coal in Luxemburg. . _^ 6 . The prices to be paid for coal delivered under these op tions shall be as follows: ( a . ) For overland delivery, including delivery by bai e, the German pithead price to German nationals, plus the freight to French, Belgian, Italian or Luxemburg frontiers, provide ^ that the pithead price does not exceed the pithead puce o British coal for export. In the case of Belgian bunker eoa , the price shall not exceed the Dutch hunker price. Railroad and barge tariffs shall not he higher than lowest similar rates paid in Germany. . , ,, ( h . ) For sea delivery, the German export price t o.h. the German ports, or the British export price f.o.h. British ports, whichever may he lower. 7 The Allied and Asociated Governments interested may demand the delivery, in place of coal, of metallurgical coke m the proportion of three tons of coke to four tons of coal. 8 . Germany undertakes to deliver to France, and to trans port to the French frontier hv rail or by water the following products, during each of the three years following the coming into force of this Treaty: Benzol ................................ 35,000 tons' Coal tar . ....................................50,000 tons. Sulphate of ammonia................... 30,000 tons. 15 14 AJ1 oi* part of the coal tar may, be replaced at the potion of the French Government, by corresponding quantities of prod ucts of distillation, such as light, oils, heavy oils, anthracene, napthaline, or pitch. 9. The price paid for coke and tor the articles referred to in the preceding paragraph shall be the same as the price paid by German nationals under the same conditions of ship ment to the Fiench frontier or to the German ports, and shall be subject to any advantages which may be accorded similar products furnished to German nationals. 10 . The foregoing options shall be exercised through the intervention of the Reparation Commission, which, subject to the specific* provisions'hereof, shall have power to determine all questions relative to procedure and the qualities and quanti ties of products, the quantity of coke which may be substituted for coal, and the times and modes of delivery and payment. In giving notice to the German Government of the foregoing op tions the Commission shall give at least 12 0 days’ notice of the deliveries to lie made beginning with January 1, 1920, and at least 30 days’ notice of deliveries to be made between the cominto force of this Treaty and the 1 st January, 1920. Until Ger many has received the demands referred to in this paragraph, the provision of the Protocol of 25th December, 1918 (Execu tion of ArticleVI of the Armistice of lltli November, 1918), remain in force. The notice to* be given to the German Gov ernment of the exercise of the right of substitution accorded by paragraphs 7 and 8 shall be such as the Reparation Com mission may consider sufficient. If the Commission shall de termine that the full exercise of the foregoing options would interfere unduly with the industrial requirements of Germany, the Commission is authorized to postpone or to cancel deliv eries, and in so doing to settle all questions of priority; but the coal to replace coal from destroyed mines shall receive priority over other deliveries. ANNEX VI. 1. Germany accords to the Reparation Commission an option to require as part of reparation the de livery by Germany of such quantities and kinds of dyestuffs and chemical drugs as the Commission may designate, not ex ceeding 50 per cent, of the total stock of each and (‘very kind of dyestuff and chemical drug in Germany or under German control at the date of the coming into force of the present Treaty. This option shall be exercised within sixty days of the re ceipt bv the Commission of such particulars as to stocks as may be considered necessary by the Commission. 2 . Germany further accords to the Reparation Commis sion an option to require delivery during the period from the date of the coming into force of the present Treaty until the 1st January, 1920, and during each period of six months there after until the 1st January, 1925, of any.specified kind of dyestuff and chemical drug up to an amount not exceeding 25 per* cent, of the German production of such dyestuffs and chemi cal drugs during the previous six months period. If in any case the production during such previous six months was, in the opinion of the Commission, less than normal, the amount re quired may be 25 per cent, of the normal production. Such option shall be exercised within four weeks after the receipt of such particulars as to production, and in such form as may be considered necessary by the Commissionthese partic ulars shall be furnished by the German Government immedi ately after the expiration of each six-month period. 3. For dyestuffs and chemical drugs delivered under pararagraph 1 , the price shall be fixed by the Commis sion having regard to pre-war net export prices and to subse quent increases of cost. For dyestuffs and chemical drugs de livered under paragraph 2 of this annex the price shall be fixed by the Commission having regard to pre-war net export price apd subsequent variations of cost or the lowest net selling price of similar dyestuffs and chemical drug to any other purchaser. 4. All details, including mode and times of exercising the options, and making delivery, and all other questions arising under this arrangement shall be determined by the Reparation Commission; German Government will furnish to the Com mission all necessary information and other assistance which it may require. 5. The above expression “ dyestuffs and chemical drugs” include all synthetic dyes and drugs and in termediate or other products used in connection with dyeing, so far as they are manufactured for sale. The present arrange ment shall also apply to cinchopa bark and salts of quinine. 16 17 SPECIAL PROVISIONS 247. ^Germany undertakes to furnish to the University of Louvain, within three months after a request made by it and transmitted through the intervention of the Reparation Commission, manuscripts, incunabula, prints, maps and objects of collection corresponding in number and value to such objects as have been destroyed in the burning by Germany of the Library of Louvain. All details regarding such replacement will be determined by the Reparation Commission. Germany undertakes to deliver to Belgium, through the Reparation Commission, within six months of the coming into force of the present Treaty, in order to enable Belgium to re constitute her two great artistic works: (a) ^The leaves of the triptych of the Mystic Lamb painted by the Van Eyck brothers, formerly in the Church of St. Bavon at Ghent, now in the Berlin Museum. (b) The leaves of the triptych of the Last Supper, painted by Dierick Bouts, formerly in the Church of St. Peter at Lou vain, two of which are now in the Berlin Museum and two in the former Pinakothek at Munich. 18 ' REPORT \ OF COM M ITTEES OF EXPERTS TO REPARATION COMMISSION Complete Official English Text with Annexes From FEDERAL RESERVE BULLETIN, May, 1924 W ASHINGTON GOVERNMENT PRINTING OFFICE 1924 RESOLUTIONS ADOPTED BY THE REPARATION COMMISSION ON NOVEMBER 30, 1923 I n o rd e r to consider, in a c c o rd an ce w ith th e p ro v isio n s of a rtic le 2 3 4 of th e tr e a ty of V ersailles, th e resources a n d c a p a c ity of G e rm a n y , a n d a fte r g iving h e r re p re se n ta tiv e s a ju s t o p p o rtu n ity to be h e a rd , th e R e p a ra tio n C om m ission decides to c re a te tw o c o m m ittees of ex p e rts belonging to th e allied a n d asso ciated co u n tries. O ne of th e se co m m itte e s w ould be e n tru s te d w ith consid erin g th e m ean s of b alan c in g th e b u d g e t an d th e m easu res to be ta k e n to sta b iliz e th e cu rre n c y . T h e o th e r w ould co n sid er th e m ean s of e stim a tin g th e a m o u n t of e x p o rted c a p ita l an d of brin g in g it back to G e rm a n y . ' B MEMBERSHIP OF THE COMMITTEES First committee U n it e d S t a t e s : Italy: C h arles G . D aw es, C h a irm a n . O w en D . Y oung. G r e a t B r it a in : A lb erto P irelli. F ed erico F lo ra . B e l g iu m : Sir R o b e rt M o lesw o rth K in d ersley . S ir Jo sia h C h arles S ta m p . France: J e a n P a rm e n tie r. E d g a rd A llix. • E m ile F ra n c q u i. B aro n M au rice H o u ta rt. . Second committee U n it e d S t a t e s : H e n ry M . R o b in so n . G r e a t B r it a in : R eg in ald M c K e n n a , C h a irm a n . France: Italy: M ario A lb erti. B e l g iu m : . A lb e rt-E d o u a rd Ja n sse n . A n d r6 L a u re n t-A tth a lin . / .c R E P O R T O F C O M M IT T E E S O F E X P E R T S T O R E P A R A T I O N C O M M IS S IO N REPO RT OF TH E F IR S T C O M M IT T E E LETTER FROM THE CHAIRMAN TO THE REPARATION COMMISSION . April 9, 1924. Your Committee of Experts has unanimously adopted a report upon the means of balancing the budget of Germany and the measures to be taken to stabilize its currency, which I now have the honor to submit. Deeply impressed by a sense of its responsibility to your commission and to the universal conscience, the committee bases its plan upon those principles of jus tice, fairness, and mutual interest, in the supremacy of which not only the creditors of Germany and Germany herself, but the world, has a vital and enduring concern. With these principles fixed and accepted in that common good faith which is the foundation of all business and the best safeguard for universal peace, the recommendations of the committee must be con sidered not as inflicting penalties, but as suggesting means for assisting the economic recovery of all the European peoples, and the entry upon a new period of happiness and prosperity unmenaced by war. Since, as a result of the war, the creditors of Germany are paying taxes to the limit of their capacity, so also must Germany pay taxes from year to year to the limit of her capacity. This is in accord with that just and underlying principle of the Treaty of Versailles, reaffirmed by Germany in her note of May 29, 1919, that the German scheme of taxation must be “ fully as heavy proportionately as that of any of the powers represented on the commission.” More than this limit could not be expected, and less than this would relieve Germany from the common hardship and give her an unfair advantage in the industrial competition of the future. This principle the plan embodies. The plan has been made to include flexible adjust ments which, from the very beginning, tend to produce the maximum of contributions consistent with the con tinued and increasing productivity of Germany. The conservative estimates of payments to be made in the near future are dictated by business prudence in out lining the basis of a loan, and should not destroy per spective as to the effects to be registered in the aggre gate of eventual payments, which will annually increase. With normal economic conditions and productivity restored in Germany, most hopeful estimates of amounts eventually receivable will be found to be justified. Without such restoration, such payments f O F EXPERTS as can be obtained will be of little value in meeting the urgent needs of creditor nations. To insure the permanence of a new economic peace between the Allied Governments and Germany, which involves the economic readjustments presented by the plan, there are provided the counterparts of those usual economic precautions against default recognized as essential in all business relations involving ex pressed obligations. The existence of safeguards in no way hampers or embarrasses the carrying out of ordinary business contracts. The thorough effective ness of these safeguards should not embarrass the normal economic functioning of Germany, and is of fundamental importance to her creditors and to Germany. Great care has been taken in fixing conditions of supervision over Germany’s internal organization so as to impose the minimum of interference consistent with proper protection. This general plan, fair and reasonable in its nature, if accepted, leads to an ulti mate and lasting peace. The rejection of these pro posals by the German Government means the deliber ate choice of a continuance of economic demoralization, eventually involving her people in hopeless misery. In the preparation of this report, the committee has carefully and laboriously covered the broad field of investigation. It has had the constant cooperation of able staffs of experts, gathering information, digest ing it and presenting it. It conducted, on the ground, an examination of the officials of the German Govern ment and representatives of its labor, agriculture, and industry. It received from the German Government and its representatives voluminous and satisfactory answers in response to its written inquiries. In connection with various features of its report, both for gathering information and for advice, it has called to its assistance outside experts of international reputation. The pub lished reports and statements of economists of world wide standing have been in its hands. It has had the benefit of the accumulated information heretofore gathered by your commission. In its work, the full committee has held, since January 14, 1924, 54 meetings; the subcommittee on the stabilization of the currency, composed of Mon sieur Parmentier, Sir Robert Kindersley, Monsieur Francqui, and Professor Flora, assisted by Mr. H. M. Robinson, under the chairmanship of Mr. Owen D. 1 2 Young, has held 81 meetings; and the subcommittee on the balancing of the budget, composed of Professor Allix, Baron Houtart, and Monsieur Pirelli, under the chairmanship of Sir Josiah Stamp, has held 63 meet ings. They have had the assistance of Mr. Andrew McFadyean, the general secretary. Again, the time of the committee, outside of that consumed by the meetings, has been given largely to investigation and study. In speaking of my colleagues and as bearing upon the value of this report, I feel that I should make it known to your coinmission and to the world, that their governments have in no case limited their com plete independence of judgment and action, either before or after their appointment by you. Limited only by the powers granted by your commission, each has performed his arduous and responsible work as a free agent. These men, searching for truth and advice thereon, were answerable only to conscience. In granting this freedom, the governments have but followed your own spirit and intent in constituting the committee, but in so doing, they have paid the highest tribute which governments can bestow—com plete confidence in a time of crisis in human affairs. In their vision, in their independence of thought, and above all, in their spirit of high and sincere purpose, which rises above the small things over which the small so often stumble, my colleagues have shown themselves worthy of this trust. That their work, which I now place in your hands, may assist you in the discharge of your great responsibilities, is their prayer, and the knowledge hereafter, that it has done so, will be their full reward. Charles G. D awes, Chairman. SUMMARY OF PART I 1 I. The attitude of the committee II. German economic unity For success in stabilizing currency and balancing budgets, Germany needs the resources of German territory as defined by the treaty of Versailles, and free economic activity therein. Ill Military aspects; contingent sanctions and guaranties (o) Political guaranties and penalties are outside our jurisdiction. ( b) The military aspect of this problem is beyond our terms of reference. (c) Within the unified territory, the plan requires that, when it is in effective operation: 1. If any military organization exists, it must not impede the free exercise of economic activities; 2. There shall be no foreign economic con trol or interference other than that proposed by the plan. (d) But adequate and productive guaranties are provided. IV. The committee’s task (o) Stabilization of currency and the balancing of budgets are interdependent, though they are provi sionally separable for examination. (b) Currency stability can only be maintained if the budget is normally balanced; the budget can only be balanced if a stable and reliable currency exists. (c) Both are needed to enable Germany to meet her internal requirements and treaty payments. V. Economic future of Germany (a) Productivity is expected from increasing popu lation, technical skill, material resources, and eminence in industrial science. (b) Plant capacity has been increased and improved since the war. (a) The standpoint adopted has been that of VI. Currency and a bank of issue business and not politics. ( b) Political factors have been considered only in so (a) All classes will benefit from stabilized currency, far as they affect the practicability of the plan. especially labor. (c) The recovery of debt, not the imposition of (b) Under present conditions rentenmark stability penalties, has been sought. is only temporary. (d) The payment of that debt by Germany is her (c) A new bank is set up- or the Reichsbank reor necessary contribution to repairing the damage of ganized. the war. (d) The main characteristics of the bank will be: (e) It is in the interest of all parties to carry out 1. To issue notes on a basis stable in rela this plan in that good faith which is the fundamental tion to gold, with an exclusive privi of all business. Our plan is based upon this principle. lege; (/) The reconstruction of Germany is not an end 2. To serve as a bankers’ bank, establishing in itself; it is only part of the larger problem of the the official rate of discount; reconstruction of Europe. %3. To act as the Government banker, but (g) Guaranties proposed are economic, not political. free of Government control; 4. Advances to Government to be strictly 1The summary is furnished only for the convenience of the readers. limited; Parts I and TI and the Annexes are the only authoritative statement of the plan. 5. To hold on deposit reparation payments; REPORTS OF C O M M IT T E E S T O R E P A R A T IO N C O M M IS S IO N REPO R TS OF C O M M IT T E E S TO R E P A R A T IO N C O M M IS S IO N l The main characteristics of the bank will be— Continued. 6. The capital of the bank will be 400,000, 000 gold marks; 7. It will be directed by a German presi dent and managing board, who can be assisted by a German consultative committee; 8. The due observance of its statutes will be further safeguarded by a general board, of which half of the members, including a commissioner, will be for eign. VII. Budget and temporary reparation relief Balancing the German budget requires: (a) Full economic and fiscal sovereignty, subject to the supervision provided for in this report; ( b) A stable currency; (c) Temporary relief from charges on the budget for treaty obligations; (d) Such relief not to suspend essential deliveries in kind. Vm. The basic principles of Germany’s annual burden (a) Treaty obligations and continuity of balanced budgets. 1. Balancing the budget does not entail merely provision for internal admin istrative expenditure. 2. Germany must also provide within the utmost limit of her capacity for her external treaty obligations. 3. The budget can be balanced without necessarily dealing with the total capital debt of Germany. 4. It can not be continuously balanced unless the annual charge is fixed for a considerable period, on a basis clearly prescribed in advance. ( b) Commensurate taxation: 1. Government internal debt has been prac tically extinguished by the deprecia tion of the currency. 2. New debt charge ought to be met com mensurate with the burden of the French, English, Italian, and Belgian taxpayer. . 3. The treaty recognizes this principle. 4. It is morally sound. 5. It is economically just in its influence on costs of production. 6. This principle has been applied to the full limit of practicability. (c) Allies ’ share in Germany’s prosperity. 1. Germany’s creditors must share in the improvement in Germany’s prosperity. 2. This will be secured by an index of pros perity. (d) 3 (d) There is an important difference between the German’s capacity to pay taxes and Germany’s capacity to transfer wealth abroad. IX. Normal resources from which payments are made Germany will pay treaty charges from three sources : (A) Taxes; (B) Railways; (C) Industrial debentures. (A) From her ordinary budget: 1924- 25 budget may be balanced if it is free . from peace treaty charges. 192526 budget receiving 500,000,000 gold marks from special sources, may pay that sum for reparation. Goldmarks 1926- 27______________ 2 110, 000, 000 1927- 2S______________ 2 500, 000, 000 1928- 29______________ 1, 250, 000, 000 This is considered a normal year and a standard pay ment; thereafter additional payments will be made, depending on prosperity. (B) From railways: 1. Railway bonds— (а ) Eleven milliards of first mortgage railway bonds against a capital cost of twenty-six milliards will be created for reparations; (б ) These bonds bear 5 per cent interest and 1 per cent sinking fund per annum; (c) In view of reorganization, interest is accepted as 1924- 25_____________ 3 3 0 ,0 0 0 ,0 0 0 1925- 2 6 _____________ 465, 000, 000 192627 _______ 5 5 0 ,0 0 0 ,0 0 0 1927- 28 and thereafter_ 660, 000, 000 Behind the bonds there will be created 2 milliards of preference shares to be reserved for sale to the public, and 13 milliards of common stock; three-fourths of the proceeds of the preference shares will be applied, as required, to the payment of debt and for capital expenditure of the railways. The remaining 500 millions of preference shares and all the common shares go to the German Government. 2. Transport tax— After 1925-26, 290,000,000 gold marks per annum for reparation and balance to German Government. (C) Industrial debentures. 1. Five milliards of industrial debentures are provided for reparation. 2. The resulting charge on industry is less than that existing before the war aDd now wiped out by depreciation. 3. These bonds bear 5 per cent interest and 1 per cent sinking fund, i. e., 300,000,000 gold marks per annum. 4. Pending economic restoration, interest and sinking fund are accepted as follows: First year: Nothing. Second year: 125,000,000 gold marks. Third year: 250,000,000 gold marks. Thereafter: 300,000,000 gold marks. *Subject to addition or reduction in certain contingencies. 4 REPORTS O F C O M M IT T E E S T O R E P A R A TIO N X. Summary of provision for treaty payments (а ) 1. Budget moratorium period. First year: From foreign loans and part interest on railway bonds: f Gold marks Total____ ___________ 1, 000, 000, 000 Second year: From part interest on railway bonds and on industrial debentures, budget contribution, through sale of 500,000,000 gold mark railway shares: Gold marks Total___________ ____ 1 ,2 2 0 ,0 0 0 ,0 0 0 2. Transition period. Third year: From interest on railway bonds and on industrial debentures, from transport tax, and from. budget: Gold marks Total------------------------ 1 ,2 0 0 ,0 0 0 ,0 0 0 subject to contingent addition or reductions of 250,000,000 gold marks. Fourth year: From interest on railway bonds and on industrial debentures, from transport tax, and from budget. Gold marks Total_____ ____ _____ 1 ,7 5 0 ,0 0 0 ,0 0 0 subject to contingent addition or reduction of 250, 000,000 gold marks. C O M M IS S IO N (b) These payments cover Germany’s annual obli gation. XIII. How the payments are received by the creditors (a) Germany’s creditors will use these moneys in Germany or convert them into foreign currencies. (b) Experience will show the rate and extent to which the conversion can safely take place. ' (c) Danger to stability through excessive remit tances is o*bviated by a transfer committee. (d) Sums not remitted accumulate, but with a limitation of amount. XIV. Guaranties, in addition to railway and industrial bonds (a) The following revenues are pledged as collateral security for budget contributions and other payments: Alcohol, tobacco, beer, sugar, customs. (5) The yield of these revenues is estimated to be substantially in excess of required payments. (c) The excess is returned to the German Govern ment. XV. External loan—its conditions and purpose Foreign loan of 800,000,000 gold marks meets a double purpose. (a) Requirements of gold reserve of the new bank. S. Standard year. (5) Internal payments for essential treaty purposes Fifth year: From interest on railway bonds and on in 1924-25. industrial debentures, from transport tax, and from XVI. Organization budget: Gold marks The organization consists of: Total________________ 2 ,5 0 0 ,0 0 0 ,0 0 0 (a) A trustee for railway and industrial bonds; Thereafter, 2,500,000,000 plus a supplement computed (b) Three commissioners of (1) railways, (2) the on the index of prosperity. Interest on the securi bank, (3) controlled revenues; ties, but not the proceeds of their sale, is included (c) An agent for reparation payments, who will in these figures. coordinate the activities of the above and will preside (б ) The first year will begin to run from the date over the transfer committee. when the plan shall have been accepted and put into effective execution. XVn. The nature of the plan XI. Inclusive amounts and deliveries in kind (a) The plan is an indivisible unit. (b) The aim of the plan is: (1) To set up machinery (o) The above sums cover all amounts for which Germany may be liable to the Allied and Associated to provide the largest annual payments from Germany; (2) To enable maximum transfers to be made to Powers. (6) Deliveries in kind are to be continued, but are Germany’s creditors; (3) To take the question of “ what Germany can pay” out of the field of specula paid for out of balances in the bank. tion and put in it the field of practical demonstration; XII. How the annual payments are made by Germany (4) To facilitate a final and comprehensive agreement (a) The amounts will be raised in gold marks andupon all the problems of reparations and connected paid into the bank. questions, as soon as circumstances make this possible. R EPO R TS O F C O M M IT T E E S T O R E P A R A T IO N C O M M IS S IO N TEXT O F TH E We were invited by the Reparation Commission, by decision of November 30, 1923, to “ Consider the means of balancing the budget and the measures to be taken to stabilize the currency” of Germany. We have been in continuous session since January 14, 1924, in Paris, except for one fortnight spent in Berlin. We have called in to assist us eminent technical advisers on the various questions which have been under consideration, and have been in touch with representative German opinion. P A R T I.— T H E I. T he Attitude op the REPO RT We have the honor to present the following report which states the unanimous conclusions formed as a result of our studies and inquiries. Part I of this report states our conception of our task, our conclusions, and the broad outline of our plan. Part II indicates the considerations which guided us to our conclusions, in particular so far as they result from certain aspects of the present financial and eco nomic condition of Germany, which is here described. Part III consists of a series of annexes which give the technical detail of our several proposals, and should be read as a supplement to the respective portions of Part I. C O M M I T T E E ’S C O N C L U S IO N S C ommittee We have approached our task as business men anxious to obtain effective results. We have been concerned with the technical and not the political aspects of the problem presented to us. We have recognized indeed that political considerations neces sarily set certain limits within which a solution must be found if it is to have any chance of acceptance. To this extent, and to this extent only, we have borne them in mind. The dominating feature of the German Budget is Germany’s obligation to the Allies under the Treaty of Versailles. We have been concerned with the practical means of recovering this debt, not with the imposition of penalties and the guarantees which we propose are economic and not political. At the same time it is no ordinary debt with which we deal, for Germany suffered no appreciable devastation, and her primary moral obligation is toward those who have suffered so severely through the war. As regards past history, it has not seemed necessary to establish the causes, nor the responsibility for those causes, which have operated to produce the present state of German finances and currency, except in so far as a recognition of their character is required for the prescription of remedies. Finally, convinced as we are, that it is hopeless to build any constructive scheme unless this finds its own guarantee in the fact that it is to the interest of all the parties to carry it out in good faith, we put forward our plan relying upon this interest. We hope the character of our plan will itself assist in securing this guarantee, which is essential for its execution; but in the main, of course, it must be for others to take such measures as are necessary to maintain or assure it. 101585—24----- 2 ' 5 AN D SC H EM E II. German E conomic Unity The committee has had to consider to what extent the balancing of the budget and the stabilization of the currency could be reestablished permanently in Ger many as she actually is at the present moment, with limitations as to her fiscal and economic rights over part of her area. We should say at the outset that we have been un able to find any practical means of ensuring permanent stability in budget and currency under these conditions, and we think it unlikely that such means exist. The solution of the double problem submitted to us implies indeed the restoration of Germany’s credit both externally and internally, and it has appeared to us impossible to provide for this restoration under the conditions mentioned. We have, therefore, been compelled to make the assumption that the fiscal and economic unity of the Reich will be restored and our whole report is based on this hypothesis. III. Military Aspects—Contingent and G uarantees Sanctions If political guarantees and penalties intended to insure the execution ^of the plan proposed are con sidered desirable, they fall outside the committee’s jurisdiction. Questions of military occupation are also not within our terms of reference. It is, however, our duty to point out clearly that our forecasts are based on the assumption that economic activity will be unhampered and unaffected by any foreign organization other than the controls herein provided. Consequently, our plan is based upon the assumption that existing measures, in so far as they hamper that activity, will be withdrawn or sufficiently 6 R E PO R TS OF C O M M IT T E E S T O R E P A R A T IO N C O M M IS S IO N modified so soon as Germany has put into execution the plan recommended, and that they will not be re imposed except in the case of flagrant failure to ful fill the conditions accepted by common agreement. In case of such failure it is plainly for the creditor Governments, acting with the consciousness of joint trusteeship for the financial interests of themselves and of others who will have advanced money upon the lines of the plan, then to determine the nature of sanctions to be applied and the method of their rapid and effective application. In saying this we wish to add at once that if the economic system now in operation in occupied terri tory is modified, we are unanimously of the opinion that a settlement of reparation must be reinforced by adequate and productive securities. We propose for this purpose a system of control which we believe will be effective, and at the same time such as not to im pede the return to financial stability (see XIV below). IV. T he Committee’s T ask As the terms of reference indicate, two principal problems were submitted to us for inquiry—the stabilization of German currency and the balancing of the German budget. It is self-evident that these problems are interdependent. The currency of a country can not remain stable unless its budget is normally balanced, for if expenditure continually exceeds receipts there will in time be no alternative to the printing of new notes to meet the excess; and the inflation will inevitably involve depreciation. On the other hand, the task of balancing a budget, unless the currency is relatively stable, is hn impossible one, for a falling currency makes calculations both of receipts and expenses unreliable, and in particular causes a continual loss to the taxing authority through the necessary interval of time between assessment and collection. While, therefore, in the nature of things it is necessary that the two problems should in the first instance be studied separately—their interdependence must be consistently borne in mind, In examining each of them separately, we have assumed for the minute that the other has been solved, without ever losing sight of the fact that the stabilization of the currency and the balancing of the budget are means designed to enable Germany to satisfy her own essential requirements and to meet her Treaty commitments, the fulfillment of which is so vital to the reconstruction of Western Europe. It must not be forgotten that the performance of these commitments is of vital importance, not only for the countries having a claim on Germany, but also for Germany herself. It is, indeed, clear that a Germany whose economy had again become flourishing could not long resist a financial and economic crisis in the nations surrounding her. In order that the restoration of Germany may be definitive, the other nations must also return to the conditions requisite R EP O R TS OF C O M M IT T E E S TO R E P A R A T IO N C O M M IS S IO N for their financial and economic existence and must likewise be enabled to carry on the normal exchange of goods on which the general prosperity depends. V. T he E conomic P otentialities of Germany The task would be hopeless if the present situation of Germany accurately reflected her potential capacity; the proceeds from Germany’s national production could not in that case enable her both to meet the national needs and to insure the payment of her foreign debts. But Germany’s growing and industrious population; her great technical skill; the wealth of her material resources; the development of her agriculture on progressive lines; her eminence in industrial science; all these factors enable us to be hopeful with regard to her future production. Further, ever since 1919 the country has been improving its plant and equipment; the experts specially appointed to examine the railways have shown in their report that expense has not been spared in improving the German railway system; telephone and telegraph communications have been assured with the help of the most modern appliances; harbors and canals have likewise been developed; lastly, the industrialists have been enabled further to increase an entirely modern plant which is now adapted in many industries to produce a greater output than before the war. Germany is therefore well equipped with resources; she possesses the means for exploiting them on a large scale; when the present credit shortage has been overcome, she will be able to resume a favored position in the activity of a world where normal conditions of exchange are gradually being restored. Without undue optimism, it may be anticipated that Germany’s production will enable her to satisfy her own requirements and raise the amounts con templated in this plan for reparation obligations. The restoration of her financial situation and of her currency, as well as the world’s return to a sound economic position, seem to us essential but adequate conditions for obtaining this result. VI. Stability of the C urrency—A N ew Bank I ssue of We propose to deal in the first place with the cur rency problem. The present financial and currency position in Germany is stated in Part II. It will be seen that by means of the Rentenmark, stability has been attained for a few months, but on a basis which, in the absence of other measures, can only be temporary. The committee proposes the establishment of a new bank of issue in Germany, or, alternatively, a reorgan ization of the Reichsbank, as an essential agency for creating in Germany a unified and stable currency. Such a currency, the committee believes, is necessary 7 for the rehabilitation of Germany’s finances, the Dutch, and Swiss. This general board is given broad balancing of her budget, and the restoration of her powers in such matters of bank organization and foreign credit. The principal features of the bank operation as might affect the interests of the creditor plan, which is printed in Annex 1, are as follows: nations. One of the foreign members of the general The bank is to have the exclusive right (with certain board will be known as the “ commissioner.” He minor qualifications) to issue paper money in Germany will be responsible for seeing that there is no infringe for the period of its charter, 50 years. All of the ment of the provisions relative to the issuance of many kinds of paper money now circulating in Germany notes and the maintenance of the bank’s reserves. (except limited note issues of certain State banks) are Decisions of the general board will require a majority to be gradually withdrawn from circulation, giving vote of 10 of the 14 members, unless both the president place to a single uniform paper currency, the bank and the commissioner are included in the majority, in notes of the new bank. These bank notes will be which case a simple majority will be sufficient. Thus, protected by a normal legal reserve of 33 £ per cent, cooperation by members of both groups is necessary and by other liquid assets. The reserve will be held for action. largely in the form of deposits in foreign banks. It has been suggested in various quarters that to The plan contemplates that as a permanent policy insure the bank’s independence of the Government, the notes of the bank shall be redeemable in gold, but an issue department, which could be under the direc the committee is of the opinion that at the time of the tion of the commissioner and which would be re inception of the bank the situation will temporarily sponsible for the reserve and for the issue of notes, not allow of the application of the rule of convertibility. should be established abroad. Such a guarantee is It, therefore, suggests that a currency should be created political rather than technical in character, and to which will be kept stable in relation to gold and as soon propose it is outside the jurisdiction of the committee. as conditions permit be placed on a convertible basis. A study of the annex is essential to a thorough com Like the present Reichsbank, the new bank will prehension of the committee’s recommendations, and serve as a bankers’ bank, rediscounting the safest it has contented itself with drawing attention here to category of short-term bills, etc., and so establishing the main features to which it attaches importance. the official rate of discount. It will also handle for Still assuming for the minute that the budget the other banks the giro system for the transfer of problem has been successfully surmounted, we believe bank credits. that our recommendations furnish a practical method, The bank will deal with the public, making short not only of stabilizing the German exchange, but of time commercial loans and discounts, effecting trans securing to German economy those credits in stable fers, and receiving deposits. value which are essential to its reinvigoration and to It will be the depository and the fiscal agent of the the payment of reparation. . German Government. It may make short-term loans Labor also will benefit, for its interests above all to the Government, but the amount and character of are dependent upon stability. Some classes of the these loans are strictly limited, and the granting of community may have compensations in the amazing such loans is carefully safeguarded. The German Gov overturn of fortunes which inflation brings—some ernment is to participate in the profits of the bank but benefit and others suffer. But for the working classes the bank is to be entirely free from governmental instability is wholly evil; it has no compensations control or interference. Treaty funds collected in Germany are all to be whatever. In this connection, we may refer to the deposited in the new bank to the credit of a special views expressed by the representative of labor who account and are only to be withdrawn by the creditor appeared before us in Berlin: “ Speaking not for the nations under conditions and safeguards which will whole of the German people, but merely for the class adequately protect the German exchange market and which he represented, Herr Grassmann stated that the interests of the creditor nations and the German the German working classes could not stand another period of inflation. They must appeal to the world economy. The new bank will have a capital of 400,000,000 for a stable currency which would render it possible gold marks, part to be subscribed in Germany and for them to buy something with their wages even four part abroad. It is to be administered by a German weeks after they had received them.” It is clear that president and a German managing board, which can if the statutes of the bank are strictly observed there have the assistance, as in the case of the Reichsbank, can be little danger of future inflation. One of the of a consultative committee. Alongside of this German advantages to be expected is that foreign currencies managing board there is to be another board, called immobilized in Germany, which are at present econom the general board, which will consist of seven Germans ically sterile, will be mobilized in the form of subscrip and seven foreigners, one each of the following nation tions or deposits to the bank and return to economic alities: British, French, Italian, Belgian, American, uses. 8 VII. T he Budget REPO R TS OF C O M M IT T E E S T O R E P A R A T IO N C O M M IS S IO N and T emporary R elief R eparation Attention may now be directed to the other main aspect of our problem, the balancing of the budget. We propose to deal first with the general budget of the Reich, and secondly and separately with the railways, which, at present are contributing nothing to the general budget. In addition to a stable currency and the economic unity defined above, the budget requires certain relief from immediate charges for treaty purposes, which, while securing the budgetary position, will not imply the cessation of the payments indispensable to the Allies in the form of deliveries in kind. VIII. T he Basic P rinciples of Germany’s An nual Burden (a) TREA1Y OBLIGATIONS AND THEIR BEARING UPON THE CONTINUITY OF BALANCED BUDGETS It will be obvious that the balancing of the budget is, like the stabilization of the currency, of little value unless it can be maintained. It is not enough to be satisfied that one or even several budgets will be balanced. It is necessary to consider under what conditions, assuming sound administration, financial as well as currency stability can be continuously insured, or rather under what conditions such stability once gained is likely to be endangered. It is inevitable, therefore, that we should look forward, not indeed in the same detail but with proper regard to the chief determining factors, to those later years during which Germany will have gradually to liquidate her external treaty obligations. We repudiate, of course, the view that Germany’s full domestic demands constitute a first charge on her resources and that what is available for her treaty obligations is merely the surplus revenue that she may be willing to realize. But at the same time, if the prior obligation for reparation that is fixed for Ger many to pay, together with an irreducible minimum foj her own domestic expenditure, make up in a given year a sum beyond her taxable capacity, then budget instability at once ensues and currency stability is also probably involved In that event, an adjustment of the treaty obligations of the year is obviously the only course possible. The amount that can safely be fixed for reparation purposes tends therefore to be the difference between the maximum revenue and mini mum expenditure for Germany’s own needs. We shall naturally and inevitably be led to discuss later the amount of reparation payments which can be made out of budget resources and the method by which they can be effected, if the postulates of a stable currency and of a balanced budget are accepted. It would be to ignore both the plain dictates of justice, the prac tical conditions which must determine the acceptance or rejection of our proposals, and the context and obvious purpose of our terms of reference, if we approached our task from any other angle. It might, indeed, be thought that if we have thus been involved in a consideration of reparation pay ments, it is only of such payments as are to be made during the reconstruction period of the next few years. Our task, it may be said, is to advise as to the way to attain stabilization and a balanced budget, not as to the sums to be demanded from Germany when that aim has been achieved. But no such sharp division of periods is possible, for the following reasons: 1. The basis on which the budget is balanced at the end of the reconstruction period, and the sum it includes for reparation, must obviously determine to a large extent the sums payable in the following years. Otherwise, as we have said, an equilibrium, though once attained, might be rapidly lost. The effort would have been in vain and the same problem would again present itself. 2. More important still is the fact that the success of our proposals to attain financial stabilization de pends essentially upon the return of confidence. Without this the return of German capital invested abroad, the attraction of foreign capital for the pur poses mentioned in the scheme and of foreign credits for the current conduct of business, and even the proper collection of taxes, will alike be impossible. Such confidence can not be attained unless a settle ment is now made which both Germany and the outside world believe will give an assurance that for a considerable period neither its finances nor its for eign relations will be endangered by renewed disputes. Such an assurance, as we shall see, does not mean mak ing the charge on Germany a uniform one over a period of years, nor even deciding beforehand what the charge shall be i n each of these years. But it does mean settling beforehand the method by which increases shall be determined. When we'speak of the adoption of such a method for “ a considerable period,” we are thinking primarily of the period which lenders and investors whose money is squired as a part of our scheme will have in mind. As we shall see, our scheme needs both foreign and internal subscrptions to a bank of issue, and in par ticular an external loan as an essential condition of enabling and assuring reparation payments. We fully recognize both the necessity and the justice of maintaining the “principle embodied in the treaty that Germany’s payments should increase with what may prove to be the increase in her future capacity. We also recognize that an estimate now made once for all might well underestimate this, and that it is both just and practicable that the Allies should share in any increased prosperity. All that we regard as essential as a condition of stabilization is that any such increased demands to correspond with increasing capacity should be determined by a method which is clearly defined in the original settlement, and which is R EP O R TS OF C O M M IT T E E S T O R E P A R A T IO N C O M M IS S IO N capable of automatic, or at least professional, im partial, and practically indisputable application. This requirement we have tried to meet, as will be seen, by providing that in addition to a fixed annual payment, there shall be a variable addition dependent upon a composite index figure designed to reflect Germany's increasing capacity. It is outside the competence of the committee to establish a limit of years or of amount for the working of the index, nor is it within their competence to fix the number of annuities which Germany will h ve to pay, as this would practically mean the fixation of a new German capital debt. In any new arrangements made for a definite settlement of the various inter national financial obligations arising out of the war it would be easy as regards the German debt to apply our plan to those new conditions. ( b) COMMENSURATE TAXATION We have done our utmost to apply the principle of commensurate taxation. It is not open to dispute, as a simple principle of justice, and it is contemplated by the treaty, that the German people should be placed under a burden of taxation at least as heavy as that borne by the peoples of the Allied countries. No single person in Germany, whether speaking as an individual or representing any section of the nation, has failed to accept that principle when it has been squarely put to him. Any limitation upon it, if there is one, must be a limitation of prac ticability and general economic expediency in the interest of the Allies themselves. Obviously it is morally sound; and it would be clearly repugnant to all sense of natural justice that the taxpayers of countries with large and important regions devastated by the war should bear the burden of restoring them, while the taxpayer of Germany, on whose territory the war caused no comparable devastation, escaped with a lighter burden. The principle is, at the same time, economic ally just, for it is obviously unfair and in every way undesirable that the allied taxpayer should be penalized by the fact either that taxes resulting from the war weigh more heavily upon him as a consumer, or that in competition in his business he should be handicapped by greater burdens on the costs of production, including wages, than his German competitor bears. We have borne in mind both the importance of the virtual extinction of debt in Germany and the general burden of taxation in allied countries. As we indicate more fully in Part II, there are many difficulties in theory and practice, but in spite of them we have done our utmost to secure that the proposals we make should involve a “ commensurate burden” in the fairest inter pretation and application of that principle which is practicable. We are satisfied that in what we propose we are not imposing a heavier burden; we are also satis fied that we have applied the principle as far as it is is practicable in the interests no less of the Allies than of Germany. 9 (c) AN INDEX OF PROSPERITY IS NECESSARY TO ENABLE THE ALLIES TO SHARE IN THE INCREASED PROSPERITY OF GERMANY After a short period of recovery we believe that the financial and economic situation of Germany will have returned to a normal state, after which time the index will begin to operate. The system of a variable annuity has the sanction of usage in the schedule of payments. But we ven ture to suggest for most careful consideration the ad visability of altering the existing index, constituted by the value of exports. This index appears to us to be imperfect. We are aware that there are cogent reasons both for and against any test which may be suggested, and we do not propose to examine them in detail. We are of opinion that the undoubted shortcomings of particular indices are neutralized to a large extent if a composite index is chosen, and we have a reasonable assurance that a fair measure of Germany’s increasing prosperity will be obtained. Our suggestions, after considering many various alternatives for such an index, are given in Annex 2. We take upon ourselves to recommend these sug gestions, as an indication, to the attention of the Reparation Commission. We are of opinion that at least during the period within which the loan which we propose is being amor tized, the annual charge upon Germany should not be heavier than that which would result from the applica tion of this index; nor would the committee accept any responsibility for the balancing of the budget even in later years if heavier payments than the above were called for. We propose that an average of years (chiefly 1926, 1927, 1928, and 1929) should be taken as the base; that the percentage increase shown by each of six sets of representative statistics (railway traffic, population, foreign trade, consumption of tobacco, etc., budget expenditure, and consumption of coal) should be ascer tained; and that the average of these six percentages should be taken as indicating the proportionate in crease to be added to the treaty sums demanded in a given future year. Under this system Germany will retain her incentive to develop, as she retains the major part of the ad vantage of any increase in prosperity, while the Allies obtain a reasonable share in this increase and avoid the risk of losing through a premature estimate of future capacity. At the same time, the adoption of a method involv ing not discretionary but automatic application gives the necessary assurance from the dommencement both to Germany and the world th at treaty demands will not, in the period to which the settlement relates, be again the subject of negotiation and dispute. We propose, however, one further correcting factor of quite a different character which is onlv a Drecau- 10 R E P O R TS O F C O M M IT T E E S T O R E P A R A T IO N C O M M IS S IO N tionary measure and may never be actually involved. The treaty prescribes Germany’s obligations in terms of gold, and for convenience we have expressed our estimate in the same terms. But both the burden on Germany, and the advantage to the Allies of treaty payments, consist of goods and services. Gold is only a measure of value, and over a long period of years may be an uncertain and defective one. It is only in the case of really important changes that any action is necessary and we therefore propose that a reduction or increase of the figures both as regards the standard and the supplementary payments should be made au tomatically in correspondence with changes in the gen eral purchasing power of gold, whenever, by the decision of an impartial authority, such changes amount to more than 10 per cent. (d) THE DISTINCTION BETWEEN THE TAXPAYERS’ “ CA PACITY TO PAY’’ IN GERMANY AND GERMANY’S CA PACITY TO PAY THE ALLIES There has been a tendency in the past to confuse two distinct though related questions; i. e., first, the amount of revenue which Germany can raise available for rep aration account, and, second, the amount which can be transferred to foreign countries. The funds raised and transferred to the Allies on reparation account can not, in the long run, exceed the sums which the balance of payments makes it possible to transfer, without currency and budget instability ensuing. But it is quite obvious that the amount of budget surplus which can be raised by taxation is not limited by the entirely distinct question of the conditions of external transfer. We propose to distinguish sharply between the two problems, and first deal wit^i the problem of the maximum budget surplus and afterwards with the problem of payment to the Allies. In the past the varying conclusions formed as to Germany’s "capacity” have often depended upon which of these two methods has been chosen. As a first method of approach the budgetary criterion has obvious advantages and attractions. Reparation must first be provided for as an item in the budget. The budget itself is the sum of decisions taken by a single authority. It is capable of expert judgment and, within narrower limits of error, of calculation and analysis. By comparison a country’s “ economic balance” de fies exact calculation. The balance, even at a given moment, can only be estimated approximately, for the invisible exports and imports which constitute an im portant part of it can not be known exactly. And a 'potential economic balance is much more uncertain. It depends not on th<^ decisions of a single authority, but on the enterprise of individual merchants and manu facturers. Reparation demands themselves will in crease it. The extent to which economic adaptation is possible over a long period of years, under the pres sure of external obligations, is a matter of conjecture; an existing economic balance, before such obligations have been in operation long enough to have their effect on the economy of the country, gives a very uncertain criterion. The economic balance is, therefore, by com parison with the budget, incapable of close calculation, “ unmanageable,” and too elastic. But the limits set by the economic balance, if im possible of exact determination, are real. For the stability of a country’s currency to be permanently maintained, not only must her budget be balanced, but her earnings from abroad must be equal to the payments she must make abroad, including not only payments for the goods she imports, but the sums paid in reparation. Nor can the balance of the budget itself be permanently maintained except on the same conditions. Loan operations may disguise the posi tion—or postpone its practical results—but they can not alter it. If reparation can, and must, be provided by means of the inclusion of an item in the budget, i. e., by the collection of taxes in excess of internal expenditure, it can only be paid abroad by means of an economic surplus in the country’s activities. We have, it will be seen, attempted to give effect to both these sets of considerations by a method we believe to be both logical and practical. We estimate the amount which we think Germany can pay in gold marks by consideration of her budget possibilities; but we propose safeguards against such transfers of these mark payments into foreign exchange as would de stroy stabilization and thereby endanger future repara tion. By comparison with a system which reduced the sums considered possible on budget grounds because of considerations based upon estimates of the possible economic balance, this has the following advantages: (а ) It enables the maximum sums to be - obtained and paid to the Allies’ account. (б ) Any limitation upon transfers into foreign cur rencies will depend upon the exact economic position as it develops in fact and not upon a necessarily prob lematical estimate of it; and the limitation will only apply so far as it actually proves necessary. (c) Even so far as the sums paid in reparation can not be completely transferred, they can, under certain conditions, be used by the Allies for internal invest ment in Germany. • Above all, we recommend our proposal for these reasons: It adjusts itself automatically to realities; the burden which should rest upon the German taxpayer should, in justice, so obviously be commensurate with that borne by the Allied taxpayer that, in our view, nothing but the most compelling and proved necessity should operate to make it lighter. It would be both speculative and unjust to attempt to forecast the pos sibilities of the future exchange position and to deter mine Germany’s burden in advance with reference to a problematic estimate of it. Experience, and ex perience alone, can show what transfer into foreign R E PO R TS OF C O M M IT T E E S T O R E P A R A T IO N C O M M IS S IO N currencies can in practice be made. Our system provides in the meantime for a proper charge upon the German taxpayer, and a corresponding deposit in gold marks to the Allies’ account; and then secures the maximum conversion of these mark deposits into foreign currencies which the actual capacity of the exchange position at any given time renders possible. IX. T he N ormal R esources from which Germany Should Make P ayments With these principles in mind, we recommend that Germany should make payment from the following sources: (a) From her ordinary budget. ( b) From railway bonds and transport tax. (c) From industrial debentures. We proceed to consider each of these in turn. (a) provision from the budget for treaty pay ments; BUDGET EQUILIBRIUM To recommend what payments Germany can make from her ordinary budget, and from what dates, is in effect to answer the first of the two specific questions put to us; i. e., how to “ balance the German budget.” For in our view, if the economic and fiscal unity of the Reich is restored, if a stable currency is established, and if the budget is given temporary relief from treaty payments, Germany should balance her budget from her own resources by a vigorous internal effort sup ported by the confidence which a general and stable settlement may be expected to give, and she should thereafter be able to maintain it in equilibrium, if the future charge for treaty payments is determined by a method which assures that it will not exceed her capacity. In other words, we do not consider that an external loan is needed—as in the case of Austria and Hungary— to be devoted specifically to meeting ordinary deficits during a transition period. External money is indeed an essential part of our scheme, in part for the estab lishment of a new bank of issue; in part to prevent an interruption of deliveries in kind during the transition period; and essentially to create the confidence upon which the whole success of the scheme depends. But we do not propose that it should be confined or de voted specially to meeting deficits on ordinary expen diture even during a transition period. On the con trary, as will be seen, we think that from the beginning internal resources should meet internal ordinary ex penditure, and at a very early date should suffice %in addition to make substantial contributions toward the external debt. The present budget position is described in some de tail in Part II, which includes our criticisms and recom mendations as to the measures we think practicable for economizing in expenditure and increasing taxation. We confine ourselves here to our conclusions as to the provision that can be made for meeting treaty payments. 11 192J+-25 budget.—In the first year (1924-25) we con sider that the ordinary budget may balance. Even if there is a deficit we are confident that it should not be such as to endanger the stability of the currency, and that at the worst the Government can meet it by the orthodox expedients—increases of existing taxa tion, further emergency taxes, and internal loans. Even if energetic measures are taken to obviate any deficit in 1924-25, we are satisfied that neither by re duction of expenditure nor by an increase in receipts can Germany be expected to provide out of budget resources for any peace treaty payments to the Allies, and that any demand for their payment would imperil both the structure of the budget and the stability of the currency. How relief can be otherwise provided for the reparation creditors will be considered sepa rately. The fundamental importance of the effect upon the stability of the Reich budget of the finances of the States (Prussia, Bavaria, etc.) and of the communes has greatly exercised us, and we have stated our views on the system of subsidies and local expenditure in Part II. 1 9 2 5 - 2 6 budget.—On passing to the budget for 1925-26, it is obvious that the existing data are insufficient for a precise judgment on its detailed prospects. Certain general conclusions are, however, possible. On the revenue side, the lapse of a whole year of currency stability and readjustment should of itself increase receipts. The period of recuperation will not have been long enough completely to restore the yield of the income tax, but there will at least be gold mark profits of 1924-25 on which to frame a reasonable assessment. Consumption taxes should be directly affected by returning prosperity. On the expenditure side it may be hoped with some degree of confidence that expenditure on unemploy ment will exhibit a notable decrease. The expenditure on the army is capable of reduction. An automatic decrease will make itself felt in the pension charge. It is not to be expected, on the other hand, that sums thus saved on these or other heads will represent a net benefit to the budget. In particular, and this remark applies also to the budgets of the immediately succeed ing years, increases in the salary charges of the Reich which can probably not be entirely off-set by decreases in personnel must be anticipated. Some increase of expenditure must therefore be expected. On balance, however, we are of opinion that the growth in receipts should be more than sufficient to counterbalance any increase in expenditure. What ever views may be held about the eventual outcome of the 1924r-25 budget, we are clear that the second year should show a substantial improvement upon it. The result of the first year therefore affects our view as to whether the result of the following year will be actually an appreciable surplus. If it should prove 12 REPO R TS O F C O M M IT T E E S T O R E P A R A T IO N C O M M IS S IO N that the 1924-25 budget can not be balanced by tax ation alone, the improvement to be expected in the following year might not be more than sufficient to secure the balance desired. If, on the other hand, no loans were necessary in 1924-25, any improvement in the following year would be net surplus and entirely available for meeting peace treaty charges. We are clearly of the view that, if the two years are taken together, receipts should be sufficient to cover ordinary expenditure, and we do not exclude the possi bility of a small surplus. On the other hand it can not be stated with certainty that the inclusion of a com pulsory liability for peace treaty charges will not destroy the whole balance, and it is obviously vital that the mistake should not be made of fixing as a first payment during recovery a sum which the circum stances may not justify. The stability of future reparation payments and German credit in general might thus be endangered. There is another factor that must be taken into account. For the successful operation of the scheme for dealing with the railways, to which we shall refer later, it is necessary that the proceeds of the transport tax to the extent of 250,000,000 gold marks should be withdrawn for this year from the revenue side of the budget and devoted to the payment of treaty charges. On the other hand that scheme also provides for the sale by the railway company of preference shares to the nominal value of 2,000,000,000 gold marks, onequarter of the proceeds accruing to the profit of the German budget and the balance providing for past and future capital expenditure of the railways. For the successful execution of the railway scheme we attach great importance to the sale to the public of these preference shares and we feel justified in assuming that before the end of the year 1925-26 the German Govern ment will be in effective possession of 500,000,000 gold marks as a result of this transaction. The budget can therefore be reinforced to that extent and after making allowance for the withdrawal of 250,000,000 gold marks in respect of the transport tax there will be a balance of 250,000,000 gold marks which should be available for meeting peace treaty charges. By the procedure we have indicated any danger of hampering future stability by a premature call upon the ordinary resources of the German budget will be obviated and there will be an additional inducement to transfer the preference shares to private ownership. We, therefore, recommend that in the year 1925-26 Germany should be required to meet peace treaty charges out of her budget to the extent of 250,000,000 gold marks. If, contrary to our expectation, the budget fails to realize 500,000,000 gold marks from the sale of preference shares, we consider that any resultant deficit could be met by an internal loan. The proceeds of the transport tax should thenceforth not figure in the revenue side of the budget except to the extent to which they exceed 250,000,000 gold marks 13 R E PO R TS OF C O M M IT T E E S T O R E P A R A T IO N C O M M IS S IO N in 1925-26 and 290,000,000 gold marks in subsequent years. We once more reserve the question of providing for further reparation payments by other means. The budget of later years .—As we have said already, Germany’s credit can not rest upon the mere establish ment of budget equilibrium. It must be clear that it can be permanently maintained. It is, therefore, neces sary for us to consider what burden Germany can bear in the near future without danger to that equilibrium. In this connection, certain assumptions have necessa rily been made. It has been considered that if for two years the budget is relieved from peace treaty charges and a stable currency is reestablished, Germany ought in 1926 to be making rapid strides toward complete recovery, and should in three years, by 1928, reach a normal economic condition. We have taken into ac count the probable j'ield of her several taxes and her taxable capacity as a whole and the probable changes in expenditure under these improving conditions, and after making full allowance for error we have reached definite conclusions as to the sums which can be fixed for peace treaty charges without endangering the stability of the budget. These results we have con sidered in relation to the maximum probable rate at which the national income can be expected to grow from its present point and the maximum proportion of that growth which can successfully be absorbed in taxation. # We draw the conclusion that, allowance being made for some inevitable growth in expenditure, the budgets for the three subsequent years can safely provide for the following maximum sums: Gold marks 1926- 27_________________ 110, 000, 000 1927- 2 8 _________________ 500, 000, 000 1928- 29_________________ 1 ,2 5 0 ,0 0 0 ,0 0 0 On the other hand, regard being had to the fact that it is difficult to estimate the recuperative power of Germany in 1926-27 and 1927-28, we would propose that these amounts should be regarded as subject to modification by a sum not exceeding 250,000,000 gold marks on the following plan: If the aggregate controlled revenues as defined in Section XIV exceed 1 milliard in 1926-27 or 1,250,000,000 in 1927-28, an addition shall be made to the above contributions equal to one-third of such excess. Conversely, if those aggre gate revenues fall short of 1 milliard in 1926-27 or 1,250,000,000 in 1927—28, the total contributions shall be* diminished by an amount equal to one-third of the deficiency. We believe that at the end of the fiscal year 1928-29 the financial and economic situation of Germany will have returned to a normal state, and that in this and subsequent years the ordinary budget should support the inclusion of a sum of 1,250,000,000 gold marks. The total sums, therefore, to be provided from ordinary qudget resources would be the standard payment of the custom to include in operating and maintenance charges large expenditures which might properly have been charged to capital account. The railway experts are convinced, and we share their conviction, that under proper management, under unified control, and with a proper tariff policy, the railways can without difficulty earn a fair return upon their present capital value. Nor need it be thought that this improvement in profits will be made at the expense of the German people by increasing their fares and the cost of all goods transported by rail. It can be substantially provided by the more economical administration of the railways themselves. In saying this we have not in mind inadequate wages, but rather the elimination from operating and mainte (6) RAILWAYS nance charges of certain elements of waste and also We have conducted, with the assistance of two expenditure more properly chargeable to capital eminent railway experts, a close examination of the account. The railway experts arrived, however, with consider situation of the German railways. The subject is an able reluctance at the conclusion that it would be useless important one, for the railways have been operated since the armistice at a constantly increasing loss, to expect anything approaching the full measure of which has involved heavy burdens upon the German improvement which is possible, so long as the railways remain in the control of the Government. The whole budget. , _ Most, if not all, railway systems have passed through spirit of the Government’s ownership in the past has a period of great difficulty since the war from causes been directed to running the railways primarily in the which were largely beyond their control. It is clear, interest of German industry, and only secondarily as a however, from a study of the report drawn up by the revenue-producing concern, and in their opinion a experts, which will be found in Annex 3, that the complete break with old traditions is essential. We accept their conclusions and we recommend the greatest difficulties were of the Germans’ own making. The German railwa}1, administration can not but plead conversion of the German railways into a joint stock guilty to two serious charges. In the first place, as is company. It is not our intention thus to deprive proved by the reduction which it is now possible to Germany of the administration of her railways in favor make, they have been enormously overstaffed, even of the Allies; on the contrary, our plan demands only when all account is taken of the introduction of an a modest return on the capital cost, and so long as this eight-hour day and of peace-treaty charges justifying return is forthcoming we do not anticipate any inter temporary disorganization. In the second place, the ference in the German management of the undertaking. We would add that if, as the German Government administration has indulged in extravagant capital has itself proposed, the exploitation of the railways is expenditure for which the official excuse is that con struction was largely undertaken to ward off unem divided into several systems, this division should not affect detrimentally their financial unity. ployment. The details of our proposals will be found in Annex 4, It is only just to observe that the situation has now improved out of recognition, though more remains to and we will content ourselves with giving only a broad be done. The German Government have separated outline at this point. The committee recommends that there should be the railways from the ordinary administration and assimilated them in form, so far as is possible, to a paid from the German railways 11 milliard gold marks business concern. Capital construction has been to be represented by first mortgage-bonds bearing 5 slackened and fares have at any rate been raised to a per cent interest and 1 per cent sinking fund per annum. point where the railways are not only self-supporting, The capital cost of the German railways computed on a gold mark basis is estimated by our experts at 26 mil but can provide some profit. These measures are, however, insufficient. The liards. The net earnings of these railways before the capital value of the railways is estimated by the experts war, after liberal and indeed exaggerated charges to on a conservative basis at 26 milliards. They are operating and maintenance, were as high as 1 mil unencumbered with old debts, for their prior charges liard. The interest and sinking fund on these deben were extinguished by the depreciation of the mark, and tures represents less than 3 per cent of the capital cost, these prior charges absorbed half the gross profits in which is a very modest charge on the capital invest the pre-war period, which amounted to approximately ment compared with that required in many other coun 1 milliard gold marks, in spite of the fact that it was tries of the world. 101585—24----- 3 of 1,250,000,000 plus the additional sum (already referred to) computed upon the index of prosperity, as from 1929-30 onward. We have considered carefully the question of the amount to which the index should be applied and, as we are desirous that in the earlier years of her recovery German progress shall not be unduly handicapped by shortage of new capital, we think that it will be de sirable to apply it to the purely budget contribution 1,250,000,000 (or one-half of the total standard pay ment) for the first five years of the application of the index, viz, 1929-30 to 1933-34. After that date, 1934-35, the index should apply on the full amount of the contribution, namely, 2,500,000,000 gold marks. 14 R EP O R TS OF C O M M IT T E E S T O R E P A R A T IO N C O M M IS S IO N Realizing that during the period of reorganization of the railways, full interest and sinking fund charges should no't be required, we think payments on account of interest should be as follows: Gold marks 1924- 25--------------------------- 330, 000, 000 1925- 26--------------------------- 465, 000, 000 1926- 27--------------------------- 5 5 0 ,00 0 ,0 0 0 1927- 28 and thereafter_____ 660, 000, 000 This is regarded as a normal year. In addition to the 11 milliards of bonds, the new rail way company is to have a capital of 2 milliards of pref erence shares and the remainder of its capital cost, namely 13 milliards, is to be represented by common stock; l j milliards of preference shares are to be set aside in the treasury of the company, for sale to private persons to provide funds for the payment of existing indebtedness and future capital expenditures. The proceeds of the sale of the other 500,000,000 of prefer ence shares and all of the common shares are to go to the German Government. The railways are to be managed by a board of 18 directors of whom 9 will be chosen by the German Government and the private holders of preference shares, and the other 9 will be named by the trustee of the bonds, 5 of whom may be German. It is therefore contemplated that the board will have 14 German members. The chairman of the board and the general manager of the railways will be German. It is contemplated that the railway company will be free to conduct its business in such manner as it may think proper, provided always, however, that the Ger man Government will have such control over its tariffs and service as may be necessary to prevent discrimina tion and to protect the public. Such government con trol, however, is never to be exercised so as to impair the ability of the railway company to earn a fair and reasonable return on its capital cost. The railway commissioner represents the interests of the bondholders. His principal duty will be, in the absence of default in interest, to receive reports, sta tistical and financial returns, and generally to see that the interests of the bondholders are not menaced. (c) INDUSTRIAL DEBENTURES The committee has been impressed with the fairness and desirability of requiring as a contribution to repara tion payments from German industry, a sum of not less than 5 milliards of gold marks, to be represented by first-mortgage bonds bearing 5 per cent interest and 1 per cent sinking fund per annum. This amount of bonds is less than the total debt of industrial under takings in Germany before the war. Such indebted ness has for the most part been discharged by nominal payments in depreciated currency, or practically ex tinguished. In addition the industrial concerns have profited in many ways through the depreciated cur rency, such as the long delayed payment of taxes, by subsidies granted and advances made by the German Government, and by depreciation of emergency money which they have issued. On the other hand it is incontestably true that there have also in many instances resulted losses, through the depreciation of currency, from the sale of output at fixed prices, and in other ways. It is unnecessary for the committee to make an esti mate of the total amount of such profits and losses; it is sufficient to say that the committee is satisfied that a burden of mortgage debt of the amount of 5 milliard gold marks on the industries of Germany, fairly apportioned, bearing a moderate rate of interest, and payable on long maturity, does not create a burden greater than that which would have existed had there been no depreciation of currency. In fact the fairness of such a proposal has been recognized by the German Government itself in a proposal submitted on June 7, 1923, to all the allied and associated governments. This proposal was later confirmed by persons in high authority in the subsequent and present German Gov ernments. The offer referred to above was of 10 milliard gold marks, covering business, industry, banking, trade, traffic, and agriculture. The request of the committee is for 5 milliards only and it suggests the exemption of agriculture from the obligations of the mortgage. Realizing the importance of agriculture to a nation unable to provide its entire food supply, we feel more reserved in making a recommendation as to the burdens which should fairly be put on it, though we can not close our eyes to the fact that a very large amount of agricultural indebtedness has.been discharged at merely nominal figures and the owners of equity in land have realized substantial profits at the expense of their former creditors. We desire to make it clear that the committee in asking for mortgage bonds on industries does not recommend in any sense an unfair or discriminating burden against them, and so we do recommend that equalization be properly and fairly made by the German Government for the benefit of its own budget. If, in the opinion of the German Government, a burden on other property should be imposed in order to equalize the burden of reparation payments on property other than industrial property, we recommend that it be done in favor of the German budget either by a further valorization tax or by a specific lien or otherwise. If this course be followed and a fair and accurate sys tem of direct taxation be adopted the committee be lieves that all classes in Germany will be called upon to make their fair and reasonable contribution to peace treaty charges either through direct or indirect taxa tion. Realizing the depletion of the liquid capital supply in Germany, and that a period should be provided.for R EP O R TS OF C O M M IT T E E S T O R E P A R A T IO N C O M M IS S IO N 15 its recuperation, we recommend that the interest on the 5 milliards of debentures above referred to be waived entirely during the first year; that the interest during the second year be 2^ per cent; during the third year 5 per cent; and thereafter 5 per cent plus 1 per cent sinking fund. In the event of default in the pay ment of interest, sinking fund, or principal on any of the said debentures, provision has been made for recov ery from the German Government through the com missioner of controlled revenues. The plan will be found in Annex 5. the creditor governments. As soon as the plan is put into execution, the Reparation Commission will be in possession of bonds for 16 milliard marks, which may be sold to the extent to which the financial markets are capable of absorbing them. Subsequently, bonds representing the transport tax and the contribution from the budget may be issued, and will enable the governments to realize the capital of their claims. X. Summary Before passing from this part of our report we de sire to make it quite clear that the sums denoted above in our examination of the successive years comprise all amounts for which Germany may be liable to the allied and associated powers for the costs arising out of the war, including reparation, restitution, all costs of all armies of occupation, clearing-house operations to the extent of those balances which the Reparation Commission decide must legitimately remain a defini tive charge on the German Government, commissions of control and supervision, etc. Wherever in any part of this report or its annexes we refer to treaty pay ments, reparation, amounts payable to the Allies, etc., we use these terms to include all charges payable by Germany to the allied and associated powers for these war costs. They include also special payments such as those due under articles 58, 124, and 125 of the treaty of Versailles. The funds to be deposited in the special account in the bank are to be available for the foregoing purposes, notwithstanding anything in this report which may be interpreted to the contrary, though in saying this we are not to be read as prejudicing questions of distribu tion or questions of priority between the various categories of charges. We venture to emphasize the fact that from the point of view from which we are called upon to regard the question these obligations of Germany are one, and that any addition to one category of charges can only be made at the expense of another. The committee have noted the important fact that Germany is not in a position to ascertain her liabilities out of the peace treaty as demands are made upon her from time to time during the year, which can not be calculated beforehand. It appears to us a matter of impossibility for any budget to be scientifically com piled and satisfactorily balanced under such an arrange ment, and that, therefore, means should be found to bring this system to an end. The difficulty will be satisfactorily met if Germany’s liabilities for any particular year are absolutely limited according to our plan and, as suggested above, made inclusive of all pos sible charges whether in or outside Germany, including the costs of the administrative controls which are set up by our plan. of P rovision for T reaty P ayments We are now in a position to summarize the full pro vision we contemplate for treaty payments: Budget moratorium period— First year. From foreign loan and part interest (200,000,000) on Gold marks railway bonds---------------------- 1, 000, 000, 000 Second year. From interest on rail way bonds (including 130,000, 000 balance from first year) and interest on industrial debentures and budget contribution, includ ing sale of railway shares_____ 1, 220, 000, 000 Transition period— Third year. From interest on rail way bonds and industrial de bentures, from transport tax and from budget (subject to ■ contingent addition or reduction not exceeding 250,000,000 gold marks)------------------------------- 1, 200, 000, 000 Fourth year. From interest on rail way bonds and industrial de bentures, from transport tax and from budget (subject to contingent addition or reduc tion not exceeding 250,000,000 gold marks)------------------------ 1, 750, 000, 000 Standard year-— Fifth year. From interest on rail way bonds and industrial deben tures, from transport tax and from budget------------------------ 2, 500, 000, 000 The first year will begin to run from the date when the plan shall have been accepted and made effective. We must point out that the total figures indicated for each year must include the sums paid by the German budget, the railway company, or the debtors on indus trial debentures, whoever may be the actual recipients of these sums, the Reparation Commission, the capi talists who purchased securities, or even the debtors themselves if they have repurchased their bonds. These figures clearly do not include the proceeds from the. sale of capital assets which may be effected by XI. I nclusive Amounts.—D eliveries in K ind THE INCLUSIVE NATURE OF THE PAYMENT 16 R EP O R TS O F C O M M IT T E E S T O R E P A R A T IO N C O M M IS S IO N DELIVERIES IN KIND We have given special attention to the question of deliveries in kind; in their financial effects, deliveries in kind are not really distinguishable from cash pay ments and they can not in the long run exceed the true surplus of German production over consumption available for export without either upsetting the exchange or rendering foreign loans necessary. Having made this clear, we have to remember that: 1. Deliveries in kind are dealt with in the treaty. 2. They are now an inevitable part of the economic conditions of several of the Allies and can not be wholly removed without considerable dislocation. 3. If the principle is not carried too far, they may represent a stimulus to German productivity and therefore the creation of a greater export surplus. 4. They may help in avoiding such surplus being absorbed by the prior action of private German in vestment abroad. In this connection, the maintenance of the system of deliveries in kind, if not carried too far, may act in a manner to keep the transfer as large as possible and to give the Allies priority. While, therefore, we recognize the necessity for the continuance of deliveries in kind, we think that unless they can be confined to natural products of Germany, such as those specifically dealt with in the treaty (coal,, coke, dyestuffs, etc.) and in the second place to exports which do not entail the previous importation into Germany of a large percentage of their value, they tend to be uneconomic in character. In the first two years of the operation of the plan the available finance is so restricted that there will be an automatic limitation of deliveries, but in the later period the program must be carefully and periodically considered in advance by the Reparation Commission in conjunction with the committee referred to in Section X III if exchange difficulties are to be avoided. We refer below to the necessity of expending almost exclusively within Germany the sums available for treaty payments in 1924-25 and 1925-26. In these circumstances, the Allied Governments will doubtless consider whether it is not advisable to continue the system whereby the costs of armies of occupation were a first charge upon the proceeds of deliveries in kind made to the Governments which maintain the armies. Where we have referred to payments for deliveries in kind in this report we have intended to include therein payments in Germany arising through the operation of the reparation recovery acts. XII. How the P ayments are to be M ade All payments for the account of reparations (whether from interest and sinking fund on railways or industrial debentures, the transport tax, or from the budget contribution) will be paid in gold marks or their equivalent in German currency into the bank of issue to the credit of the “ Agent for reparation payments.” R E PO R TS OF C O M M IT T E E S T O R E P A R A T IO N C O M M IS S IO N This payment is the definitive act of the German Gov ernment in meeting its financial obligations under the plan. It is easier to estimate the burden that Ger m any’s economic and fiscal resources can bear than the amount of her wealth that can be safely transferred abroad, and it is the former and not the latter that has formed the first objective of the committee. X III. How the P ayments are to be R eceived The use and withdrawal of the moneys so deposited will be controlled by a committee, consisting of the agent for reparation payments (a coordinating official under the Reparation Commission, whose position and duties are defined later in this report) and five persons skilled in matters relating to foreign exchange and finance, representing five of the allied and associated powers. This committee will regulate the execution of the program for deliveries in kind and the payments under the reparation recovery act, in such a manner as to prevent difficulties arising with the foreign exchange. They will also control the transfer of cash to the Allies by purchase of foreign exchange and generally so act as to secure the maximum transfers, without bringing about instability of currency. Fuller details as to their functions will be found in Annex 6. If the payments by Germany on reparation account, in the long run, exceed the sums that can be thus transferred by deliveries or by purchase of foreign .currencies, they will of course begin to accumulate in the bank. Up to a certain point, in normal circumstances not exceeding two milliards, these accumulations will form part of the short money operations of the bank. Beyond this point, the committee will find employ ment for such funds in bonds or loans in Germany under the conditions laid down in the annex, but, for economic and political reasons, an unlimited accumu lation in this form is not contemplated. We recom mend that a limit of five milliards be placed upon all funds accumulating in the hands of the reparation creditors in Germany. If this limit is reached, the contributions from the budget are to be reduced below the standards set out in our plan, so that they are not in excess of the withdrawals from the account and the accumulation is not further increased. In this contingency, the payments by Germany out of the budget and the transport tax would be reduced until such time as the transfers to the Allies can be increased and the accumulation be reduced below the limit named. We do not deny that this part of our proposal will present difficulties of a novel character which can only be solved by experience. But what are the alternatives? In order that no difficulties with exchange or stability can possibly arise, the sum payable for reparation may be definitely fixed at such a figure as is certain beyond all doubt to be within Germany’s capacity to export in excess of her imports. In this case the attainment of such certainty would involve so low a figure as to be quite unacceptible to her creditors and unwarrantably favorable to Germany. On the other hand, the liability may be fixed without regard to that excess of exports at all, and the discharge of the liability left to uncontrolled events without any possible regard to exchange difficulties. That way lies future instability and disaster. We are convinced that some kind of coordinated policy, with continuous expert administration in regard to the exchange, lies at the root of the reparation problem and is essential to any practicable scheme in obtaining the maximum sums from Germany for the benefit of the Allies. XIV. Guarantees in Addition to R ailway I ndustrial Bonds and It is plainly not enough to demonstrate the feasi bility of raising the sums under consideration. It is desirable, in the common interest, that means should be devised for securing that the possible surplus is actually established. The greater the extent to which payment may be rendered automatic and a matter of habit and independent of fluctuating political atti tude toward reparation, the less will be the friction and the greater will be the real stability of the Ger man budget. In the last resort the best security is the interest of the German Government and people to accept in good faith a burden which the world is satisfied to be within their capacity, and to liquidate as speedily as possible a burden which is and should be onerous. Creditors, however, are not usually satisfied with a moral security, and experience and the present condi tion of Germany’s finances are such as to reinforce their natural desire for tangible and productive guar antees. . These are no less vital in the interest of Germany herself, who will be relieved of a large part of her political troubles if the main source of political contro versy is removed by a system which no longer makes the payment of reparation depend upon the constant maintenance or renewal of Governmental decisions. In particular, it is vital in the interests of our scheme, which depends for its success on the assured belief of the whole world in the regular observance of a settle ment once made. On the other hand, we do not hesitate to reject as undesirable, for the purpose which all have in view, save in certain extreme events, any system which would involve directly or indirectly the virtual control of all Germany’s revenue and expenditure. It would involve the controlling authority in responsibility for all financial troubles, and it might be a pretext for them. 17 The use of this safeguard general budgetary control should be reserved for the case of Germany’s willful failure to meet the obligations now laid upon her. If, as we believe, the payments which we have sug gested can be made without compromising budget stability, it is in our opinion not impossible to establish a system under which a combination of self-interest and latent pressure will suffice to assure sound financial administration. We believe that the object can be attained if, without in any way impairing t le first charge which now exists in favor of reparation on all Germany’s assets, certain specific revenues are assigned to, and under the control of, Germany’s creditors. These revenues will furnish a collateral, but not a primary, security and we suggest that they should be the taxes on customs, alcohol, tobacco, beer, and sugar. We propose for this purpose that they should pass directly into the hands of an impartial and effective control; that the treaty payments should first be deducted by the controlling authority for the account of the Allies; and that Germany should only have the use for her own purposes of such balance as may remain. We believe that this system contains t le greatest degree of effectiveness without involving the Allies in tie onus of responsibility for any breakdown in the execution of the plan. We recommend that the control should be instituted forthwith in spite of the fact that the budget supports no peace treaty charge in the year 1924-25. We make this recommendation for two reasons: Germany, by instituting this control, puts this part of the plan into execution in a definite and public manner, and in the second place early action will insure that con trol is in effective operation at the moment when part of the revenues is retained by Germany’s creditors. We would add that while leaving untouched the existing alcohol monopoly, we do not, in view of reports received from technical experts, propose the trans formation of consumption duties into new monopolies, though we recommend certain important new regula tions with regard to the sale of tobacco. CONTROLLED REVENUES—THEIR YIELD The estimate made by the German officials of these revenues for the year 1928-29, exclusive of customs, was 1,700,000,000 gold marks. The technical advisors specially consulted by the committee have estimated t ie yield at 2,146,000,000 gold marks. There is every prospect, therefore, that the assigned and controlled revenues will give a large margin over the treaty charge payments, even in the standard year, of 1,250,000,000 gold marks. The revenues are a security for a payment otherwise fixed. This principle renders possible a system of control which, while equally effective, is much more simple in operation, and is strengthened by the association of Germany’s self- 18 REPORTS OF COMMITTEES TO REPARATION COMMISSION in te re st. O nce th e tr e a ty charges are m e t she is e n ti tle d to th e w hole b alan c e a n d th erefo re she h as th e fu llest in d u c e m e n t to in crease th e yield. B u t she can to u c h no p a r t of th e re v en u es in a given p erio d u n til th e tr e a ty charges are fu lly m et; so t h a t e v ery in crease o p e ra te s in th e first in sta n c e to increase th e A llies’ se c u rity . W e h av e suggested ab o v e t h a t in th e y ea rs 1 9 2 6 - 2 7 a n d 1 9 2 7 - 2 8 th e a m o u n t of re p a ra tio n to be p aid should be d e p e n d e n t to som e e x te n t on' th e yield of th ese p a rtic u la r rev en u es. In o rd e r t h a t th e re m ay be no m isu n d e rsta n d in g , we desire to s ta te clearly t h a t in our opinion th is a rra n g e m e n t should be stric tly confined to th e tw o y ears in q u estio n a n d be re g ard ed as exceptio n al. W e believe it to be of th e g re a te st im p o rta n c e t h a t th e revenues sh o u ld n o rm ally be re g ard ed stric tly as secu rity , a n d sh o u ld n o t be relied u p o n in th e o rd in a ry course as th e d e te rm in a n t of th e a c tu a l su m to be p aid as re p a ra tio n . In p a rtic u la r, if th e yield of th e rev e nues exceeds th e a m o u n t to be secu red , th e excess should accru e to th e G erm an G o v e rn m e n t. O ur reasons for h o lding th e se opinions a re m o re fully s ta te d in P a r t I I . X V . E x t e r n a l L oan — I ts C o n d itio n s and P ur po se An in teg ra l p a r t of o u r schem e is th e issue b y G er m a n y of a foreign lo an of 8 0 0 ,0 0 0 ,0 0 0 gold m ark s; th is loan is p rim a rily essen tial for th e successful e sta b lish m e n t of th e new b a n k a n d to en su re th e sta b iliz a tio n of th e cu rren cy . T h e d ep o sit of th is a m o u n t in th e new b a n k will be a n im p o rta n t a n d necessary c o n tri b u tio n to its gold reserves a n d enlarge th e b asis of its cu rren cy issues. I t will th u s be en ab le d in th e second place, w ith o u t im p airin g its usefulness fo r th e ab o v e, to p la y a n im p o rta n t p a r t in solving th e p ro b lem c reated b y G e rm a n y ’s im m e d ia te a n d m ore u rg e n t obligations to th e Allies w hich do n o t n ecessita te th e tra n sfe r of m oney a b ro a d . We h av e a lre a d y s ta te d o u r conclusion t h a t G erm an y should n o t be called upon in th e y e ars 1 9 2 4 - 2 5 a n d 1 9 2 5 - 2 6 to p ro v id e for a n y tr e a ty charges o u t of o rd i n a ry b u d g e t resources, a n d we h av e d eferred to th is p o in t in d ic a tio n of m ean s b y w hich a co m p lete su s pension of p a y m e n ts m ay be av o id ed . T h e c u rre n t liab ilities of G erm an y u n d e r th e tr e a ty o th e r th a n liab ilities fo r cash p a y m e n ts in foreign currencies, com prising th e m o st essential deliveries in k in d , a n d costs u n d e r a n u m b e r of o th e r h ead s, are know n to be considerable. A lth o u g h th e ir precise a m o u n t is n o t easily d e te rm in a b le , th e y a g g reg ate to a large a m o u n t a n d if no a rra n g e m e n t is m a d e fo r m e e t ing o r red u cin g th e m th e y form a fo rm id ab le o b stacle in th e w ay of a co m p lete solu tio n . In th e y e a r 1 9 2 4 - 2 5 , th e e x tra -b u d g e ta ry resources can be relied u p o n to p ro v id e 2 0 0 ,0 0 0 ,0 0 0 gold m a rk s, being in te re s t on railw ay b o n d s. T h e q u estio n arises w h e th e r a fu rth e r su m can be p ro v id ed . \Ye first considered w h e th e r G erm an y w ould h av e sufficient c re d it a t th e o u ts e t to m e e t th e full a m o u n t of h e r charges b y lo an s or c a p ita l assets. In o u r view , it is im possible to say t h a t she could o b ta in funds, u n til h e r p o sitio n is well e stab lish ed , a d e q u a te to dis charge th e m . B u t it does n o t follow t h a t th e m o st pressin g of th e d e m an d s can n o t be m e t, for a con sid erab le su m can c e rta in ly be raised upo n th e good se c u rity t h a t th e p la n p ro v id es, w ith a clear p ro sp ect of im p ro v ed in te rn a tio n a l p o litical p o sitio n a n d of s ta b ility . T h e q u estio n is, th erefo re, w h e th e r th e claim s upo n G e rm a n y can be so red u ced b y a g reem en t am o n g th e A llied c red ito rs as to com e w ith in th is p o te n tia l c re d it. I f th e y can , th e n o b v iously th e g re a te r th e re d u c tio n , th e m ore m o d e ra te th e su m to be raised a n d th e g re a te r th e p ro b a b ility of G erm an y successfully raisin g a loan. If n o t, th e n th e loan will n o t be fo rth co m in g , sta b ility can n o t be in su red , a n d n e ith e r th is p la n n o r a n y o th e r can com e in to b eing. T h e successful la u n c h in g of th e scheme' d ep en d s th e re fore u p o n th re e m ain facto rs: (a ) L im ita tio n of p a y m e n ts fo r all p u rp o ses, to 1 ,0 0 0 ,0 0 0 ,0 0 0 gold m a rk s of w hich a t le a st 8 0 0 ,0 0 0 ,0 0 0 m u st be sp e n t in G e rm an y for th e first y e a r, a n d th e re a fte r to su ch su m s as a re av a ila b le u n d e r th e p lan d u rin g th e succeeding years; (5) C o o p eratio n betw een th e Allies a n d G e rm an y in secu rin g p o litical co n d itio n s w hich will incline th e in v e sto rs of th e w orld fav o ra b ly to w a rd th e G erm an lo an u p o n good secu rity ; a n d (c) A lo an of 8 0 0 ,0 0 0 ,0 0 0 gold m a rk s w hich will serve th e d o u b le p u rp o se of assu rin g cu rren cy sta b ility a n d financing e ssen tial deliveries in k in d d u rin g th e p re lim in a ry p erio d of econom ic re h a b ilita tio n . I t will be seen t h a t u n d e r th e p la n , a m o n g th e differen t rev en u es a v ailab le, am p le a n d sufficient se c u rity could be fo u n d to form th e basis of such a lo an , b o th as to in te re st a n d sin k in g fu n d . O bviously, th e first lo an should be fu lly secured, b u t it is e q u ally tr u e , th a t it is n e ith e r in th e in te re st of a first lo an n o r of th e R e p a ra tio n C om m ission to c reate a situ a tio n w hich w ould p reju d ice th e flo tatio n of su b se q u e n t G erm an loans o r th e re a liz a tio n of th e c a p ita l a ssets p ro v id e d fo r in th e p la n . T h e a m o u n t re q u ire d fo r th e service of th is first a n d a n y su b se q u e n t lo an s m u s t be d e d u cte d from th e sum s w hich in su b se q u e n t y e a rs can , in acco rd an ce w ith our p la n , be p lace d a t th e disposal of G e rm a n y ’s c re d ito rs. In effect th e loan is o nly a n a n tic ip a tio n of th e sum s su b se q u e n tly a v a ila b le w hich, it is n ecessary to em p h asize, re p re se n t in o u r opinion th e m ax im u m b u rd e n a n d th erefo re one n o t cap ab le of in crease. I t is n o t fo r us to offer suggestions as to th e p rio rity of claim s o r how th e su m s sh o u ld be d is trib u te d . On th is a sp e c t of th e m a tte r we confine ourselves to s ta tin g t h a t in th e in te re s t of c u rren cy sta b ility a n d to a id th e successful in a u g u ra tio n of th e new b a n k , th e p ro ceed s of th e lo an sh o u ld be used exclusively for REPORTS OF COMMITTEES TO REPARATION COMMISSION financing in te rn a l p a y m e n ts, such as deliveries in k ind (w h eth er d irect o r b y th e o p eratio n of th e re p a ra tio n recovery a c t), a n d t h a t p a r t of th e costs of th e arm ies of o ccu p atio n w hich rep resen ts e x p e n d itu re in G erm an y b y or on b eh alf of th ese arm ies. B u t we do a sse rt th a t , if as we believe, G e rm a n y ’s cred it w ifi be good enough to float such a lo an , it is n a tu ra l a n d necessary t h a t h er cre d it should be em ployed to ease th e b u rd en on h e r cred ito rs d u rin g th e period of h e r ow n recovery. In th e y e a r 1 9 2 5 - 2 6 , th e p ro b lem is so m ew h at differ e n t in c h a ra c te r. T h e reasons w hich m ak e a foreign loan essential in th e first y e a r sh ould h av e d is ap p eared . If confidence is in process of re e sta b lish m e n t a large reflux of c a p ita l to G erm an y is to be ex p ected. P eople, w hose o b je c t in tra n sfe rrin g m oney a b ro a d or in h o a rd ing foreign n o tes w ith in G erm an y has been sim ply to in su re a g a in s t fu rth e r loss, w ill, to a g re a t e x te n t, re c o n v e rt th is c a p ita l in to G erm an c u rren cy . O th er th in g s being eq u al, th e G erm an curren cy a n d exchange s itu a tio n will c o n tin u e to im p ro v e, a pheno m en o n w hich has been clearly exhibited in th e la s t 12 m o n th s in A u stria. T h e exchange p o sitio n of G erm an y w ill, th erefo re, be re la tiv e ly stro n g a n d h er b u d g e t po sitio n relativ ely w eak. In th e few succeeding y ears th e p o sitio n will be ex actly reversed; th e exchange will becom e n o rm al, b u t w eaker th a n d u rin g th e ab n o rm a l period of reco n s tru c tio n , w hile b u d g e t reso u rces should be enorm ously stre n g th e n e d . In view of these fa c ts, we see no d an g er, a n d p e rh a p s p o sitiv e a d v a n ta g e , in re q u irin g t h a t d u rin g 1 9 2 5 - 2 6 deliveries in k in d a n d t h a t p a r t of th e costs of th e arm ies of o ccu p atio n sp e n t in G erm an y by or on beh alf of th e arm ies should be financed u p to 1 ,2 2 0 ,0 0 0 ,0 0 0 gold m ark s b y sum s fa ise d in G erm an y itself. T h e abo v e sum is m ad e up of (1 ) railw ay in te re s t, p a rtly carried over from th e first y e a r, a m o u n tin g to 5 9 5 ,0 0 0 ,0 0 0 gold m ark s; (2 ) th e tr a n s p o rt ta x to th e a m o u n t of 2 5 0 ,0 0 0 ,0 0 0 gold m ark s; (3 ) in te re s t on in d u s tria l d e b e n tu re s a m o u n tin g to 1 2 5 ,0 0 0 ,0 0 0 gold m ark s; a n d (4 ) 2 5 0 ,0 0 0 ,0 0 0 gold m a rk s from th e b u d g e t p ro v id ed by th e sale of railw ay preference shares belonging to th e G erm an G o v e rn m e n t. If for a n y reason th e w hole of th e ab o v e sum s a re n o t p ro v id ed , th e balan ce sh ould be raised by a G erm an in te rn a l loan. X V I. O rg an ization T h e c o m m itte e ’s p lan p ro v id es for a com m issioner of th e b a n k of issue, a com m issioner of railw ay s, a com m issioner of controlled revenues, th e la st-n a m e d to h av e u n d e r his co n tro l a c e rtain n u m b e r of subcom m issioners severally in tru s te d w ith th e special rev en u es u n d e r co n sid e ra tio n a n d , if th e need arise, for a com m issioner of in d u s tria l d e b e n tu re . 19 T h e p la n also p rovides for an a g e n t for re p a ra tio n p a y m e n ts. In o rd er t h a t th e m ach in ery th u s se t u p b y o u r p lan m a y fu n ctio n p ro p erly , b o th in re latio n to th e R e p a ra tio n C om m ission a n d in its G erm an e n v iro n m e n ts, th e re m u s t be a n agency betw een th e R e p a ra tio n C om m ission a n d th e vario u s com m issioners. W e sug g est t h a t th is c o o rd in atin g agency devolv e u pon th e a g e n t for re p a ra tio n p a y m e n ts. , T he com m issioners w ould re ta in all resp o n sib ility for th e ca rry in g o u t of th e ta s k in tru s te d to each , only su b je c t to such co o rd in atin g policies as m a y p ro v e necessary in o rd er to avoid an y d u p licatio n of effort, o v erlap p in g of fu n ctio n s, unnecessary frictio n , an d generally all in terfe ren ce w ith th e h arm o n io u s w orking of o u r p lan . In case of a difference of opinion b etw een one com m issioner an d th e “ A gent G eneral for R e p a ra tio n P a y m e n ts ” in his ca p a c ity as co o rd in a to r, th e com m is sioner can ap p eal to th e R e p a ra tio n C om m ission. T h e existence of th is righfc of a p p eal will h av e a sa lu ta ry effect u pon th e re latio n s of th e co o rd in atin g agency an d th e d ifferen t com m issioners. T o fa c ilita te th e in te rch an g e of in fo rm atio n w hich will develop a s itu a tio n in its e n tire ty for a p p ro p ria te a c tio n a general co o rd in atin g b o a rd is also suggested in w hich th e v ario u s com m issioners o r re p re se n ta tiv e s n am ed by th e m will p a rtic ip a te to g e th e r w ith th e “ A gent fo r R e p a ra tio n P a y m e n ts ” a n d th e tru s te e . T h e c o o rd in atin g b o a rd is to h av e ad v iso ry pow ers only a n d is fo r th e p u rp o se of giving in fo rm atio n to th e a g e n t general to a ssist him in p re p a rin g c o o rd in a t ing orders. T hese suggestions are n a tu ra lly fa r from ex h au stin g th is im p o rta n t su b je c t, one of th e m o st im p o rta n t of o u r p la n . T h ey a re laid dow n sim ply as a n in d icatio n , as th e d ra ftin g of th e rules for such a co o rd in atio n will devolve u p o n th e R e p a ra tio n C om m ission so fa r as th e y h av e pow er, a n d u pon th e v ario u s G o v ern m en ts. R ules should be laid dow n for th e re n d erin g of periodical re p o rts a n d for th e p u b licatio n of such as th e p u b lic in te re s t m ay req u ire. W e desire, how ever, to record in th is connection t h a t th e expense of th e new m ach in ery p ro v id ed for by th e p la n can a n d should be co n ta in e d w ith in lim ited a m o u n ts a n d in a n y case be in cluded in th e a n n u itie s a lread y co n te m p la te d . Trustee.— T h e p la n also p ro v id es fo r th e a p p o in t m e n t of a tru s te e w ith th e follow ing du ties: H e will receive an d a d m in iste r th e railw ay a n d in d u stria l bon d s a n d will be a c c o u n tab le to th e R e p a r a tio n C om m ission for th ese a n d all o th e r securities. H e will in su re th e service (in te re st an d a m o rtiz a tio n ) of th e railw ay a n d in d u stria l bon d s b y m ean s of fu n d s re m itte d to h im for th is p u rp o se by th e a g e n t for re p a ra tio n p a y m e n ts. 20 REPORTS OF COMMITTEES TO REPARATION COMMISSION ' H e will fix th e co n d itio n s of th e a m o rtiz a tio n of th e bonds a n d if necessary th e re d e m p tio n a t p a r of all or a p a r t of th e bo n d s n o t y e t a m o rtiz e d , by m ean s of a n y su p p le m e n ta ry p a y m e n ts w hich m ay be m ad e b y th e G erm an G o v e rn m e n t, th e railw ay co m p an y or in d u s try . W ith th e a u th o riz a tio n of th e R e p a ra tio n C om m is sion a n d fo r its b en efit, th e tru s te e m ay sell th e bonds w hich he holds, a n d m a y use th e m o rta g e bo n d s a n d deeds w hich he holds to secure new secu rities w hich he m ay him self issue. B o th th e a g e n t a n d th e tru s te e should be ap p o in te d by th e R e p a ra tio n C om m ission. In fram in g th e o rg an iz a tio n of c o n tro l, th e c o m m ittee h as a d o p te d as fu n d a m e n ta l th e p rin cip le th a t , if th e p la n is to yield th e b e st financial re su lts, it is desirable t h a t co n tro l sh o u ld be of such a n a tu re as n o t to in v o lv e th e a ssu m p tio n of resp o n sib ility by th e com m issioner fo r G erm an a d m in is tra tio n , th o u g h th e c o m m itte e recognize t h a t th is p rin cip le can n o t be a d h e re d to in case d e fa u lt u n d e r th e p la n arises. X V II . T h e N a t u r e of th e P lan In concluding th is p a r t of o u r re p o rt, th e re a re several p o in ts w hich we desire to em phasize. In th e first place we re g a rd o u r re p o rt as a n in d iv is ible; w hole. I t is n o t possible, in o u r opinion, to achieve a n y success b y selectin g c e rta in of o u r recom m e n d atio n s fo r a d o p tio n a n d re je c tin g th e o th e rs, a n d we w ould desire to a c c e p t no resp o n sib ility for th e re su lts of such a p ro c e d u re n o r for u n d u e d elay in giving execution to o u r p la n . In th e second p lace, as w e h a v e re m a rk e d earlier, o u r p lan is stric tly d e p e n d e n t u p o n th e re s to ra tio n of G e rm a n y ’s econom ic so v ereig n ty , a n d it is im p o rta n t to observe t h a t th e o p e ra tio n of th e p lan will be p ro p o rtio n a te ly p o stp o n e d if th e re is a d elay in effecting t h a t re s to ra tio n . T h e v ario u s d a te s w hich we m en tio n in th e re p o rt m u s t be in te rp re te d in th e lig h t of th e abo v e re m a rk . F ro m th e sta n d p o in t of th e ta x p a y e r in cre d ito r co u n tries th e p lan m ean s in d u e course a n a n n u a l relief to th e e x te n t of 2 $ m illiard s, p lu s such a d d itio n a l a m o u n t as th e index of p ro sp e rity m ay p ro v id e. On th e o th e r h a n d from th e sta n d p o in t of th e ta x p a y e r in G erm an y th e p lan m ean s a d ire c t b u rd en of o n ly o n e-h alf th is su m , viz, 1 J m illiard s per y e a r, a n d th e tr a n s p o rt ta x , p lu s su ch a d d itio n a l a m o u n t as m ay re p re se n t o nly a rela tiv e ly sm all sh are in increased p ro sp e rity . T h e G erm an ta x p a y e r can look w ith o u t a n x ie ty upo n th e re m a in d e r of th e p a y m e n t of 2 2 m illiard s, fo r it re p re se n ts a re la tiv ely sm all b u rd e n on G erm an in d u s try , w hich h as been th e beneficiary of su b s ta n tia l special p ro fits a n d o nly a m o d e st re tu rn on a large c a p ita l in v e ste d in ra ilro ad s w hich a re yielding h im no relief in ta x a tio n in his b u d g e t a t p re se n t, such c a p ita l h av in g been a c c u m u la te d p rio r to th e w ar. W e a re satisfied t h a t th e c o n trib u tio n s from railw ay a n d in d u stria l d e b e n tu re s will n o t be reflected to a n y su b s ta n tia l degree in a b u rd e n to th e in d iv id u al G erm an ta x p a y e r; as reg ard s th e railw ay s it will o nly re q u ire th e sam e k in d of re tu rn as exists in sim ilar en te rp rise s in m a n y c o u n tries. O ur p u rp o se h as been to s e t up a m a ch in ery w hich will secure th e m ax im u m p a y m e n t w hich G erm an y can m ak e in each y e a r in h e r ow n c u rre n c y . W e do n o t sp ecu late on th e a m o u n t w hich can a n n u a lly be p a id in foreign cu rren cy o r on G e rm a n y ’s c a p a c ity to m ak e a to ta l p a y m e n t. . T h e c o m m itte e is c o n fid en t t h a t it lies w ith in th e pow er of th e G erm an people to resp o n d to th e b u rd en s im posed by th e p la n , w ith o u t im p a irin g a s ta n d a rd of liv in g c o m p arab le to t h a t of th e A llied co u n tries a n d th e ir neig h b o rs in E u ro p e , w ho a re likew ise su b je c t to h e a v y b u rd e n s, largely re su ltin g fro m th e c a ta s tro p h e of th e w ar. W e h a v e n o t concealed from ourselves th e fa c t t h a t th e re c o n stru c tio n of G e rm an y is n o t an end in itself, I t is o nly p a r t of th e la rg e r p ro b lem of th e re c o n stru c tio n of E u ro p e . * W e w ould p o in t o u t finally t h a t w hile o u r p lan does n o t, as it could n o t p ro p e rly , a tte m p t a so lu tio n of th e w hole re p a ra tio n p ro b lem , it foreshadow s a se ttle m e n t ex te n d in g in its a p p lic a tio n fo r a sufficient tim e to re sto re confidence, a n d a t th e sam e tim e is so fram ed as to fa c ilita te a final a n d co m p reh en siv e a g re e m en t as to all th e p ro b lem s of re p a ra tio n a n d co n n ected q u estio n s as soon as c ircu m stan ces m ak e th is possible. REPORTS OF COMMITTEES TO REPARATION COMMISSION 21 PART II I. T h e C u r r en c y P o s it io n The conditions at the outset of our inquiry.— W hen we s ta rte d o u r in v estig atio n s th e v alu e of G erm an currency h a d been stab le fo r som e tw o m o n th s. I t w ould n o t h a v e been p re te n d e d , how ever, b y an y a u th o rity t h a t G erm an currency h a d been stabilized. I t w ould p erh ap s b e ju s te r to ap p ly th e te rm “ u n stab le eq u ilib riu m ” th a n th e te rm “ s ta b ility ” to th is tra n s i tio n p erio d , w hich h as fo rtu n a te ly co n tin u ed to th e p resen t d a y . T h e elem en ts of p e rm a n e n t s ta b ility , even if th e repercussions of th e b u d g e t situ a tio n are m o m en tarily le ft o u t of ac c o u n t, w ere th e n a n d are still w an tin g . One of th e first step s w hich th e c o m m ittee took w as to req u est D o cto r S c h ach t, th e g overnor of th e R eichsb an k a n d th e currency com m issioner of th e R eich, to give evidence before th e m w ith a view to th e ir being fully inform ed of th e existing curren cy s itu a tio n . Quantity of currency.— T h e to ta l circu latio n , alth o u g h so enorm ous in n o m in al v alu es, w as, w hen reduced to its gold e q u iv a le n t a t t h a t d a te , so m eth in g over 3 m illiard gold m a rk s on ly , w hereas th e p re-w ar circula tio n in G erm an y h a d a m o u n te d to 6 m illiard gold m ark s. P rim a facie, th erefo re, th e a m o u n t of currency seem ed deficient ra th e r th a n excessive, an d n o t likely in itself to be a cause of fu rth e r d ep reciatio n . In p ro p o rtio n as th e G erm an m a rk dw indled in valu e a n d becam e less a n d less u tilizab le for th e threefold fu n ctio n of sta n d a rd of v alu e, in s tru m e n t of p a y m e n t a n d m edium of sav in g , foreign currencies n a tu ra lly becam e b y force of circu m stan ces, m ore a n d m ore so u g h t a fte r in G erm an y . T h e G erm an s reso rted in creasingly to th e currencies of co u n tries w ith a com p a ra tiv e ly sta b le exchange, n o t only to in v e st th e ir savings, b u t also to define an d even se ttle th e ir tra n s a c tio n s, a n d th e presence of such currencies in G erm an y increased ever m ore as th e m a rk d ep reciated fu rth e r. In sp ite of th is ex ten d ed use of foreign currencies in G erm an y , th e sh o rtag e of p u rch asin g pow er m ad e itself increasingly fe lt, leading first th e G erm an G ov ern m e n t, th e n th e S ta te s a n d m u n icip alities, an d finally th e g re a t in d u stria l an d a g ric u ltu ra l o rganiza tio n s a n d even p riv a te firm s to su p p lem en t th e cu r rency sh o rtag e by new in s tru m e n ts of p a y m e n t. T hese token currencies, expressed in gold o r p a p e r m ark s, sprang u p in G erm an y in th e su m m er of 1 9 2 2 , a t a m o m en t w hen th e need becam e u rg e n t to find new m eans to m e e t th e re q u ire m e n ts of c u rre n t tra n sa c tio n s, th e old m a rk on th e verge of its collapse no longer answ ering such req u irem en ts. A t th e e n d of 1 9 2 3 , we find in G erm an y an ab so lu te ly h etro g en eo u s m o n e ta ry c irc u la tio n , w hich in cluded— besides th e foreign m o D jy in circu latio n or i 101585-24-4 h o ard ed (d o llars, p o u n d s, florins, g ulden, Swiss fran cs, F ren ch fran cs, S can d in av ian crow ns, e tc .)— th e old p a p e r m a rk s, do llar tre a su ry bonds (D o lla rsc h a tsa n w eisungen), b onds of th e gold loan (W e rtb e sta n d ig e A nleihe), 6 p e r c e n t T re a su ry bonds (6 p e r ce n t S ch atzan w eisu g en ), re n te n m a rk s, an d , la stly , a w hole se t of odd em ergency currencies (N o tg eld ) expressed eith e r in gold or in p a p e r m a rk s. Backing.— T h e se cu rity of th e re n te n m a rk s is a m o rtg ag e on real a n d to som e e x te n t on perso n al p ro p e rty . T he so-called gold lo an is rep ay ab le in legal te n d e r on a gold basis b u t has no gold b ack in g . T he vario u s form s of em ergency m oney w ere for th e m o st p a r t based on no se c u rity a t all. T h e gold reserv e of th e R eich sb an k a m o u n te d to som e 4 6 7 ,0 0 0 ,0 0 0 , b u t 2 0 0 ,0 0 0 ,0 0 0 th ereo f w as specifically e a rm a rk e d as se cu rity for th e do llar loan issued b y th e R eich in 1923. T ak en as a w hole th e refo re th e liq u id b ack in g of th e cu rren cy is w holly in a d e q u a te for a p e rm a n e n t sy stem . Interchangeability.— T h e re n te n m a rk is n o t ac tu a lly legal cu rren cy w ith in th e co u n try n o r a v a ilab le for a n y purposes of foreign tra d e . T h e old currencies w ith , th e ir v a s t d en o m in atio n s rem ain th e legal cu rren cy , b u t prices are every w h ere expressed in re n te n m a rk s. I t is th erefo re obviously necessary t h a t p a y m e n ts sh ould be m ad e in d ifferen tly e ith e r in R eich m ark s or in re n te n m a rk s a t a fixed re latio n b etw een th e m . T he R eich sb an k acco rd in g ly accep ts re n te n m a rk s a t th e ra te of 1 re n te n m a rk for 1 ,0 0 0 ,0 0 0 ,0 0 0 ,0 0 0 p a p e r m a rk s, a n d re n te n m a rk s are also accep ted in p a y m e n t of tax es a t th e sam e ra te . A nnex 7 to th e p re s e n t re p o rt show s in som e d e ta il th e curious m o n e ta ry situ a tio n in G erm an y a t th e end of J a n u a r y la s t. . The present tranquillity.— As th e c o m m ittee have rem ark ed , th e elem en ts of cu rren cy s ta b ility w ere n o t to be fo u n d in such a s itu a tio n . T h e te m p o ra ry eq u i lib riu m of th e G erm an exchange has been ascribed to v ario u s causes b y d ifferent a u th o ritie s; som e la y stress u p o n psychological fa c to rs, a n d in p a rtic u la r a re new al of confidence, th e e x a c t basis of w hich i t w ould be difficult to d ete rm in e , b u t w hich took a c c o u n t of th e efforts being m ad e by th e G erm an G o v e rn m e n t to b alance its b u d g e t, a n d of th e a p p o in tm e n t of th e C o m m ittees of E x p e rts b y th e R e p a ra tio n C om m ission; o th e rs refer to a decrease in in te rn a l co n su m p tio n w hich w ith th e lack of c re d it, acco m p an ied by w h a t was p ro b a b ly an excessive re s tric tio n in im p o rta tio n , red u ced th e d em an d s b q th for th e circ u la tin g m edium a n d for foreign currencies. Credit facilities.— T h e ex p o rta tio n of th e re n te n m a rk is p ro h ib ite d . I t s existence w as of no assistan ce in th e 22 m a in ten an c e of foreign tra d e . T h e re ich sm a rk w as to o d iscred ited to be a n y longer av a ila b le fo r th e p u rp o se of m eetin g foreign o b lig atio n s. C re d it w as o nly o b ta in ab le a b ro a d a t d a n g ero u sly high ra te s of in te re st. A t th e sam e tim e , th e cu rren cy d ep re c ia tio n a n d its secondary effect h a d p ro d u ced a serious d e a rth of liq u id c a p ita l in G erm an y itself. T h e strin g e n c y m a y be in d ic a te d b y th e fa c t t h a t (acco rd in g to figures fu r nished to us) th e sav in g s b a n k d ep o sits h a d fallen from 1 0 ,7 0 0 ,0 0 0 ,0 0 0 a t th e en d of 1 9 1 3 to 7 6 0 gold m a rk s a t th e end of 1 9 2 2 ; th e c re d it acc o u n ts in th e e ig h t large B erlin b a n k s a m o u n te d to 7 ,4 0 0 ,0 0 0 ,0 0 0 a t th e en d of 1 9 1 3 a n d to a b o u t 1 ,0 0 0 ,0 0 0 ,0 0 0 a t th e en d of 1 9 2 2 . T h e figures fo r 1 9 2 3 a re n o t y e t av a ila b le b u t can scarcely e x h ib it a n im p ro v e m e n t. L eav in g fo r th e m o m en t o u t of a c c o u n t c a p ita l w hich in one form or a n o th e r h a d been e x p o rted , liq u id c a p ita l in m o n e ta ry form s liab le to d ep re c ia tio n h a d been ste a d ily co n v e rte d in to fixed a ssets w ith a p e rm a n e n t in trin sic v alu e. T h e p riv a te in d iv id u a l h a d p u rc h a se d con su m ab le com m odities, w hile in d u s tria l en te rp rise s h a d larg ely ex te n d e d th e ir p la n t a n d e q u ip m e n t. T h e m o to r w as in good, p e rh a p s in u n u su a lly good, co n d itio n , b u t th e m o tiv e pow er a n d lu b ric a tio n w ere a p p a re n tly lack in g . Immobile credit resources.— On th e o th e r h a n d , th e re w as general a g re e m e n t t h a t n o t in co n sid era b le re sources w ere av a ila b le in th e sh ap e of G erm an balan ces a b ro a d a n d foreign cu rrencies in th e p o ck ets of th e p o p u latio n in G erm an y itself. T h is la tte r ite m alone h as been e stim a te d a t 1 .2 m illiard gold m a rk s b y th e co m m ittee a p p o in te d to consider th e m ean s of e stim a t ing th e a m o u n t of G erm an e x p o rted c a p ita l. I t w as reaso n ab le to suppose t h a t a larg e p ro p o rtio n of th e se resources w ould be a v a ila b le if co m p lete confidence in th e sta b ility of G erm an c u rren cy could be re sto re d a n d m a in ta in e d . As s ta te d in P a r t I, th e co m m itte e consider t h a t th is end can b e st be secured b y th e in s titu tio n u n d e r p ro p e r safeg u ard s of a new b a n k w hich sh o u ld ab so rb th e ex istin g cu rren cies, liq u id a te th e re n te n b a n k , a n d tra n sfo rm th e R eic h sb a n k , a n d p ro v id e, a g a in s t rec ognized b a n k in g , cover th e foreign currencies neces sary for th e re v iv a l of G e rm a n y ’s la n g u ish in g tra d e . T h e p la n fo r th is b a n k is g iven in A nnex 1. P sychological c o n sid eratio n s seem im p e ra tiv e ly to re q u ire a n in s titu tio n w hich sh o u ld be so fa r new in its policy a n d its a d m in is tra tio n as to d e ta c h it en tire ly from th e erro rs of th e re c e n t p a s t a n d re sto re th e older tra d itio n s of G erm an b a n k in g . The interim bank.— W hile com ing to th is conclusion a n d w hile red u cin g th e gen eral p la n to d e ta ils, th e co m m itte e h a d to d eal w ith a n a c tu a l ch an g e in th e tu a tio n as it o riginally p re se n te d itself. T h e com m itte e w ere in fo rm ed t h a t a schem e for a gold b a n k w as in p re p a ra tio n . I t w as expressly a n d a d m itte d ly lim ite d to p ro v id in g th e m ean s of ca rry in g on foreign tr a d e . W hen first s u b m itte d i t co n ta in e d som e fea tu re s w hich th e c o m m itte e w ould n o t h a v e recom REPORTS OF COMMITTEES TO REPARATION COMMISSION REPORTS OF COMMITTEES TO REPARATION COMMISSION m e n d e d , a n d i t o m itte d o th e rs w hich seem ed to th e co m m itte e to be essen tial to a n y p e rm a n e n t se ttle m e n t of th e p ro b lem as a w hole. M o reo v er, a n a tte m p t to se ttle p a rtic u la r difficulties in iso latio n a n d w ith o u t reference to o th e r essen tial re q u ire m e n ts a p p e a re d to th e c o m m itte e to involve c e rta in risk s. T h e c o m m itte e , th e re fo re , w ith o u t expressing an y opinion on th e p la n as given to th e m in o u tlin e , assu red th em selv es in c o n su lta tio n w ith th e a u th o ritie s re sponsible fo r G e rm a n y ’s m o n e ta ry p olicy t h a t th e b a n k w ould be so o rganized as to fa c ilita te its a b so rp tio n in to a new b a n k of issue w hich m ig h t b e se t u p in acco rd an ce w ith th e re c o m m e n d a tio n s of th e com m itte e . I I . C o n sid er a tio n s R eg a rd in g t h e M ea su r e m e n t of G er m a ny ’s B u r d en (o ) COM M ENSURATE T A X A T IO N In P a r t I w e refer to th e fa c t t h a t we h a v e ta k e n full a c c o u n t of th is p rin cip le. B u t it is n ecessary for us to m ak e som e fu rth e r o b se rv a tio n s th e re o n . T h e p rin cip le of th e “ co m m e n su ra te b u rd e n ,” as i t h as been called, u n im p e a c h a b le in a b s tra c t s ta te m e n t, is exceedingly difficult to tr a n s la te in to q u a n tita tiv e m e a su re m e n t as a basis fo r p ra c tic a l a c tio n . W hile o b viously so u n d a n d ju s t, it does n o t easily a d m it of precise ancf a rith m e tic a l calc u la tio n . W h a t a t first sig h t seem s to be a sim ple co n cep tio n , on ex am in a tio n is fo u n d to be com plex a n d in som e resp ects n o t red u cib le to ex a c t defin itio n . N ow th e o rd in a ry e x p e n d itu re w hich h as to be p ro v id ed fo r in th e G erm an b u d g e t is re d u c e d , in p a r t by th e re stric tio n u p o n h e r m ilita ry p re p a ra tio n s b u t a b o v e all b y th e p ra c tic a l e x tin c tio n of h e r in te rn a l d e b t. If G e rm an y h a d su sta in e d th e b u rd e n of h e r own d e b t, as th e Allies h a v e d o n e, a n d n o t o b lite ra te d it b y in fla tio n , sh e w ould h a v e h a d to raise 4£ to 5 m illiard s p e r a n n u m in a d d itio n to h er dom estic e x p e n d itu re . T h is w ould m a k e it b o th ju s t a n d p ra c tic a b le to a d d a p ro v isio n in h er b u d g e t w hich sh o u ld b e a r som e co rresp o n d en ce to th e p ro v isio n m a d e in th e A llies’ b u d g e ts fo r th e ir w ar e x p e n d itu re . B u t th e raisin g of a n y p a rtic u la r su m fro m one sec tio n of h e r in h a b ita n ts , to be p a id b ack to a n o th e r sectio n w ith in h er b o rd ers, is a “ b u r d e n ” in a different sense fro m th e p a y m e n t of su ch a su m b y th e w hole p o p u la tio n to p eople a b ro a d — d ifferen t in m ore th a n th e econom ic sense— a n d i t is difficult to b rin g such a ta s k in to d ire c t re la tio n w ith th e p ro b lem of re p a ra tio n s. I t is a m easu re of w h a t in d iv id u a l ta x p a y e rs, ra th e r th a n a n a tio n , m ay be c ap ab le of b earin g . In th e first case th e in te re s t p a id fo rm s a p a r t of th e n a tio n a l incom e, as it is ex p en d ed i t p ro v id es p ro fits a n d a stim u lu s fo r in te rn a l tr a d e a n d so increases fu rth e r th e incom e of th e c o u n try , a n d in p a rtic u la r i t is itself a n im p o rta n t so u rce of in te rn a l ta x a tio n . A p a y m e n t in resp ect of a d e b t to foreigners has no co m p arab le a d v a n ta g e s to th e c o u n try m ak in g it. T he ex tin ctio n of th e G erm an d e b t has a fte r all been a t th e expense of h er ow n n a tio n a ls, w ho are h e r ta x pay ers; th e y h av e su sta in e d as holders of G erm an bo n d s, n o t only th e b u rd e n w hich th e y h a v e alread y escaped as ta x p a y e rs, b u t t h a t w hich th e y w ould have bo rn e in fu tu re years to m eet th e service of th e in te rn a l d e b t if its v alu e h a d n o t been d estro y ed b y dep recia tio n . T h e process of ex tin ctio n has indeed (except in its incidence as b etw een d ifferen t in d iv id u als an d classes) h a d th e sam e resu lts b o th to th e tre a su ry an d to th e G erm an ta x p a y e r reg ard ed collectively w ith a c a p ita l levy d e v o ted to d e b t ex tin ctio n . T h e loss in cu rred b y in d iv id u al holders of d e b t is ex actly offset b y a corresponding p ro fit accruing to th e ta x p a y e rs as a w hole. I t ren d ers b o th p ra c tic a b le a n d ju s t a g re a te r ch arg e for o th e r w ar d e b ts th a n w ould otherw ise have been possible. A large p ro p o rtio n of th e rich est ta x p a y e rs of th e c o u n try h av e o b ta in e d th e relief w ith o u t them selves su s tain in g th e cost. T h ey are a p ro p e r source of ta x a tio n co m m en su ra te w ith t h a t w eighing^ u pon th e corresponding classes in allied co u n tries an d in p a rtic u la r u pon th e in d u s tria l classes. T o th e m as in d iv id u al ta x p a y e rs a ta x is a ta x w h eth er its u ltim a te d e stin a tio n is th e p a y m e n t of a w ar d e b t d u e to fellow citizens or to foreigners. A nd u n d e r th e sy stem we propose it m ay be reg ard ed as a ta x in in te rn a l c u r ren cy w ith o u t th e com plications w hich re s u lt from th e qu estio n of how sum s so received can be co n v erted in to foreign exchange. F o r th is special p ro b lem we p ro v id e special safeg u ard s. T h e G erm an ta x p a y e r should reg ard a p a y m e n t in resp ect of w ar d e b t ex actly as an allied ta x p a y e r re g ard s a sim ilar p a y m e n t. Its u ltim a te d e stin a tio n need n o t concern him , a n d is certa in ly no ju stificatio n for him to a tte m p t to ev ad e it. T h e fa c ts as to th e b u rd e n a c tu a lly being b o rn e by th e Allies for d e b t service are p e rh a p s a b e tte r a p p ro ach to th e a c tu a l p ro b lem . If th e G erm an b u rd e n p e r head for d e b t w ere as onerous as th e b u rd e n for d e b t existing u pon th e in h a b ita n ts of B elgium , F ra n c e , G re a t B rita in , a n d Ita ly ta k e n to g e th e r, th e n th e G erm an d e b t charge w ould a p p ro x im a te to 6 m illiard s. B u t in th is case, a g ain , th e charg e is to a considerable e x te n t in th e n a tu re of a re d istrib u tio n of a n n u a l w ealth am o n g th e m em b ers of each n a tio n a n d has little re latio n to th e p roblem of a n a tio n a l b u rd en in th e collective sense. In th e th ird place, it m ay be said t h a t if th e G erm an people w ere b u rd e n e d as h eav ily as th e m em b ers of th e m o st heav ily ta x e d of th e allied co u n tries a re tax ed for all p u rp o ses, excluding debt charge, we should h av e a n expression of th e c o m m en su ra te b u rd en prin cip le in a lim ited an d stric tly defensible sense. B u t even h ere th e o re tic a l a n d p ra c tic a l difficulties p re v e n t ex actness. 23 I n th e search fo r th e “ c o m m e n su ra te ” i t is n o t enough to c o m p u te th e b u rd e n as a p e r c a p ita charge, i t m u s t be re la te d to p e r c a p ita w ealth o r incom e; it is considered b y m a n y t h a t ju s tic e req u ires a “ m in i m u m of su b s iste n c e ” to be first d e d u c te d from such p e r c a p ita incom e; th e a m o u n t of th e m in im u m is n o t ex actly d e te rm in a b le a n d it seem s to v a ry as betw een d ifferen t c o u n tries of d ifferen t clim ates, d ifferen t econom ic d ev elo p m en t, a n d d ifferen t cu sto m s, e. g., as b etw een S pain a n d th e U n ited S ta te s; i t m ay even v a ry betw een d ifferen t periods in th e sam e c o u n try . As a ro u g h w orking a ssu m p tio n , such a m in im u m m ay be reg ard ed as v a ry in g in p ro p o rtio n to th e p e r c a p ita incom e of d ifferen t co u n tries. F u rth e rm o re , over an y period of tim e th is b u rd e n p e r h ead in th e allied coun trie s m u s t change a n d w h a t m ig h t be a v alid c o m p ari son to -d a y in ta x a tio n in th o se co u n tries m ay be q u ite d ifferen t in 10 y e a rs’ tim e . T h e com parison of s ta tis tics of to ta l ta x a tio n , n a tio n a l an d local, in each co u n tr y p re se n ts m a n y te ch n ical difficulties. M oreover, s ta tis tic s of to ta l n a tio n a l incom e a n d incom e p er head a re a t p re s e n t e ith e r v ery d efectiv e or w holly lacking. N o tw ith s ta n d in g th e se difficulties it is possible to co m p u te ro u g h ly w h a t total* b u d g e t charge w ould be b o rn e b y th e G erm an people if th e y w ere su b je c t to ta x a tio n (c e n tra l a n d local) on th e sam e scale p er u n it of incom e as in G re a t B rita in , a n d by d ed u ctin g from th e re su lt th e necessary d om estic e x p e n d itu re to d eriv e a n a rith m e tic a l b alan c e w hich could be, th e o re tically a t a n y r a te , assigned to th e p a y m e n t of re p a ra tio n . C om bining th ese v ario u s asp ects, we h a v e reached th e view t h a t th e “ co m m en su ra te b u r d e n ” principle fo r G erm an y , w hen she is fully re sto re d to econom ic p ro s p e rity , w ould m ore th a n ju s tify all th e p ra c tic a l conclusions we h a v e se t dow n a n d t h a t th e y a re in every w ay m orally defensible. T h ere a re , of course, good reasons of a p o litical, econom ic, a n d psychological c h a ra c te r for confining th e a c tu a l re q u ire m e n ts of b u d g e t accu m u latio n w ithin G erm an y to lim its well below th e figure t h a t w ould be a rriv e d a t from th e co n sid eratio n of th is principle by itself. D ifferent in d iv id u als will differ in th e d e gree of im p o rta n c e th e y assign to such reaso n s. I t is p e rh a p s unnecessary to s ta te th ese asp ects in d e ta il a n d sufficient to reg ister o u r u n ite d conviction t h a t all o u r reco m m en d atio n s a n d suggestions are well w ith in w h a t can be m orally ju stified on th e p rin cip le of “ com m e n su ra te b u rd e n ,” w h a te v e r lim ita tio n s m ay be placed u p o n t h a t p rin cip le. In th is sense, th erefo re, th e ju s tic e a n d m o d eratio n of o u r proposals o u g h t to be fully recognized by th e G erm an people them selv es. In th e ab o v e discussion w e h a v e disreg ard ed th e q u estio n of railw ay p ro fits. In a sm u c h as b u d g e t rev en u e is n o t derived from p ro fits on railw ays else w here, no q u estio n arises as to w h e th er railw ay p ro fits are a b u rd e n (in th e sense of a ta x ) . Such p ro fits in REPORTS OF COMMITTEES TO REPARATION COMMISSION 24 o th e r co u n tries form a p a r t of th e o rd in a ry p ro fits of p riv a te concerns accru in g to in d iv id u a ls, a n d it m ay be said th erefo re t h a t in G erm an y th e p o sitio n of th e ta x p a y e r is th e sam e, w h e th e r such p ro fits go to in d iv id u als o r to th e Allies as re p a ra tio n . O n th e o th e r h a n d , th e G erm an railw ay p rofits m ig h t go in relief of ta x a tio n b u rd e n s if th e y w ere n o t applied to re p a ra tio n s. M oreover, i t is difficult to say t h a t th e a b stra c tio n of th e p ro fits of so im p o rta n t a n u n d e rta k in g as th e railw ay s of a c o u n try fro m t h a t co u n try , in s te a d of leav in g th e m th e re to be enjo y ed in d iv id u ally o r collectively b y th e in h a b ita n ts , is n o t a “ b u rd e n ” in th e in te rn a tio n a l sense, even if it is n o t a p a r t of th e in d iv id u a l commensurate burden of taxation. (b) EXPO RT S T A T IS T IC S AS AN IN D E X OF P R O S P E R IT Y In P a r t I we h av e suggested a n index of p ro sp e rity a n d in d icate d t h a t in o u r opinion it was a fa irer te s t th a n th e existing index, n am ely , ex p o rt sta tistic s. T h e use of th e la tte r in iso latio n h as c e rta in definite defects, to som e of w hich we desire to d raw a tte n tio n . 1. Foreign tr a d e o nly Rovers p a r t of th e a re a of to ta l tra d e , a n d if foreign tra d e a t a given m o m e n t only covers a sm all p a rt of th e a re a , to ta l tra d e m ay be m oving in a d irectio n opposed to t h a t of foreign tra d e . 2 . A rtificial c o n d itio n s, such as a lte ra tio n s in tr a n s p o rt charges, m ay affect th e tra d e figure in th e ab sence of an}’ real change in th e v alu e or volum e of ex p o rts. 3 . T he e x p o rt s ta tistic s, m ore especially w hen no ex p o rt d u ty is in force, m ay be su b je c t to changes in p re se n ta tio n a n d fre q u e n tly fu rn ish m a te ria l for co n tro v ersy . 4 . R e p a ra tio n p a y m e n ts th em selv es a re , a n d can only be, financed b y an excess of ex p o rts. I t follows t h a t an in creased re p a ra tio n p a y m e n t in one y e a r furnishes a n in creased base for th e follow ing y ea r. T his process is c u m u la tiv e , a n d th e basis fo r th e index is co n tin u o u sly ra ise d , so to sp eak , a t com pound in te re st, even th o u g h a c tu a l p ro sp e rity m ay be s ta tio n a ry . 5. In a c o u n try w ith an econom ic life such as t h a t of G erm an y invisible ex p o rts m a y in crease m ore rap id ly th a n phy sical e x p o rts, a n d th e re m a y be a grow ing p ro sp e rity w hich is n o t reflected in e x p o rt sta tistic s. (c ) M EASUREM ENT BY Y IE L D OF P A R T IC U L A R TAXES We h av e laid som e stress in P a rt I on th e fa c t th a t certain rev en u es w ere chosen s tric tly as g u a ra n te e s a n d th a t flu c tu a tio n s in th e ir yield w ere n o t to be reg ard ed (sav e in 1 9 2 6 - 2 7 a n d 1 9 2 7 - 2 8 ex cep tio n ally ) as d eterm in in g th e p a y m e n ts d u e by G erm a n y . T h e follow ing a re th e b ro ad p rin cip les ju stify in g th is sta n d p o in t: 1. I t is desirab le th a t th e G erm an G o v e rn m e n t a n d th e G erm an people sh o u ld be th em selv es in te re ste d in REPORTS OF COMMITTEES TO REPARATION COMMISSION increasing th e yield of th e co n tro lled re v en u es, a n d should be u n d e r no te m p ta tio n to d isc rim in a te a g a in s t th ese ta x e s in fa v o r of o th e rs. 2. T h e y e a r's lia b ility , w hich u n d e r o u r p la n in clu d e a n allow ance for in creased p ro s p e rity , w ill a lread y h av e been e stab lish ed b y one te s t, in w hich, m o reover th e yield of th e co n tro lled rev en u es in d ire c tly form s one e lem en t. H a v in g a p p lied one te s t, it w ould be u n fair to a p p ly a second a n d to choose w h ichever gives th e h ig h er re su lt. 3. T h e y e a r’s lia b ility o u g h t n o t to v a ry w ith th e fo rtu ito u s yield of p a rtic u la r ta x e s. T h e c h a ra c te r a n d level of th ese tax e s sh o u ld be chosen w ith a view to th e ir su ita b ility as se c u rity a n d n o t w ith a view to th e ir a p p ro p ria te n e ss fo r fixing o b lig atio n s. U nless th e lia b ility of th e y e a r is defin itely fixed a n d unless th e G erm an G o v e rn m e n t can p roceed to e s ti m a te its resources by reference to th e w hole a n d n o t p a rt of th e ta x a b le field, th e difficulties of fo rm ing a sa tisfa c to ry b u d g e t a re a g g ra v a te d a n d G erm an c re d it is affected. 4. C om m on sense re q u ires t h a t th e re p a ra tio n pliability o u g h t n o t to re s t even in d ire c tly u p o n th e ra te of p a rtic u la r ta x e s, o r oth erw ise e v ery ch an g e in ra te s o r m e th o d s of collection, ev en w hen th o ro u g h ly ju stified b y social or p o litical reaso n s, m u s t be s c r u ti nized w ith such a degree of care a n d p e rh a p s su sp icion t h a t it becom es a fru itfu l source of frictio n a n d d isp u te . III. T h e G e r m a n B u d g e t F is c a l f o r 19 24 -25 , a n d t h e S y s t e m The 1924-25 budget.— T h e G erm an G o v e rn m e n t p re p a re d a n d s u b m itte d to us th e o u tlin e of a p ro v isional b u d g e t for 1 9 2 4 - 2 5 w hich e stim a te s a sm all excess of receip ts o v er th e o rd in a ry a d m in is tra tiv e charges of th e c o u n try . (A nnex 8 .) W hile th e co m m ittee h a v e sp e n t a g re a t d eal of tim e upo n th e d e ta ils of th is b u d g e t, a n d h a v e p u t m a n y q u estio n s in w ritin g to th e G o v e rn m e n t a n d in o ral cro ss-ex am in atio n of th e officials u p o n its chief fe a tu re s, th e su b je c t is so v a s t in its u ltim a te im p lica tio n s, especially h a v in g re g a rd to th e c o n stitu tio n of th e R eich , t h a t no fin ality could p ossibly be re ach ed , especially in a m a tte r w hich to th e G erm an s th em selves is full of difficulty a n d d o u b t. N ev erth eless, we b e lieve t h a t th e g ro u n d h a s been ex plored to a sufficient e x te n t to ju s tify u s in feeling t h a t ev en a p rolonged ex a m in a tio n could n o t s u b s ta n tia lly a lte r o u r conclusions. T o som e of th e m o re sa lie n t p o in ts we sh all m a k e p a r tic u la r reference. The conditions under which the budget estimates were made.— I t sh o u ld , how ever, b e first re m a rk e d t h a t in g eneral th e b u d g e t m u s t n ecessarily b e in th e n a tu re of an ex p e rim e n t a n d th e in d iv id u a l item s in i t som e w h a t a rb itra ry e stim a te s. A t th e tim e of o u r in v es tig a tio n G erm an y w as p assin g th ro u g h a n a c u te eco nom ic crisis, th e d ire c t re s u lt a n d th e c u lm in a tin g p o in t of a d e p reciatio n of th e c u rren cy so c a ta stro p h ic as p ra c tically to d estro y th e c u rren cy a n d red u ce th e b u d g et to all b u t a shadow . T h e h a b it of saving h as been de stro y e d , a n d it will req u ire tim e a n d th e re s to ra tio n of confidence to reestab lish it. T h e existing w ealth is m ald is trib u te d in an alm o st u n p aralleled degree. T h e ces satio n of d ep reciatio n , w ith th e co n seq u en t rem o v al of th e p rem iu m on e x p o rt a n d th e stab iliz a tio n of prices a t a level w hich is m o m en tarily a t a n y ra te ab o v e th a t of th e w orld level, h as h ad im p o rta n t reactio n s. F i n ally , th e s ta te of em p lo y m en t a n d th e fiscal a n d eco nom ic m ach in ery of G erm an y h av e been v io len tly de ran g ed by th e e v en ts of 19 2 3 ; a re tu rn to n o rm al con d itio n s in th is resp ect can n o t be effected o v e rn ig h t. Assumption underlying the budget.— I t should be m o st carefu lly n o te d t h a t th e b u d g e t is n o t m ad e up to re p re se n t th e financial e x p ectatio n s of a c tu a l existing co n d itio n s. As we h a v e re m a rk e d ab o v e, th e general b u d g e t as p re se n te d a n tic ip a te s a c re d it b alan c e, an d th e G erm an F in a n c e M in iste r a p p e a re d to be reaso n a b ly co nfident of his a b ility to live u p to th ese e sti m a te s, p ro v id e d th re e essen tial co n d itio n s w ere fu l filled: 1. T h a t th e b a n k of issue w hich w ould serve as a basis for th e g ra n t of cred its w ould b e estab lish ed . 2 . T h a t th e full d e v elo p m en t of G erm an econom ic life should n o t b e re s tric te d by th e sev eran ce of th e R u h r a n d th e R h in elan d . . 3 . T h a t G erm an y en jo y ed co m p lete freedom in her econom ic rela tio n s w ith o th e r co u n tries. T h e first a n d second of th ese co n d itio n s will be fu l filled if o u r reco m m en d atio n s are acc e p te d , a n d th e y a p p e a r to us to be essen tial to b u d g e t e q u ilib riu m . As reg ard s th e th ird , we u n d e rs ta n d t h a t G e rm a n y ’s com m ercial freedom is re sto red u n d e r th e te rm s of th e tr e a ty in less th a n 12 m o n th s’ tim e. W e are n o t, how ever, satisfied t h a t th e b u d g e t as fram ed is n o t exposed to a real risk of deficit. T h e G erm an fiscal y e a r begins on th e 1 s t of A pril a n d even if o u r reco m m en d atio n s are a ccep ted a c e rta in lapse of tim e w ill b e n ecessary before a n a b so lu tely n o rm al a d m in is tra tiv e s itu a tio n can be re e stab lish ed . F o r th is, if for no o th e r reaso n , w e conclude t h a t on th e existing basis of ta x a tio n th e e stim a te d rev en u e m ay n o t be realized, even allow ing fo r c e rta in possible u n d e r-e stim a te s u n d e r p a rtic u la r h ead in g s. O n th e ex p e n d itu re side, th e only ite m on w hich a sav in g m ay em erge of a n y g re a t significance rela tiv e ly to th e possible deficit is th e p ro v isio n of relief for u n em ployed. T h e sum allo cated to th is p u rp o se (5 0 0 , 0 0 0 ,0 0 0 gold m ark s) is e stim a te d on th e assu m p tio n t h a t th e existing a m o u n t of u n e m p lo y m e n t w ill con tin u e th ro u g h o u t th e y e a r. I t a p p e a rs to us t h a t th is is u n d u ly pessim istic a n d a n y re d u c tio n in th e n u m b er w ill b o th relieve th e e x p e n d itu re a n d th e rev en u e side of th e b u d g e t, in asm u ch as th e w ages earn ed b y a lab o rer are s u b je c t to d ire c t, a n d th ro u g h th e m edium of his e x p e n d itu re , to in d ire c t, ta x a tio n . 25 T a k in g one item w ith a n o th e r, h ow ever, we can n o t ju stifiab ly s ta te t h a t th e resu lts are likely to be an y b e tte r th a n h av e been in d ic a te d in th e ir e stim a te . B u t if, for th is y e a r 1 9 2 4 , th e re w as a deficit (w e h a v e ju s t seen t h a t th is possibility can n o t be ab so lu tely dis reg ard ed ) we can asse rt t h a t it w ould n o t be of a n e x te n t to e n d an g er th e sta b ility of th e cu rre n c y , or force th e G erm an G o v ern m en t to h av e recourse to o th e r th a n th e co n v en tio n ally a u th o riz e d ex p ed ien ts for m eetin g it, such as increases of existing ta x a tio n , fu rth e r em ergency tax es, o r sm all in te rn a l loans. M oreover, so m a n y of th e se ttle m e n ts d u e in th e y e a r 1 9 2 4 will fall to be m ad e in th e y e a r 1 9 2 5 - 2 6 , t h a t fiscally th ese tw o years te n d to be m erged in to one period, a n d , as will be seen la te r, w e h av e no d o u b t t h a t in t h a t period o rd in ary b u d g e t receip ts will fully equal o rd in ary b u d g e t ex p en d itu re. Special features in the fiscal system.—The Income Tax.— W e do n o t propose to co m m en t in an y d e ta il on th e existing tax es, b u t th e re are c e rta in b ro ad fe atu res w hich call fo r notice. W e h av e been u n ab le to escape th e conclusion t h a t th e w ealth ier classes of G erm any h a v e , in re c e n t y ears n o t been reach ed p ro p erly b y th e sy stem of ta x a tio n in force, e ith e r to a n e x te n t w hich th e ta x a tio n of th e w orking classes w ould ju s tify , or to a n e x te n t co m p a rab le w ith th e b u rd e n u p o n th e w ealth ier classes in o th e r co u n tries. I t is, of course, com m on know ledge th a t , w ith a co n tin u ally d ep reciatin g c u rren cy , m an y classes of business m en te n d to o b ta in as p ro fit a larg er sh are th a n is n o rm al of th e to ta l p ro d u ce of in d u s try . M an y of th e ir expenses are in th e n a tu r e of fixed charges; m oreo v er, generally sp eak in g , p ap e r-m a rk w ages h av e n o t a d v an ced as rap id ly as p a p e r-m a rk prices h av e increased , so t h a t th e sh are of th e business p ro p rie to r in th e to ta l p ro d u ce of in d u s try , a lto g e th e r a p a r t from th e special p ro fits m ad e by him on red eem in g d e b e n tu re s or m o rtg ag es a t nom inal figures, h a s te n d e d to be g re a te r th a n is n o rm al. D ire c t tax es, such as incom e ta x , are necessarily assessed for com pleted perio d s a n d d u rin g a tim e of rap id ly rising prices th e b u rd e n of an y p a rtic u la r y e a r, b ased on th e p ro fits of prev io u s y ears, is sm all re la tiv ely to th e p ro fits of th e y e a r itself. M o reover, th e process of re tu rn , assessm en t, a n d ap p e a l for such a ta x , necessarily occupies fu r th e r tim e a n d b y th e d a te w hen su b s ta n tiv e liab ility is fixed in p a p e r m a rk s its real b u rd e n is fa r less th a n w as o rig in ally in te n d e d . F u rth e r delay in p a y m e n t of t h a t lia b ility intensifies th is effect. I t w as n o t u n til th e in flatio n m o v e m e n t w as well ad v a n c e d in G erm an y t h a t an y serious effo rt w as m ad e to c o m b a t th is evil. A lth o u g h th e ra te s of incom e ta x according to th e no m in al scales rose to n early 6 0 p e r c e n t on th e h ig h est incom es, s ta tis tic s of cases fu rn ish ed to us by th e G erm an G o v ern m en t show t h a t in effect, even in th e y e a r 1 9 2 0 , th e b u rd en 26 REPORTS OF COMMITTEES TO REPARATION COMMISSION of a c tu a l ta x (m e a su re d in gold) on th e h ig h er incom es, in ste a d of being 5 0 to 6 0 p e r c e n t, w as o nly h alf th o se ra te s u pon th e incom e of th e y e a r (m e a su re d in g o ld ). T h is w as u n d o u b te d ly one of th e p rim a ry causes for th e b u d g e ta ry difficulties of G erm a n y , a n d th e d is p a rity w as very m u ch g re a te r in th e la te r perio d s. I t can be said w ith confidence t h a t th e w ea lth ie r classes h av e escap ed w ith fa r less th a n th e ir p ro p e r sh are of th e n a tio n a l b u rd e n , a n d w e h a v e p u t it as a m a tte r fo r th e serious c o n sid eratio n of th e G erm an G o v ern m en t w h e th e r th e y sh o u ld n o t, facin g even th e a d m itte d a d m in is tra tiv e difficulties, review th e assess m e n ts of re c e n t y ea rs in th e case of th e se p a rtic u la r classes of ta x p a y e r a n d reassess th e ir lia b ility upo n a gold basis. T h e w hole sy ste m of d ire c t ta x a tio n w e n t to pieces in 1 9 2 3 an d , fo r 1 9 2 4 , th e incom e ta x , as is easily u n d ersto o d , is in a b e y an ce. T h e p ro fits of in d u s try in 1 9 2 3 expressed in n o m in al figures of p a p e r m a rk s h av e no m ean in g unless th e y can be resolved in to th e p ro fits of th e p a rtic u la r d a te s on w hich th e y w ere m ad e a n d th e n red u ced to a com m on d e n o m in a to r of gold v alu es. A p ro fit of 1 ,0 0 0 m a rk s m a d e in J a n u a r y , 1 9 2 3 , is obviously q u ite a d ifferen t a m o u n t fro m 1 ,0 0 0 m a rk s m ad e in S ep tem b er. W e can well believe th e G erm an G o v ern m en t finds it im possible to use th e y e a r 1 9 2 3 as a basis for in co m e-tax assessm en t in 1 9 2 4 . T h ey h av e been d riv en to te m p o ra ry ex p ed ie n ts of a v ery m a k e sh ift c h a ra c te r, n o t risin g to a h ig h er n o rm al b u rd e n th a n 2 5 p e r c e n t, w ith #th e in te n tio n of reschem ing a n d reassessing th e incom e ta x p ro p e r in 1925. T hese exp ed ien ts do n o t re assu re u s u p o n th e general q u estio n as to th e ta x a tio n of th e w e a lth y classes, a n d , in o u r ju d g m e n t, if th e y desire th e Allies a n d th e ir ow n w orking classes to realize th e ir good fa ith in th is m a tte r , th e G erm an G o v e rn m e n t sh o u ld p u b lish a t an early d a te th e ir defin ite in te n tio n s w ith re g a rd to th e scales of incom e ta x a tio n t h a t a re to be ap p lied d u rin g 1 9 2 5 - 2 6 to th e a c tu a l pro fits of 1 9 2 4 - 2 5 fo r th e final a d ju s tm e n t of th e fiscal y e a r 1 9 2 4 - 2 5 . T h e 1 9 2 4 - 2 5 b u d g e t e stim a te s 1 ,3 4 4 ,0 0 0 ,0 0 0 gold m a rk s as th e incom e ta x y ield, of w hich all b u t 4 8 0 , 0 0 0 ,0 0 0 gold m a rk s is e stim a te d to be assessed on w ages. W e h av e d raw n th e G erm an G o v e rn m e n t’s a tte n tio n to th e absence in th e te m p o ra ry m easu res of a n y p ro p e r provision a t p re s e n t fo r d ealin g w ith incom e from a b ro a d . T h e y w ere a sk ed to fu rn ish us w ith d e ta ils of th e co m p a ra tiv e p o sitio n of d ifferen t incom es d raw n from div id en d s in th e y ea rs 1 9 2 0 - 2 1 , 1 9 2 3 - 2 4 , a n d 1 9 2 4 ^ 2 5 . T h e rep ly is given in A nnex 9 as in d ic a tin g th e p re s e n t positio n of d ire c t ta x a tio n in G erm an y . T h e u ltim a te p ro fit or loss to in d u s try a n d a g ric u ltu re as a w hole of th e d e p reciatio n e ra m a y be difficult to c a lc u late. T h e re a re m a n y cases, h o w ev er, of in d u s tria l a n d o th e r u n d e rta k in g s w hich w ere n o t o n ly a b le to m a k e larg e p ro fits b u t succeeded in p a y in g off p rio r charges a t a triflin g fra c tio n of th e ir v a lu e w hen in c u rre d . If a m o rtg a g e or d e b e n tu re of 1 0 ,0 0 0 m a rk s h as been p aid off fo r p ra c tic a lly n o th in g , a “ w in d fa ll” p ro fit to th e d e b to r (a t th e expense of th e im p o v erish ed cre d ito r) h as been m ad e to th a t e x te n t. If it h a s n o t y e t been p aid off, b u t th e d e b t can in d u e course be d isch arg ed by w o rth less p a p e r m a rk s, th e “ w in d fa ll” is a p o te n tia l one. In th is la s t case, it h as been decided b y th e G erm an G o v e rn m e n t to “ v a lo riz e ” th e d e b t a t 15 p e r c e n t a n d th e w indfall to th e c re d ito r is to be re s tric te d to 8 5 p e r c e n t. On th is re m a rk a b le im p ro v e m e n t in his p o sitio n , th e G o v e rn m e n t proposes to lev y a ta x of 2 p e r c e n t, o r 1 .7 on th e w hole d e b t. In th e case w here th e d e b t h as been p a id off, th e G o v e rn m e n t will ta k e th e a c tu a l difference b etw een th e gold p rice p a id a n d 1 6 .7 p e r c e n t. In o u r view , such special ta x a tio n , if ju stified in p rin cip le a t all, as we believe it to be, is ju stified a t m u ch h ig h er ra te s. B u t c e rta in rig h ts of ta x a tio n a re bein g given to th e F ed eral S ta te s w hich en cro ach u p o n th is a re a of ta x a tio n , a n d , fo r th e re st, o u r p ro p o sals (S ectio n I X (c) of P a r t I) in re g a rd to in d u s tria l d e b e n tu re s cover w h a t m ig h t o th erw ise h a v e been in d e p e n d e n t reco m m e n d a tio n s u n d e r th e h ead of ta x a tio n . S im ilar e x tra o rd in a ry p ro fits h a v e been m ad e th ro u g h S ta te su b v e n tio n s a n d th ro u g h th e re p a y m e n t in d e p re c ia te d cu rren cy of b a n k lo an s, S ta te ad v a n ces, a n d o th e r sim ilar o b lig atio n s. The Reich and the States.— T h e th ird special fe a tu re to w hich we w ould refer is th e financial re la tio n betw een th e R eich a n d th e S ta te s a n d com m unes. T h e m o re co m p lete financial c e n tra liz a tio n t h a t took p lace a fte r th e w ar in acco rd an ce w ith th e W eim ar c o n stitu tio n h as n o t fu n d a m e n ta lly ch an g ed th e c h a ra c te r of th e rela tio n s betw een th e R eich a n d th e S ta te s. A lth o u g h th e R eich is charged w ith th e a d m in is tra tio n of tax e s fo rm erly u n d e rta k e n by th e S ta te s, i t is u n d e r o b lig atio n to cede th e m a jo r p a r t of th e proceeds of th e incom e ta x , fo r ex am p le, to th e m . T h e S ta te s d isch arg e w holly or in p a r t m a n y of th e fu n c tio n s of G o v e rn m e n t, a n d th e re is no clea r p rin ciple co n n ectin g th e ir resources w ith th e ir o b lig ations. W hen in difficulties, th e y press th e R eich fo r larg er su b v e n tio n s (as p e rc e n ta g e of th e yield of ta x a tio n ), ju s t as in tu r n th e needy co m m u n es p ress th e S ta te s fo r g re a te r financial aid . T h e s itu a tio n h as h ith e rto been go v ern ed by m erely Special taxation on those who have specially profited by p o litic a l or a d m in is tra tiv e o p p o rtu n ism r a th e r th a n depreciation of currency.— C u rre n c y d e p rec ia tio n , on b y clea r financial p rin c ip le . T h e R eich c an e ith e r th e scale it h as o ccu rred in G e rm a n y , h as b ro u g h t in to y ield to th e p ressu re fo r h ig h er p e rc e n ta g e s in su b existence a new a n d special ty p e of “ w in d fall” w e a lth v e n tio n or th e y c an confer u p o n th e S ta te s th e rig h t w hich is a su ita b le su b je c t fo r ta x a tio n in a n em erg en cy . to ex p lo it p a rtic u la r fields of ta x a tio n fo r th em se lv es. 27 REPORTS OF COMMITTEES TO REPARATION COMMISSION T h e check b y th e S ta te s upo n th e com m unes is equally u n sa tisfa c to ry . I t is a lm o st im possible to a scertain th e tr u e cost of an y of th e single fu n c tio n s of gov e rn m e n t in view of its division b etw een th e se th re e c o n stitu tio n a l e n titie s, a n d in th e ab sence of p ro p er ag g reg ated financial s ta tis tic s of th e S ta te s a n d still m ore of th e com m unes. T h e changes t h a t h a v e ta k e n place com pletely falsify a n y co m p ariso n w hich could be estab lish ed betw een th e p re-w ar R eich b u d g e t a n d t h a t for 1 9 2 4 25. M oreover, th e se re la tio n s a re once m ore u n d er review . D u rin g th e period of ra p id d ep reciatio n th e resources of th e S ta te s an d com m unes, to g e th e r w ith reg u lar allo catio n s from th e rev en u es of th e R eich, w ere in a d e q u a te to th e ir needs. T h e ir financial s itu a tio n w as sim ilar to t h a t of th e R eich itself. T he e x p ed ie n t a d o p te d b y th e R eich of m u ltip ly in g th e issue of no tes w as n o t open to th e S ta te s a n d com m unes, w ho h a d necessarily to be su p p lied w ith con tin u o u sly increased subsidies from th e R eich, a n d th is proceeding w as one of th e p rin cip al causes of th e u tte r break d o w n of th e G erm an finances. T h e re s u lta n t chaos h a s been such t h a t no u p -to -d a te sta tistic s are a v ailab le, a n d th e S ta te s h a v e n o t y e t fram ed th e ir b u d g e t on a gold basis. I t is in our opinion essen tial t h a t a t th e earliest possible m o m en t th e p re p a ra tio n of co m p lete s ta tis tic s of th e receip ts a n d ex p e n d itu re of th e S ta te s a n d com m unes should be resum ed. T h e im p o rta n c e of th e q u estio n m a y be seen if it is realized t h a t th e R eich b u d g e t, a fte r allow ing for th e subsidies, co n tain s little m ore th a n o n e -th ird of th e to ta l e x p e n d itu re, o n e -th ird b eing m e t b y th e S ta te s a n d o n e-th ird b y th e com m unes. I t w ould be q u ite possible for th e co m m u n al b u d g e ts to be en jo y in g considerable p ro sp erity a t th e sam e tim e t h a t th e R eich b u d g e t is in serious difficulties. We do n o t p re te n d to be in a p o sitio n to m ak e d e tailed reco m m en d atio n s; th e s u b je c t is a com plicated one a n d involves th e co n sid eratio n of social a n d po litical fa c to rs, m an y of w hich h av e deep ro o ts in historic tra d itio n s. M oreover, if o u r reco m m en d atio n s are accep ted in th e ir e n tire ty , se lf-in terest alone m a y a lm o st confi d e n tly be relied upo n to force th e G erm an G o v ern m en t to m ak e p ro v id e n t a rra n g e m e n ts w ith th e S ta te s, an d it h as a lre a d y given us a n a ssu ran ce t h a t th e regim e of increased subsidies has com e to a n end an d will n o t be rev iv ed . I t is clear, how ever, t h a t in th e n ear fu tu re th e G er m an G o v ern m en t m u st ta k e ste p s to p u t th e relatio n s betw een th e R eich an d its co m p o n en t p a rts on a reg u lar basis w hich shall in su re t h a t th e la tte r are n o t a con s ta n t d ra in u p o n F e d e ra l resources; th e existing hole in th e b u d g e t m u s t be plugged. I t does n o t suffice, in o u r ju d g m e n t, for th e R eich to rem ain in su p in e c o n te n tm e n t w ith th e p re s e n t s itu a tio n m erely because it h as been th e re su lt of c o n stitu tio n al ev o lu tio n . G erm an y w aged w ar as an u n d i vided w hole a n d th e financial resp o n sib ility of th e R eich to th e Allies can n o t be qualified or w eakened by an a ttitu d e of passive acquiescence in th e u n d im in ish ed rig h ts of su b o rd in a te a reas. So long as G erm an y has an y ex tern al o b ligations th e y m u s t be p a ra m o u n t, an d th e resources n o rm ally to be assigned to th e S ta te s a n d com m unes m u st be clearly defined, an d care m u s t be ta k e n to secure t h a t th ese resources are n o t m ore th a n a d e q u a te to leg itim ate needs. W here fu rth e r assistan ce m u s t be given by th e F e d eral T re a su ry , th e a m o u n t of such assistan ce should again be stric tly p ro p o rtio n ed to th e necessities of each case an d su b o rd in ated to c o n tin u ally in creasing cen tra l supervision by th e F ed eral T re a su ry of local e x p en d itu re. In considering th e b u d g e t as d ra fte d in 1 9 2 4 - 2 5 , we h av e felt com pelled to assum e t h a t th e assig n m en t to th e S ta te s a m o u n tin g to 1 ,8 0 0 ,0 0 0 ,0 0 0 gold m a rk s is an irreducible figure, an d t h a t if th e S ta te s th e m selves h av e b u d g eted for th e receip t of th is sum th e R eich will be u n ab le to escape th e liab ility in one form or a n o th e r. T his is th e m o st p ro b ab le a ssu m p tio n w hich we can m ak e in a m a tte r w hich b ristles w ith p olitical difficulties, an d it is su p p o rte d by th e esti m a te s su b m itte d to us of th e rev en u e a n d ex p en d itu re in 1 9 2 4 - 2 5 of P ru ssia , S axony, a n d B av aria ; in each case deficits are disclosed. FU RTH ER COM M ENTS UPON P A R T IC U L A R TAXES 1. T h e co m m ittee recognize t h a t th e ta x a tio n of each larg e n a tio n to -d a y is th e p ro d u c t of m a n y fa c to rs, in clu d in g its h isto rical ev o lu tio n , its econom ic co n d itio n s, its p o litical ideas, its c o n stitu tio n a l fra m e w ork, a n d its social psychology. W h a t is a good sy stem fo r one c o u n try m ay be q u ite u n a c c e p ta b le for a n o th e r. E v en th o u g h th e sam e e lem en ts m ay exist in tw o sy stem s, th e im p o rta n c e p lay ed by th o se sev eral elem en ts in th e w hole m ay be q u ite d ifferen t. If a sim ilar to ta l b u rd e n is being raised in tw o co u n trie s, it is a lm o st ce rta in t h a t th e m a n n e r in w hich it is being sp read o v er th e co m m u n ity a n d th e p a rtic u la r devices a d o p te d to raise it will be v ery d ifferen t. 2 . F o r th ese a n d o th e r sim ilar reaso n s we do n o t reg ard it as p a rtic u la rly p ro fitab le to pass th e G erm an b u d g e t in d e tailed review m erely to sug g est t h a t each p a rtic u la r ta x can be raised to a ra te or level fo u n d in som e allied c o u n try for t h a t ta x , a n d th u s to im pose u p o n G erm an y th e m ax im u m b u rd e n b o rn e u n d e r each h ead in a n y of th e cre d ito r c o u n tries. T o do th is w ould be to lose sig h t of th e prin cip le we h a v e referred to ab o v e, an d also to ignore th e q u estio n of th e to ta l b u rd e n . F o r exam ple, to s ta te t h a t G erm an y could s ta n d increases in th e ra te s on to b acc o , beer, sp irits, e tc ., to th e level of th o se in E n g la n d , w hile ig n o rin g * th e existence of h e r high tu rn o v e r ta x , w hich E n g lan d does n o t im pose; or to s ta te t h a t G erm an y could b e a r 28 REPORTS OF COMMITTEES TO REPARATION" COMMISSION REPORTS OF COMMITTEES TO REPARATION COMMISSION increased ra te s of d e a th d u tie s, w hile w holly ig noring 8. Im p o rte rs of foreign m a n u fa c tu re d p ro d u c ts shall th e existence of h er c a p ita l tax es, w ould be to d e stro y be free to c o n tin u e th e ir business on th e sole c o ndition th e balan c e of h e r sy stem a n d be oblivious to th e to ta l t h a t th e y sell th e im p o rte d p ro d u c ts to th e S ta te b u rd en th u s a c c u m u la te d . T h e co m m ittee w ould w arehouses, u n d e r th e sam e co n d itio n s of delivery as desire to a v o id bein g d o g m atic as to th e w ay in w hich hom e m a n u fa c tu re rs w ho d eliv er th e goods p ro d u ced a g i\ en su m shall be raised b y th e G erm an G o v ern in th e ir facto ries. m e n t. H a v in g com e to th e conclusion t h a t a given In reg ard to sale o rg an iz a tio n , th e tech n ical ex p erts b u rd en can be b o rn e, it is fo r G erm an y to su it h e r own m a k e th e follow ing reco m m en d atio n s: co n d itio n s in p rescrib in g th e w ay s in w hich it shall be 1. T h e S ta te shall use th e w holesale d e a le rs’ w are o b ta in e d . A t th e sam e tim e , d iv erse as th e sy stem s houses fo r its ow n p u rp o ses. in th e allied co u n trie s th em selv es a re , th e c o m m ittee 2. R e ta il sales m u s t be carried o u t exclusively by offers th e follow ing su ggestions as th e su b je c t of th e ir licensed re ta il dealers. com m on a g re e m e n t a n d as su ite d , in th e ir ju d g m e n t, 3 . T h e re ta il dealers m u s t only sell S ta te p ro d u c ts to G erm an co n d itio n s: b earin g th e p ro p e r g u a ra n te e b a n d a t th e price fixed on th e p ack ag e. 1. Tobacco 4 . T h e re m u n e ra tio n of re ta il d ealers shall be fixed a t re g u la r in te rv a ls by a c e rta in ra te of com m ission on E m in e n t tech n ical e x p erts h a v e m a d e th e follow ing th e sale price to th e consum er, such ra te n o t to exceed suggestio n s, w hich we com m end to th e n o tice of th e a n a v erag e of 12 p e r c e n t. B onuses w ith in th is lim it G erm an G o v e rn m e n t : 3 of 12 p e r c e n t w ould encourage th e m o st en erg etic W hile th e y believe t h a t th e in s titu tio n of a to b acc o re ta il dealers a n d th u s develop th e tu rn o v e r m onopoly w ould e n ta il h e a v y im m e d ia te e x p e n d itu re 5. P a y m e n t fo r m a n u fa c tu re d p ro d u c ts delivered to th u s cau sin g econom ic d iso rd er, th e te c h n ic a l ex p erts re ta il dealers shall be m ad e to th e w areh o u se su p p ly in g recom m en d t h a t th e free m a n u fa c tu re a n d sale of th e m b y m ean s of check o r p o sta l o rd e r (n o t in cash tob acco sh o u ld o nly be allow ed to c o n tin u e if su b je c t a n d w ith o u t c re d it) m in u s th e com m ission ab o v e s ta te d . to th e re g u latio n s of th e follow ing schem e: 6. A sm all n u m b e r of S ta te re ta il shops shall be 1. N o fa c to ry , n o r w holesale o r re ta il to b acc o shop in s titu te d in o rd e r to o b ta in reliable e stim a te s a n d to m ay in fu tu re be e stab lish ed n o r m a y a n y existing co n tro l th e expenses of sale. esta b lish m e n t be en larg ed w ith o u t th e perm issio n of On th e basis of th is p la n th e te c h n ic a l ex p e rts m ake th e S ta te . th e follow ing e stim a te of th e p ro fit to be o b ta in e d by 2. T h e in tro d u c tio n of to b acc o s u b s titu te s in m a n u th e S ta te . fa c tu re is p ro h ib ite d . Swiss francs 3. T h e n u m b e r of ex istin g fa cto ries m u s t be re C o st of m a n u fa c tu re _________________ 47$ j q q q q q duced b y abolish in g , w ith a fa ir in d e m n ity , th o se M a n u fa c tu re r’s p ro fit a n d a d d itio n a l w hich are really n o t in d u s tria l in c h a ra c te r, w hile all g en eral expenses (3 5 p e r c e n t of th e facto ries w hich h a v e been p ro v ed by experience to be co st of m a n u fa c tu re )----------------------16 6, 6 5 6 , 000 in cap a b le of p ro d u c in g goods a t a fa ir co st price m u s t E x p en ses fo r th e w areh o u se service a n d be e x p ro p ria te d . gen eral expenses of th e sale o rg a n i 4 . P ro d u c ts m a n u fa c tu re d in th e v ario u s facto ries z a tio n (1 p e r c e n t of th e gross re shall still be sold w ith th e ir tra d e -m a rk , w hile th e sale c e ip ts )-------------------------------------------2 0 ,9 0 6 ,4 0 0 price to th e co n su m er sh all be in d ic a te d on each C o st of d eliv ery to re ta ile rs (12 p er package; each box o r p a c k e t to be sealed w ith a b a n d c e n t of th e gross re c e ip ts )__________ 230, 876, 80 0 re p re se n tin g th e S ta te g u a ra n te e s. A d d itio n al expenses fo r tra n s p o rt E x istin g m a n u fa c tu re rs shall form a co n so rtiu m ( 8 0 ,0 0 0 to n s X a v e ra g e d ista n c e of acco rd in g to th e cate g o ry of goods p ro d u c e d . T his 2 5 k ilo m e te rs X 0 .2 5 f r a n c )_________ 500 0 0 0 co n so rtiu m , w hile co llectively u n d e rta k in g to su p p ly A n n u ity p a y m e n t in th e e v e n t of th e th e S ta te w ith th e q u a n titie s re q u ire d fo r c o n su m p in d em n ificatio n of o n e-fo u rth of th e tio n , shall h a v e to d eliv er its p ro d u c ts a t its ow n ex p re s e n t m a n u fa c tu re rs _____________ 16, 975) Q00 pense a n d exclusively to th e S ta te w arehouses in d ic a te d . T o ta l e x p e n se s------------------------912, 0 7 4 , 2 0 0 6. T h e p ro d u c ts m a n u fa c tu re d sh all be b o u g h t by G ross re c e ip ts (acco rd in g to T ab les th e S ta te a t a price to be fixed a t re g u la r in te rv a ls. V a n d V I )------------------------------------- 2 , 0 9 0 , 6 4 0 , 0 0 0 7. ^Prices sh all be fixed in co n fo rm ity w ith th e re su lts o b ta in e d in one o r tw o S ta te fac to rie s, to be ru n fo r e x p erim en ta l p u rp o ses a n d fo r th e c o n tro l of p rices. • * These suggestions are contained in a report drawn up by M Mayer and M. Aliprandi, which will be put at the disposal of the Reparation Commission, together with a report on indirect taxes drawn up by M. Hulin and M. MazzucchelJi, N e t p ro fit fo r th e S ta t e ---------------------- 1, T h a t is---------------- gold m a r k s . _ P e rc e n ta g e of n e t p ro f it______________ 178, 5 6 5 , 800 8 5 6 ,5 1 5 ,0 0 0 5g 4 T h e te c h n ic a l ex p e rts h a v e th e follow ing o b serv a tio n s to m a k e on th e a b o v e ta b le : 29 1. An a n n u ity p ay m en t is provided fo r, w hich A considerably larg er sum can be realized from th e would correspond to th e a m o u n ts to be allow ed for G erm an d u tie s, w hile decreasing th e b u rd en falling on th e in d em n ificatio n of th e sm all facto ries to be closed th e G erm an consum er. T h e less efficient facto ries will dow n. be e lim in ated a n d s u b s titu te s will be abolished; su rp lu s 2. I h e cost prices of a free in d u s try d is trib u te d p ro fits of th e in term ed iaries will be red u ced , leaving a m o n g st a large n u m b er of facto ries are hig h er th a n th e m n ev erth eless a reaso n ab le m arg in . W ith o u t th o se of h m onopoly. C o n seq u en tly th e costs of in tro d u c in g th e m onopoly refo rm , s ta n d a rd facto ries m a n u fa c tu re u n d er a m onopoly sy stem are increased will be in s titu te d (one or tw o facto ries to co n tro l costs b y 3 5 p e r ce n t in o rd e r to allow th e m a n u fa c tu re r a a n d few selling shops) a n d th e sales will be stric tly reaso n ab le profit. disciplined. 3. W ith th is o rg an izatio n , w hich leaves th e factories T h e proceeds w ould be p a id n p eriodically b y th e a n d re ta il esta b lish m e n ts in th e ir p re s e n t form , th e “ Service of assigned re v e n u e s,” eith er: tax es now collected by th e G erm an G o v ern m en t w ould (а ) In th e case of th e a d o p tio n of th e “ a s s ie tte ” no longer h a v e to be d ed u c te d , w ith th e sole exception suggested b y th e te ch n ical e x p erts, on th e basis of of th e ta x on w holesale dealers to th e a m o u n t of 6 0 p e r c e n t of th e gross rev en u e (as th e tech n ical 6,000,000. ex p erts th em selv es h av e c a lc u lated t h a t 4 0 p e r c e n t U n d er a sy stem of sale, organized in co n fo rm ity w ith rep resen ts p u rch ase price of m a n u fa c tu re d to b acc o , th is schem e th e te ch n ical ex p erts p u t fo rw ard th e plus cost of d is trib u tio n , e tc ., th e rem ain in g 6 0 p e r re su lts of such a p lan as un d er: c e n t re p resen ts a n a b so lu tely n e t p ro fit from th e d u t y ) ; or, G ross receip ts (a m o u n t expended b y Gold marks (б ) O therw ise, on th e basis of a sum in gold m a rk s c o n su m e rs)----------------------- ------------- 1 , 5 2 3 , 9 6 0 , 0 0 0 for every k ilogram of to b acco ta x e d , acco rd in g to th e P ro fit o b ta in e d by th e S ta te from w hich vario u s chief q u alities of th e to b acco ; th is su m to be m u s t be d e d u c te d th e tax es a t p re s e n t collected b y th e R e ic h ______ 8 5 6 , 5 1 5 , 0 0 0 fixed b y th e tech n ical ex p erts. C u sto m s, ta x on tu r n o v e r ____________ N e t p ro fit o b ta in e d by th e S ta te _____ 6, 0 0 0 , 0 0 0 850, 515, 000 T h e te c h n ic a l ex p erts consider t h a t it w ould be p referab le to e n tr u s t th e sale o rg an izatio n to a n en tirely a u to n o m o u s o rg an izatio n , th e c o n stitu tio n of w hich m ig h t well be based on th e exam ple of th e Sw edish m onopoly. On th e o th e r h a n d , it is th e ir opinion th a t th e p re s e n t fiscal o rg an izatio n of th e G erm an R eich should be used for th e supervision of th e ta x . In conclusion, th e te c h n ical ex p erts believe th a t d u rin g th e first p erio d , w hich w ould n o t exceed tw o y ears, th e e stim a te of th e g u a ra n te e d n e t p ro fit m ig h t be b a se d ’o n 'th e assu m p tio n t h a t each in h a b ita n t sp en d s only 2 6 Swiss fran cs p e r a n n u m , w hich is th e figure now o b ta in in g in A u stria. Such a figure w ould yield a n e t p ro fit of 6 5 7 ,0 0 0 ,0 0 0 of gold m a rk s, on th e follow ing e stim a te . Swiss francs G ross receip ts 2 6 X 6 2 m illio n s . _ 1, 6 1 2 , 0 0 0 , 0 0 0 T o ta l ex p e n d itu re 4--------------------707, 9 1 7 , 0 0 0 N e t p ro fit----------------------------------904, 082, 000 or 6 5 7 ,0 0 0 ,0 0 0 gold m a rk s. T o re c a p itu la te , th e g u a ra n te e d rev en u es for th e p a y m e n t of re p a ra tio n w hich G erm an y m ig h t o b ta in b y th e to b acc o ta x w ould be as follow s: 1 9 2 4 - 2 5 -------------G erm an e s t i m a t e .. 19252 6 --------------------------- d o ___ 19262 7 --------------------------- d o ___ 19272 8 --------------------------- d o ___ Gold marks 498, 000, 00 0 657, 000, 000 657, 000, 000 856, 000, 000 * Expenditure shown in the table on the previous page reduced by 36 with the exception of the expropriation annuity. 33 72 1 0 1 5 8 5 — 2 4 ------ 5 2. Indirect taxes generally T h e ra te s a p p e a r to th e c o m m ittee to be u n d u ly low , a n d , as p ro sp e rity grow s, to be su scep tib le of increase w ith o u t dim inishing co n su m p tio n . 3. Turnover tax I t is o u r general opinion t h a t th is ta x sh ould a t th e earliest possible m o m e n t, be so m ew h at red u ced in fav o r of o th e r form s of ta x a tio n . 4. Taxes on motor transport I t is considered t h a t th e p re s e n t to ta l b u rd e n is too low a n d t h a t a s u b s ta n tia l fu r th e r sum m ig h t be raised w ith o u t d e trim e n t e ith e r by a ta x on p e tro l or a su p p le m e n ta ry d u ty on m o to r cars, or b y a com b in atio n of th ese m eans. 5. Death duties T h e yield from th ese d u tie s is ex tra o rd in a rily low ju d g ed by alm o st a n y s ta n d a rd . I t is n o t sa tisfa c to rily a cco u n ted for by th e te m p o ra ry d ep reciatio n in c a p ita l valu es w hich is d u e to lack of p ro fits a n d tra d e o u tp u t. N o t only is th e to ta l yield low ju d g e d b y a n y te s t as to c a p ita l values, b u t th e a c tu a l ra te s of d u ty being im posed a re also, in th e c o m m itte e ’s ju d g m e n t, in a d e q u a te . W hile n o t u n m in d fu l of th e effect of th e re la tio n b etw een th ese d u ties a n d th e c a p ita l ta x in g eneral, th e c o m m ittee th in k s t h a t th e po sitio n disclosed in th e follow ing ta b le , com piled b y th e G erm an G o v ern m en t, in d icates t h a t th e re is con sid erab le room for increased ta x a tio n u p d e r th is h ead . 30 REPORTS OF COMMITTEES TO REPARATION COMMISSION I t w ill be observ ed t h a t w here th e ra te in G erm an y is n o m inally h ig h er th a n t h a t in o th e r c o u n tries, it is in th o se scales w here th e ta x m a y be le a st in flu en tial in its effect u p o n to ta l yield. A n n u al ta x a tio n on c a p ita l, in th e c o m m itte e ’s ju d g m e n t, te n d s to becom e a p a r t of th e incom e ta x sy stem a n d to d isc rim in a te b etw een incom e d eriv ed from w ork a n d t h a t d eriv ed fro m in v e s tm e n t. In th is case, th e re fo re , ta x a tio n of c a p ita l by a n n u a l p a y m e n ts is in a d ifferen t c ate g o ry fro m o rd in a ry succession d u tie s. F iscal B u r d en C o n stitu ted by t h e D ea th D u t ie s in G er m a n y , B el g iu m , G r e a t B r it a in , and F rance [Burden expressed in percentage! Property left (in gold marks)1 Ger many WIFE AND THREE CHILDREN 20,000.................................. 200,000...... ...................... ......... 2,000,000................................... 6,000,000................................... • BROTHER 20,000...... .................................. 200,000................. .................. 2,000,000______ _________ 6,000,000..................................... Great Belgium Britain France 1.5 2.9 5.9 7.5 2.1 2.7 3.8 4.8 3.0 5.0 15.9 22.8 3.5 6.1 11.5 14.4 7.8 17.4 30.0 30.0 8.3 11.4 17.0 22.2 3.0 5.0 19.2 25.9 23.3 36.0 50.1 56.2 18.2 40.6 70.0 70.0 16.7 22.8 34.8 44.5 3.0 5.0 23.5 29.8 36.8 48.3 61.0 66.5 PERSON NEXT OF KIN 20,000....................................... . 200,000.................................. 2,000,000................. .................. 6,000,000.................................... 1 The foreign currency has been converted into gold marks on the basis of the average rates of exchange quoted for the currency at issue on the Berlin Stock Exchange in the month of January, 1924. According to these quotations 1,000 gold marks were equivalent to—55.5 pounds sterling in round numbers, or 5,000 French francs in round numbers, or 5,550 Belgian francs in round numbers. IV . P roposal for C ontrol of R e v e n u e s A ssig n ed as S ec u rity I t is necessary to e la b o ra te in ra th e r fuller d etail th e reco m m en d atio n s w hich we have m ad e in P a r t I of th is re p o rt for th e assig n m en t of th e tax es, e tc ., on to b acco , alcohol, su g ar, beer, a n d of th e cu sto m s rev en u e as se c u rity for p a y m e n t of th e sum s ch arg ed a n n u a lly on th e G erm an b u d g e t. As reg ard s th e y e a r 1 9 2 6 - 2 7 , 1 9 2 7 - 2 8 , as alread y in d ic a te d , th e assigned revenues will p la y a special p a r t in o u r p la n . T h e y will n o t only serve as a g u a ra n te e to c red ito rs, b u t also as a m eans of m easu rin g th e con tin g e n t a d d itio n to , o r d ed u ctio n fro m , th e to ta l a m o u n t of re p a ra tio n p a y m e n ts laid d o w n in th e p la n . If th e yield of th e se rev en u es falls sh o rt of 1 m illiard in 1 9 2 6 —2 7 o r m illiard s in 1 9 2 7 - 2 8 , th e re p a ra tio n p a y m e n ts w ill be d im inished b y a n a m o u n t eq u al to o n e -th ird of such deficiency; on th e o th e r h a n d , if th e y exceed th o se lim its, th e re will be a n a d d itio n a l p a y m e n t eq u al to o n e -th ird of th e excess; b o th d ed u c tio n a n d a d d itio n , how ever, are lim ited to a n a m o u n t of 2 5 0 ,0 0 0 ,0 0 0 in each y e a r. In 1 9 2 8 - 2 9 , a n d su b s e q u e n t y ears, th e a m o u n t of G e rm a n y ’s o b lig atio n is fixed b y th e s ta n d a rd p a y m e n t, p lu s su p p le m e n ta ry p a y m e n t (a n d in to th e c o m p u ta tio n of th e la tte r , th e in creased co n su m p tio n of th ese tax ed a rticles will e n te r). T h e to ta l yield of th e co n tro lled rev en u es will be p aid in to th e a c c o u n t of th e a g e n t for re p a ra tio n p a y m e n ts as from th e tim e w hen th e p la n is p u t in to execution. In th e first y e a r in w hich th e re is a charge on th e b u d g et a n d in all s u b s q u e n t y ears, th e a m o u n ts re qu ired to m eet th e charg e will be re ta in e d a n d th e balan ce will be p eriodically released to th e G erm an G o v ern m en t. We propose t h a t th e re should be one com m issioner to supervise th e controlled revenues an d u n d er him a subcom m issioner for each of th e five controlled revenues. In ord er t h a t th e R e p a ra tio n C om m ission m ay be in a position' to secure an officer of th e g re a te st ex perience an d efficiency as chief com m issioner, th e are a of selection should be as w ide as possible an d n o t confined to th e allied countries. H e should h av e th e assistan ce of a co n su lta tiv e an d advisory co m m ittee on w hich each of th e in te re ste d allied countries w ould be rep resen ted . T h e v ario u s G erm an services of th e assigned revenues w ould be obliged to d ep o sit, th ro u g h th e receiving offices, im m ed iately on receip t, th e a m o u n t received u n d er th e h ead of th e rev en u es in q u estio n a t th e n earest b ran ch of th e c e n tra l b an k ac tin g as tre a su re r. (A ) Funds.— T h e se p a ra te bran ch es should p a y th e sum s in to th e c en tral b an k to an acco u n t a t th e d is posal of th e com m issioner, w ho should a fte rw a rd s pro v id e for th e periodical “ re v e rse m e n ts” to th e G erm an G o v ern m en t of sum s in excess of th e p ro p o rtio n of th e y e a r’s p e a c e -tre a ty p a y m e n ts accrued to d a te . (B) Audit.— T h e com m issioner w ould im pose such m eth o d s of in d e p e n d e n t a u d it as he m ig h t desire to ascertain t h a t all assigned revenues— 1. W ere p ro p erly o b tain ed from th e p u b lic, an d 2. Flow ed th ro u g h th e co n tro l a d m in is tra tio n . (C ) Detailed responsibility for management.— H e w ould n o t be obliged to assum e resp o n sib ility for d e tailed a d m in istra tio n ex cep t in th e case a n d in th e m a n n e r in d icated below . I t w ould be his d u ty to see a t all tim es t h a t th e a d m in is tra tio n was reaso n ab ly efficient a n d th e a c c o u n tin g sy stem h o n e st a n d ac c u ra te . B u t since th e in te re sts of th e Allies are n o t affected so long as th e rev en u es are sufficient, w ith a n a d e q u a te m arg in , to m eet th e a n n u a l charges, it wrould n o t be his d u ty in such circu m stan ces to in te r fere w ith th e d etails of co n tro l. H e w ould th erefo re n o t n o rm ally be obliged to in sist on th e e x a c t tariffs or th e e x act form of a d m in is tra tio n w hich w ould, in his view , secure th e u tm o s t y ield , a n d h e w ould n o t, th e re fo re , be obliged (unless th e need REPORTS OF COMMITTEES TO REPARATION COMMISSION 31 arose) to assum e th e resp o n sib ility of d etailed direction to effect increases in th e ta x a tio n of alcohol, beer, a n d w ith th e a d m in is tra tiv e expense on staff, e tc ., w hich su g ar. B u t all in terfe ren ce in th e G erm an G o v ern t h a t w ould involve n o r w ould he be req u ired to have m e n t’s tariff policy is to be av oided. such an e la b o ra te an d expensive acco u n tin g an d calcu T o sum u p th is su b je c t we w ould la y dow n th e follow la tin g p ersonnel as w ould en ab le him to certify th a t ing general principles: every m a rk w as a c c u ra te ly a cco u n ted for (w hich is 1. T h e m ain lines on w hich th e co n tro l should w ork obviously a very different th in g from seeing t h a t th e o u g h t to be decided b y th e countries in te re ste d . T h ese sy stem is h o n est a n d efficien t). m ain lines estab lish in g th e p rinciple of a co n tro l If th e need arose, his co n tro l w ould becom e a u to developing a u to m a tic a lly as req u ired , a n d becom ing m a tically m ore a c tiv e , m ore responsible, m ore difficult co m plete co n tro l as soon as th e revenues a p p e a re d to a n d , of n ecessity , m ore expensive. F o r if th e revenues be insufficient, sh o u ld , th erefo re, be laid dow n in w ere in d a n g e r of being insufficient, it w ould be his d u ty p ro to co ls signed b y all th e co u n tries w hose in te re sts to ta k e every possible m easu re to increase th e ir p ro a re m ain ly involved. d u c tiv ity . T h is increase in th e a c tiv e c h a ra c te r of th e 2. T hese m ain lines should be e la b o ra te d in to co n tro l w ould be in ex act p ro p o rtio n to th e need for it. d etailed in stru c tio n s b y in te rn a tio n a l ex p erts (in H e w ould th u s reform a n d d ire c t a d m in is tra tio n in p ra ctice of th e n a tio n a litie s of th e co u n tries in te re s te d ). d e ta il only if an d so fa r as necessary. 3 . W ith th is safeg u ard , th e execution of th e co n tro l (D ) The technical control w ould co n sist, in th e ordiis in tru s te d to a single im p a rtia l person (w ith th e n a ry course, of th e rig h t: necessary staff) so as to secure th e ra p id a n d co n siste n t (a) T o o b ta in all in fo rm atio n a n d exam ine all books. a d m in is tra tiv e decisions re q u ired for a n efficient (b) T o v isit a n d in sp ect th e facto ries su b je c t to d u co n tro l. tie s, a n d to a sc e rta in t h a t ap p ro v e d sta n d a rd s are 4 . H is resp o n sib ility to th e R e p a ra tio n C om m ission m a in ta in e d . should n o t be of a d ay to d ay o rd er, b u t a p erio d ical (c) T o send ex p erts to re p o rt an d ad v ise a n d , in case re p o rt should be m a d e b y him u pon th e co n d itio n a n d of a c tu a l necessity arisin g , to exercise d etailed co n tro l. yield of th e gage rev en u es. (d) T o propose h ig h er te ch n ical s ta n d a rd s . 5 . In th e e v e n t of th e rev en u es for a given y e a r p ro v (e) T o req u ire p rio r ad v ice of all a d m in is tra tiv e regu ing insufficient, th e w hole sy stem o u tlin ed in th is latio n s. schem e (w orking of th e railw ay s, a m o rtg ag e on in d u s In se ttlin g th e c o n stitu tio n of th e co n tro l b o d y , it tr ia l p ro p e rty , th e c o n tro l of th e revenues assigned as should be b orne in m ind t h a t it m ay be concerned w ith secu rity ) w ill be prolonged as req u ired for th e purp o se th e issue of bonds g u a ra n te e d b y th e said assigned of m ak in g good th e deficit. * rev en u es, if it is desired to cre a te an in te rn a tio n a l bond T h e c o m m ittee desires to express its high ap p re c ia o th e r th a n th e railw ay one. tio n of th e v alu ab le a n d efficient cooperation received T h e G erm an G o v ern m en t should be ask ed n o t to th ro u g h o u t its ta s k from th e g eneral se c re ta ry , M r. red u ce th e ra te of th e assigned revenues w ith o u t th e A ndrew M c F a d y e a n , a n d to th a n k his a s s is ta n t, co n sen t of th e com m issioner, w hich w ould n o t be M onsieur D en is, th e in te rp re te rs , an d all th e staff for given u n til th e co n su lta tiv e c o m m ittee h a d h a d an th e ir un g ru d g in g services. o p p o rtu n ity of considering th e proposal a n d a p p ro v ed C h a r le s G . D a w e s , Chairman. it b y a m a jo rity ; on th e o th e r h a n d , it is considered # O w en D . Y o u n g . necessary t h a t th e G erm an G o v ern m en t should be R o b er t M . K in d e r s l e y . en couraged, reg ard being h ad to th e ra te s p rev ailin g J . C . S ta m p . in o th e r co u n tries, to effect increases in th e ta x a tio n J . P a r m e n t ie r . of alcohol, beer, a n d sugar. E dgard A l l ix . T h e ab o v e sy stem m ak es it u n n ecessary in relatio n A lb er to P ir e l l i . to th e p roblem of se c u rity , to in sist on a n increase in F e d er ic o F lo ra . a n y p a rtic u la r ta x , th o u g h w e suggest to th e G erm an E . F r a n c q u i. G o v ern m en t t h a t i t is to th e ir in te re st, especially M a u rice H o u ta rt . h a v in g reg ard to th e ra te s p rev ailin g in o th e r countries P a ris, A pril 9 , 1 9 2 4 . REPORTS OF COMMITTEES TO REPARATION COMMISSION 32 ANNEX NO. 1 TO THE REPORT OF THE FIRST COMMITTEE OF EXPERTS h av e pow er if it deem s w ise, to c a rry o u t th is p la n b y th e tra n sfo rm a tio n of th e R e ic h sb a n k , u n d e r su ita b le leg islatio n , ra th e r th a n b y th e o rg an iz a tio n of a new I. N a m e a n d lo c a t io n c o rp o ra tio n . I t shall fram e th e s ta tu te s re g u latin g T h e b a n k , h e re in a fte r d esig n a te d as th e “ new b a n k ,” th e a d m in is tra tio n of th e b a n k . T h ese s ta tu te s shall shall b e a r a new a n d su ita b le title , unless, in co n fo rm in p a rtic u la r in clu d e p ro v isio n s concerning: 1. T h e fo rm a n d c h a ra c te r of th e sh are c e rtificates of ity w ith p a ra g r a p h ( 6 ) , S ection I I I ,b e lo w , th e o rg a n iz a tio n co m m itte e shall decide to use th e R eich sb a n k for th e b a n k . 2 . T h e fo rm alities to be fulfilled for th e tra n sfe r a n d p u ttin g th e p re s e n t p la n in to o p e ra tio n . I t sh all be a p riv a te co rp o ra tio n , a n d its c h a rte r sh all be for 5 0 pledging of th e re g istered sh are certificates. 3 . T h e c an cellatio n of sh are certificates lo st or y ears. T h e new b a n k shall h a v e its p rin c ip a l office in B erlin a n d such b ra n c h e s a n d agencies as its m an ag in g d estro y e d . 4 . T h e m e th o d by w hich th e G erm an sh areh o ld ers b o a rd shall d e te rm in e . shall elec t th e G erm an m em b ers of th e G en eral B o ard . II. C a p ita l 5. T h e 'n a tu re of th e re p o rts p u b lish ed b y th e b a n k , (а ) T h e b a n k shall h a v e a cash p a id -u p c a p ita l of as well as th e m e th o d a n d place of th e ir p u b lic a tio n . 6 . T h e n a tu re a n d d u tie s of th e p e rm a n e n t com 4 0 0 ,0 0 0 ,0 0 0 gold m a rk s, w hich shall be in reg istered or b e a re r sh ares of 1 0 0 m a rk s each . T h ese sh ares shall m itte e s, of th e m an ag in g b o a rd , a n d th e officials of th e bank. be issued as follows: 7 . T h e a d m in is tra tiv e d e p a rtm e n ts to be c reated 1 .0 0 0 . 0 0 0 sh ares to re p re se n t th e a ssets of th e w ith in th e b a n k . R eich sb an k ; 8 . T h e d a te a n d place of th e re g u la r m eetin g s of th e 3 .0 0 0 . 0 0 0 sh ares fo r su b sc rip tio n in G erm an y m an ag in g b o a rd a n d of th e general b o a rd . a n d a b ro a d . 9 . T h e special m eetin g s of th e m an ag in g b o a rd an d of (б ) All sh ares shall be alik e, a n d a fte r th e in itial th e general b o a rd . su b scrip tio n s h a v e been a c c e p te d , no re stric tio n shall P lan fo r t h e O rg a n ization of a B ank of I ssu e in G erm any be im posed u p o n th e ir p u rc h a se a n d sale, o th e r th a n such general re stric tio n s of G erm an law as shall a p p ly to th e p u rc h a se a n d sale of sh ares of o th e r b a n k s. (c) S h ares w h e th e r sold in G e rm an y or a b ro a d shall be p a id for en tire ly in gold, an d /o r foreign bills, a t th e ir c u rre n t gold v alu es. (d) S u b je c t to th e p reced in g pro v isio n of th is sectio n , th e sh ares of th e new b a n k shall be a llo tte d an d sold on such te rm s as to p rices, tim e s of p a y m e n t, a n d o th e r co n d itio n s, as a re m o st a d v a n ta g e o u s to th e b a n k . III. O r g a n iz a tio n c o m m it t e e (a) F o r th e p u rp o se of ta k in g th e p re lim in a ry step s for th e b a n k ’s c o rp o ra te o rg a n iz a tio n , th e re shall be c re a te d a te m p o ra ry c o m m itte e , to be k now n as “ th e o rg an izatio n c o m m itte e .” T h is c o m m itte e sh all con sist of tw o m em b ers— th e p re s id e n t of th e R e ich sb an k , a n d one p erso n w ho shall h av e been a m em b er of one of th e co m m ittees of e x p e rts a c q u a in te d w ith th e discussions w hich re su lte d in th e d ra ftin g of th e p lan for th e b a n k . ( b) T h e o rg a n iz a tio n c o m m itte e shall h a v e pow er generally to in te rp re t a n y a m b ig u ities a p p e a rin g in th e p la n , p ro v id e d alw ay s su ch in te rp re ta tio n shall n o t in te rfe re w ith th e p rin cip les in v o lv ed . I t shall also IV . A d m in is t r a t io n a n d m a n a g e m e n t T h e b a n k shall be a d m in iste re d by a m an ag in g b o a rd , u n d e r th e c h a irm a n sh ip of a p re sid e n t, all of w hom shall be of G erm an n a tio n a lity . V. T h e p r e s id e n t o f th e b a n k (a) F o r th e p u rp o se of th is m e m o ra n d u m only, th e c h a irm a n of th e m an ag in g b o a rd a n d of th e g eneral b o a rd is h e re in a fte r called th e p re sid e n t; he shall be th e m an ag in g d ire c to r of th e b a n k . S u b je c t to th e lim ita tio n s im posed by law , h e shall p erfo rm such d u tie s as a re assigned to h im by th e b a n k ’s s ta tu te s . ( b) T h e p re sid e n t m a y be elected from a m o n g th e m em b ers of th e g eneral b o a rd , or chosen from o u tsid e th e b o a rd . T h e election by th e b o a rd of a n o n m em b er as p re s id e n t, shall o p e ra te to v a c a te a u to m a tic a lly th e se a t of t h a t G erm an m em b er of th e g en eral b o a rd h a v in g a te rm of tw o y e ars or m o re y e t to ru n , w hose election w as o b ta in e d b y th e sm allest sh a re v o te, unless som e o th e r m em b er of th e general b o a rd , h av in g a tw o y e a rs’ te rm or m o re y e t to ru n , shall resign a t th e tim e , a n d his re sig n a tio n be a c c e p te d by th e board A p re sid e n t, elected from o u tsid e th e g en eral b oard sh all, by th e fa c t of his electio n , becom e a m em ber of th e b o a rd . REPORTS OF COMMITTEES TO REPARATION COMMISSION 33 (c) T h e first p re sid e n t shall be th e p re sid e n t of th e (b) E ach m em ber of th e general b o ard shall be chosen R eichsbank; his te rm o f ’ office shall be six m o n th s. for a period of th re e years, except in th e case of th e S u b seq u en tly , th e p re sid e n t, w ho m u s t be of G erm an first election or a p p o in tm e n t. In th e case of th e first n a tio n a lity , shall be ap p o in te d by a m a jo rity v o te of te rm of office, th re e G erm an m em bers a n d th re e foreign n o t less th a n nine m em b ers of th e general b o a rd , of m em bers shall serve for a te rm of one year; tw o G er w hich m a jo rity a t le a st six v o tes shall be th e votes of m an m em bers an d tw o foreign m em bers shall serve for G erm an m em bers; th is a p p o in tm e n t shall be coun a te rm of tw o y ears, a n d tw o G erm an m em bers an d tw o foreign m em bers shall serve for a te rm of th re e tersigned by th e p re s id e n t of th e R eich. (cl) T h e p re s id e n t shall d ire c t th e m an ag in g b o ard years. A t th e first m eetin g of th e general b o ard an d shall ta k e th e ch air a t its m eetin g s. In case of a chosen, th e m em bers shall decide, by lo t, th e te rm for tie v o te, he shall h a v e th e c astin g v o te. H e shall w hich each shall serve, n am ely , one, tw o , o r th re e a p p o in t th e officials of th e b a n k on th e reco m m en d a years. (c) S u b ject to th e provisions of p a ra g ra p h (b) of tio n of th e m an ag in g b o a rd . H e shall organize th e d is trib u tio n of th e ir w ork an d d u tie s in th e b a n k , an d th is section, a n d to th e provisions of th is p lan t h a t shall exercise d iscip lin ary pow ers over th e officials an d ap p ly to all m em bers of th e general b o ard , m em bers em ployees, th e s e pow ers being p ro v id ed for in a special of G erm an n a tio n a lity shall be chosen in such a m a n clause of th e s ta tu te s to be ap p ro v e d b y th e general ner a n d u n d e r such co nditions as th e sto ck h o ld ers of G erm an n a tio n a lity shall decide, in acco rd an ce w ith b o ard . V I. M a n a g in g b o a r d G erm an law . T h e m a n n e r a n d co n d itio n s so decided (a) T h e a d m in is tra tio n of th e b a n k shall be in u pon shall be in co rp o rated in th e s ta tu te s . T h e m a n tru s te d to a m an ag in g b o a rd w hich shall be th e ad m in ner of selecting th e first group of G erm an m em bers is tra tiv e a n d ex ecutive b o d y . T h is b o ard shall be shall be d eterm in ed b y th e o rg an izatio n co m m itte e as u n d er th e ch airm an sh ip q f th e p re sid e n t. I t shall pro v id ed for in Section I I I of th is p lan . N o p la n shall a d o p t its decisions by m a jo rity v o te a n d in conform ity be ad o p te d for th e first selection of G erm an m em bers w ith th e reg u latio n s laid dow n in th e s ta tu te s and by t h a t does n o t m eet w ith th e ap p ro v a l of th e p re sid e n t law . I n p a rtic u la r it shall d ire c t th e cu rren cy , dis of th e R eich sb an k . (d) T h e foreign m em bers of th e first general b o a rd co u n t, a n d c re d it policy of th e b a n k . I t shall fix th e shall be ap p o in te d b y th e o rg an izatio n co m m ittee. ra te s of in te re s t a n d shall d ra ft all reg u latio n s con T h ey shall be chosen w ith d u e reg ard to th e ir profes cerning th e policy of th e b a n k . sional qualifications a n d financial experience. I n m a k ( b) T h e m em b ers of th e m an ag in g b o a rd shall be ing th e a p p o in tm e n ts, th e o rg an izatio n c o m m ittee m ay ap p o in te d b y th e p re s id e n t for a period to be fixed by co n su lt th e p rinciple foreign b a n k s of issue a n d /o r an y th e o rg an izatio n c o m m ittee, su b je c t to th e ap p ro v a l o th e r a u th o ritie s in financial m a tte rs w hose ad v ice it of th e general b o a rd , w hose decision in th is connection m ay desire. shall be a d o p te d by a m a jo rity of nine v o tes, a t least (e) In case of v acan cy in a position of a foreign six of w hich shall be given by th e G erm an m em bers; m em b er of th e g eneral b o a rd , arising from d e a th , th ese a p p o in tm e n ts shall be co u n tersig n ed b y th e resig n atio n , or o th e r cause, th e re shall be a new elec p re sid e n t of th e R eich. tio n of a n o th e r person of th e sam e n a tio n a lity to fill (c) T h e m em b ers of th e m an ag in g b o ard shall occupy th e v a c a n t place. T h is election shall be by th e foreign no o th e r re m u n e ra te d p o st, n eith er shall th e y a ccep t m em bers of th e b o a rd who a re in a c tiv e m em bership an y h o n o ra ry p o st w ith o u t th e prev io u s co n sen t of a t th e tim e th is election is h eld . U n a n im ity less one th e general b o ard . v o te shall be necessary for a n election. T h e new ( d) T h e salaries a n d pensions of th e m em b ers of th e m em b er shall alw ay s be chosen from am o n g th e n a m an ag in g b o a rd a n d of th e p re sid e n t shall be fixed by tio n als of th e co u n try of th e m em b er w hose v acan cy th e general b o a rd , th e salaries a n d pensions of th e he is to fill. B efore electing a n y foreign m em b ers of senior staff of th e b a n k shall be fixed b y th e m an ag in g th e b o a rd , th e b o a rd shall co n su lt, w ith reference to b o ard w ith th e a p p ro v a l of th e p re s id e n t, an d in case of said election, th e c e n tra l b a n k of issue of th e c o u n try th e ju n io r staff, by th e m an ag in g b o a rd alone. w hose n a tio n a l is to b e chosen an d /o r a n y o th e r fin an (e) T h e m an ag in g b o a rd m a y , if th e y th in k fit, cial a u th o ritie s of t h a t c o u n try w hom i t m ay desire to o b ta in th e a ssistan ce o f a c o n su lta tiv e b o d y com posed co n su lt. (/) T h e foreign m em b ers shall be chosen, one from of G erm an m em b ers chosen from a g ric u ltu re , com each of th e follow ing n a tio n a litie s, B ritish , F ren ch , m erce, a n d in d u s try . I ta lia n , B elgian, A m erican, D u tc h , a n d Swiss. V II. G en eral b oard (g) O n th e u n an im o u s v o te of th e general b o a rd , th e (a) T h e re shall b e c re a te d a general b o a rd , conn u m b e r of G erm an m em bers m ay be increased. (h) N o G o v ern m en t official, or o th e r person receiving sisting of 1 4 m em bers h e re in a fte r called th e m em bers of th e general b o a rd . O ne-half of th ese m em bers com p en satio n from th e G erm an G o v ern m en t, or from shall be of foreign a n d th e o th e r half of G erm an a n y foreign g o v ern m en t shall becom e a m em ber of th e g eneral b o ard . n a tio n a lity . 34 REPORTS OP COMMITTEES TO REPARATION COMMISSION (t) E x c e p t as o therw ise p ro v id e d for by th e b a n k ’s s ta tu te s , decisions of th e b o a rd shall be b y a m a jo rity v ote of 1 0 m em b ers, or b y a sim ple m a jo rity v o te if th e p re sid e n t a n d th e com m issioner a re in cluded in th e m a jo rity . Should a m em b er n o t be able to a tte n d a m eetin g of th e b o a rd , it will alw ay s be open to him to em pow er one of his colleagues, by reg istered le tte r or b y teleg ram , to v o te for him a n d on his behalf. (j) A t each of its m eetin g s, a n d a t least once every m o n th , th e gen eral b o a rd shall ex am ine th e re p o rts s u b m itte d to it b y th e p re sid e n t a n d th e com m issioner. I t shall a d o p t decisions on all th e p roposals m a d e to it b y th e p re sid e n t a n d th e com m issioner, p ro v id e d th a t th ese decisions do n o t en cro ach u p o n th e rig h ts re served to th e p re sid e n t a n d th e m an ag in g b o a rd as specified in Sections V a n d V I above. (&) T h e m e ta l reserv e of th e b a n k a n d th e office for th e p rin tin g of th e n o te s shall be in G e rm a n y , b u t th e general b o ard m a y , by a th re e -q u a rte rs m a jo rity v o te , decide t h a t e ith e r or b o th be tra n sfe rre d a b ro a d to a n e u tra l c o u n try . essary , he m a y m a k e a n y in v e stig a tio n s e ith e r in p e r son or th ro u g h his a ss ista n ts* H e shall be en tile d to be p re se n t a t th e m eetings of th e m an ag in g b o a rd in B erlin. (e) T h e office e n tru s te d w ith th e c u sto d y of th e re serve of n o te s shall o nly d eliv er n o tes w hen a u th o rized b y th e com m issioner so to do. (/) T h e com m issioner sh all be b o u n d to th e g re a te st secrecy in reg ard to all in fo rm a tio n he m a y o b ta in on th e co m m ercial o p e ra tio n s of th e b a n k . IX . L o a n s , d is c o u n ts , a n d in v e s tm e n ts (a) T h e b a n k shall m ak e no lo an s o r d isco u n ts h a v ing a m a tu rity a t th e tim e th e a d v a n c e is m a d e , in ex cess of th re e m o n th s. (b) T h e b a n k shall d isc o u n t no n o tes or bills b earin g less th a n th re e nam es of know n solvency, ex cep t t h a t fo r one n a m e th e re m a y be s u b s titu te d c o llateral in th e form of w a rra n ts re la tin g to b ona-fide co m m ercial tra n sa c tio n or to goods. Such defin ito n shall n o t be ta k e n as in clu d in g a n y n o te s issued o r bills d raw n in financial tra n sa c tio n s o r secu red b y sto c k s, b o n d s, o r V I II . T h e c o m m is s io n e r o th e r in v e stm e n t secu rities b u t m a y in clu d e tre a su ry (a) T h e com m issioner, w ho shall be a foreigner, shall bills of th e G erm an G o v ern m en t. be elected by a m a jo rity v o te of n o t less th a n nine (c) T h e b a n k m a y , w ith th e special a u th o riz a tio n m em bers of th e gen eral b o a rd , of w hich m a jo rity a t of th e g eneral b o ard v o tin g in th e co n d itio n s laid dow n least six v o tes shall be th o se of foreign m em bers. in p a ra g ra p h (i) of Section VII, a c c e p t th e lo n g -term T h e com m issioner’s te rm of office sh all be fixed b y th e bo n d s of th e R eich as c o llateral fo r lo an s w ith m a tu ri org an izatio n c o m m itte e . ties n o t exceeding th re e m o n th s, if th e lo an s b e a r tw o (b) T h e com m issioner m a y be elected fro m am o n g responsible n am es, in a d d itio n to th e co llateral, one th e m em b ers of th e b o a rd of foreign n a tio n a lity or of th ese n am es being th e n am e of a co m m ercial b a n k m ay be chosen from o u tsid e th e b o a rd , fro m citizens of doing business in G erm an y : Provided, T h a t loans a n y one of th e foreign co u n tries re p re se n te d on th e co llaterally secured by th e lo n g -te rm secu rities of th e b o ard . T h e election b y th e b o a rd of a n o n m em b er to R eich shall n ev er exceed th e a m o u n t of th e b a n k ’s n e t th e positio n of com m issioner sh all o p e ra te to v a c a te p aid -in c a p ita l a n d su rp lu s, ex cep t b y th e u n an im o u s au to m a tic a lly , th e p o sitio n of th e citizen of th e c o u n try v o te of all th e m em b ers of th e general b o a rd sav e one. of w hich th e com m issioner is a citizen . A com m issioner ( d) T h e b a n k shall m ak e no loans n o r a d v a n c es on elected from o u tsid e th e b o a rd sh all, b y th e fa c t of his th e se c u rity of real e s ta te , m in in g p ro p e rty , oil p ro p election, becom e a m em b er of th e b o a rd . e r tv , or sto ck shares; n o r on th e se c u rity of G o v e rn m en t (c) If, a t th e first electio n , th e p erso n chosen as o b lig atio n s, except as o th erw ise p ro v id e d for in th is com m issioner sh o u ld be a m em b er w hose te rm , as de p la n . *1 he b an k m a y , how ever, ta k e m o rtg ag es or cided b y lo t, in a cco rd an ce w ith p a ra g ra p h (6) of title s to such p ro p e rty , sto ck sh ares, a n d G o v e rn m en t Section V II of th is schem e, sh o u ld o n ly be one y ea r, d e b t bo n d s as a d d itio n a l se c u rity fo r loans p rev iously th e te rm of th is m em b er sh all a u to m a tic a lly be in m ad e in good fa ith in acco rd an ce w ith p ro v isions creased to tw o y ears. In th is case, one of th e tw o h erein m ad e. foreign m em b ers w ho h av e been assigned to tw o (e) S u b je c t to th e p ro v isio n s c o n ta in e d in p a ra g ra p h y ears te rm , shall h a v e his te rm red u ced to one y e a r. (a ), th e b an k shall m ak e no lo an s, d isc o u n ts, o r o th e r T h e decision as to w hich of th e tw o foreign m em bers a d \ an ces d irectly or in d ire c tly to th e G erm an R eich , shall h av e his te rm th u s red u ced from tw o y ea rs to one a n y G erm an S ta te , co m m u n es, o r o th e r G erm an shall be m ad e b y lo t. g o v e rn m e n ta l u n its, o r to a n y foreign g o v e rn m e n t or (d) I t shall be a n e ssen tial d u ty of th e com m issioner g o v e rn m e n ta l u n its, n o r shall i t in v e s t its fu n d s in th e to enforce th e p ro v isio n s of th e law a n d th e s ta tu to ry b o n d s, d e b e n tu re s, or o th e r d e b t of a n y su ch g o v ern reg u latio n s re la tiv e to th e issue of n o tes a n d th e m a in m e n ta l u n it, ex cep t as o th erw ise specifically a u th o riz e d te n a n c e of th e b a n k ’s reserv es w hich g u a ra n te e t h a t by its c o n stitu tiv e law . T h e d ep o sit a c c o u n ts a n d issue. T o th is effect, th e com m issioner shall h a v e th e c u rre n t a c c o u n ts in th e b a n k , of th e G erm an R eich, th e rig h t to h av e fu rn ish ed to him all s ta tistic s a n d d o cu G erm an S ta te s, th e G erm an co m m u n es, o r o th e r m en ts w hich he m a y deem u seful fo r th e acco m p lish G erm an g o v ern m e n ta l u n its, shall n e v e r show a d e b it m e n t of his ta s k , a n d w h en ev er it a p p e a rs to him nec- • b alan c e. REPORTS OF COMMITTEES TO REPARATION COMMISSION (/) The bank shall not accept time bills of exchange drawn against it. (g) The bank may not buy or sell merchandise, produce, real estate, or stock shares of other corpora tions for its own account. (h) The restrictions contained in the preceding paragraph shall not operate to prevent the bank from buying such real estate, equipment, and supplies as it needs for its own banking business, or from selling such property as may come into its possession in con nection with the guarantee of statutory loans. More over, the bank shall not be prevented, by the above restrictions, from buying in property where it needs to do so, in order to protect itself in the collection of statutory loans previously made in good faith and not paid at maturity. X. S e r v ic e o f th e R e ic h ’ s tre a s u ry (o) The managing board is authorized to make advances from time to time to the Reich, but the amount outstanding at any one time shall never exceed 100,000,000 marks. Such advances shall, in no case, be for a longer period than three months and in no case shall the Reich be indebted to the bank at the end of the bank’s financial year, which shall coincide with that of the Reich. In consideration of these facilities, the Reich and its treasury shall conduct all their domestic and foreign banking business through the medium of the bank. (6) The managing board shall also be empowered to grant advances to the post office and the railways for reasonable amounts on condition that these organiza tions shall intrust the bank, except in so far as the bank might modify this condition, with the whole of their treasury service; but the total amount of loans outstanding to the post office and the railways together shall not exceed 200,000,000 gold marks. X I. S e r v ic e o f th e r e p a r a tio n tr e a s u r y The bank will receive on deposit sums paid for reparations, it being understood that the relationship between it and the committee intrusted with reparation receipts shall be solely those of banker and customer. This treasury service wjll proceed in conformity with the provisions of Annex — to the general report. The maximum amount to be held on deposit for reparation account shall at no time exceed 2 milliards of marks in conformity with Section X (a) of this Annex, except as otherwise provided therein. X II. B a n k n o te s (a) The bank shall have the exclusive right of issuing and circulating bank notes in Germany during the period of its charter. ( b) The German Government may not itself issue any kind of paper money for circulation in Germany, during the period of the bank’s charter, nor shall it permit any German State, commune, city, other governmental unit, corporation, or private individual 35 to issue or circulate paper money in Germany during the period of the bank’s charter, with the exception of thebanks of Baden, Bavaria, Saxony, and Wurtemberg, which shall retain their charter of issue for sums not to exceed their present legal quota. The notes of the rentenbank shall be gradually withdrawn from circula tion under the conditions prescribed in Section XV and the appendix hereto. (c) During the period of the bank’s charter, the Reich shall not issue any coins for circulation in Germany (except gold coins, containing approximately their full value in gold metal) of a larger denomination than 5 marks; and shall not issue coins of 5 marks or less, in excess of 20 marks per capita of her population. All coins, other than gold coins, issued by the Govern ment, shall be issued through the bank. They shall be received by the Government in unlimited quantity at their nominal value, in payment of all taxes and other Government dues. (d) The-bank may issue notes for circulation, against gold coin or bullion, statutory discounts as defined in Section IX, demand credits in foreign banks and foreign commercial trade bills, with maturities of three months or less, taken at their present gold values at current rate of exchange. (e ) The notes of the bank, as well as metallic cur rency, shall be receivable in unlimited quantities for all taxes and other Government dues in Germany. The notes shall be unlimited legal tender, unless otherwise specifically provided by contract, for all debts, public and private. (J) The notes of the bank shall be accepted at their nominal value for all payments made to the bank, both at the head office of the bank in Berlin and at all branches of the bank located in Germany. (;g) Notes shall be payable to bearer at the head office of the bank in Berlin on presentation. The notes shall also be payable on presentation at the other offices and branches of the bank to the extent per mitted by their cash reserves and monetary require ments. Payments may be made in any of the follow ing forms, at the option of the bank: 1. German gold coins of the present legal standard of weight and fineness at par. 2. Gold bars, in denominations of not less than 1,000 gold marks, and not more than 35,000 gold marks, at their pure gold equivalent in German gold coin of the present legal standard of weight and fineness. 3. Demand drafts, payable in gold or in foreign currencies at current market gold values, and drawn on funds located abroad in solvent banks to be specified by the bank’s statutes, provided that the premia above the gold pars (or gold values, in the case of currencies not on a gold basis) charged by the bank for such drafts shall never exceed the amount necessary to cover shipping expdhses, including interest for the time of transit, on gold bars shipped in substantial quantities 36 R E P O R T S O F C O M M I T T E E S TO R E P A R A T IO N C O M M ISSIO N R E P O R TS O F C O M M IT T E E S T O R E P A R A T IO N C O M M IS S IO N from Berlin to the foreign financial center on which the draft is drawn. The committee is of opinion, however, that, at the inception of the bank, conditions will be unfavorable for the application of the above rule of convertibility; in this event, this rule may therefore be temporarily modified by the affirmative vote of every member but one of each of the following groups: 1. The organization committee. 2. The managing board. 3. The general board. In case of such modification, the bank shall make all possible efforts and use all the means at its disposal in order to maintain the rate of exchange of the mark at as near gold parity as possible. Furthermore, in case of modification of the above-mentioned rule of convertibility of notes, a return to convertibility wall be permanently established as soon as possible, by a simple majority vote of the general board and of the managing board’ ( h) While the bank shall not make reimbursement for notes that have been lost or completely destroyed, it shall replace worn or torn notes, on application, by notes in good condition, at their nominal value; pro vided that such replacement shall not be required in the case of any note unless the part of the note pre sented shall constitute more than one-half of the note. (t) The notes of the bank shall bear the facsimile signature of the president and the seal of the com missioner. XIII. Reserves (o) The bank shall always carry a normal reserve of at least 33£ per cent of the total amount of its notes outstanding, subject to the following qualification: In exceptional circumstances the reserve against notes may be reduced below 33 £ per cent, on the pro posal of the managing board, by a decision of the gen eral board; but said decision of the general board shall require the affirmative vote of every member of the board save one. In case of such a reduction in the reserve, the bank shall incur the following penalties, the proceeds of which it shall pay to the Reich: Whenever the reserve against notes shall be less than 3 3 1 per cent of the notes outstanding and shall so con tinue for more than one week the bank shall pay the following deficiency tax upon the amount by which the said reserve is less than 33 £ per cent of the notes out standing. When the reserve is below7 331 per cent and not below7 30 per cent, a tax of 3 per cent per annum. When the reserve is below 30 per cent and not below 27 per cent, a tax of 5 per cent per annum. When the reserve is below 27 per cent and not below 25 per cent, a tax of 8 per cent per annum. When the reserve is below 25 per cent, a tax of 8 per cent per annum plus 1 per cent per aflnum for each 1 per cent the per cent tax figure is below 25 per cent. ( b) No discount rate or rediscount rate shall be below 5 per cent per annum when the reserve mentioned in the preceding paragraph shall have continuously for one w7eek or more been below7 331 per cent of the bank-note liabilities there mentioned. (c) Whenever a deficiency tax is payable, a per centage equal to at least one-third of the percentage rate of the tax payable shall be added to the bank’s discount rate and rediscount rate, in addition to any increase in the said rates required to comply with the provisions of the preceding paragraph. (d) The above-mentioned legal reserve may be kept in gold bars or gold coin at any office of the bank, and or in the form of demand deposits made payable in gold or its equivalent at the rates at which the deposits were made in banks of high standing located in foreign financial centers. (e) The bank shall also hold a special reserve of gold and gold deposits of the same character required to be held against its notes in circulation to the amount of 12 per cent of its deposit liabilities. Whenever the above reserve is continuously for one week or more below said 12 per cent, the bank shall pay a deficiency tax of 4 per cent per annum on the amount by which the reserve is less than 12 per cent and not less than 10 per cent; a tax of 8 per cent per annum on the amount by which it is less than 10 per cent and not less than 8 per cent; and a tax of 10 per cent per annum in addition to said 8 per cent for each 1 per cent by which the percentage figure is below 8 per cent. (J) In order to assure adequate liquidity in the assets securing the bank’s deposit liabilities, the bank shall at all times hold in addition to its aforementioned gold reserve of 12 per cent demand deposits in Germany and abroad, checks on other banks, and statutory notes and bills of a commercial character, payable at call or on time with maturities of less than 30 days to the amount of not less than 30 per cent of the bank’s total deposit liabilities. , (g) The above-mentioned reserves and the liquid assets above described shall be segregated for the service of the bank’s deposits. XIV. Profits The net profits of the bank, at the end of each finan cial period, shall be employed as follows: (a) Twenty per cent shall be transferred to surplus or reserve until the bank’s actual net paid-up capital and surplus shall amount to 12 per cent of its average liabilities on circulating notes, on the fifteenth day of the six preceding months. If the ratio shall again fall below this 12 per cent, the above-mentioned allot ment of 20 per cent of the net profits to surplus or reserve shall continue. When and so long as the ratio of the bank’s net capital and surplus or reserve to its average liabilities on circulating notes, as above com puted, shall exceed 12 per cent, the bank may use its discretion as to the percentage of its net profits it will transfer to surplus or reserve provided that the per centage thus transferred shall never exceed 20 per cent. (b) A sum shall be assigned to the payment of divi dends sufficient to pay 8 per cent per annum on the bank’s shares. (c) The balance of the net profits shall be divided as follows: 1. One-half to the shareholders, in dividends or to a special fund to be used for the maintenance of a uniform dividend policy. 2. One-half to the Government, as a franchise tax for the bank’s exclusive privilege of issuing circulating bank notes. (d) The dividends of the bank and other income derived from its capital shares owned by foreigners residing abroad shall be exempt from all German income taxes, present and future; provided that this exemption shall not apply to general taxes imposed in Germany upon the real property of the banks in gen eral. The bank, however, in consideration of the per centage of profits accruing to the Government under paragraph (c) 2, shall not be subject to any corpora tion tax or business tax levied in Germany by the Reich, the States, or any other governmental unit. (e) Such privileges not inconsistent with this plan, now enjoyed by the Reichsbank, as may be specified by the organization committee as desirable and advan tageous to the new bank shall be given to it. 37 latter shall redeem the outstanding circulating notes in its new notes, at the rate of 1,000,000,000,000 marks to 1 gold mark. The old notes shall be imme diately withdrawn from circulation and canceled. (b) The Reichsbank, in case it is continued, shall meet the same reserve requirements against the out standing notes which it undertakes to exchange, in accordance with the provisions of paragraph (a) of this section, as are required to be held against bank notes outstanding by Section X III of this plan. (c) If the Reichsbank is to be liquidated, this operation will be carried out by the new bank which would be then set up, and which would have to assume responsibility for, or itself carry out, the exchanges provided for in paragraphs (a) and (b) above. XVIII. Penalties A penalty in the form of fine or imprisonment or both shall be provided for the punishment of any person or persons wilfully giving incorrect information, directly or indirectly, to the president, the general board, the commissioner or his assistants. XIX. Measures to be taken by the German Government for the executionoftheplan All the undertakings which the German Govern ment will have to enter into in connection with the bank, for the execution of this plan, including the XV. Liquidationoftherentenbank assignment for the withdrawal of the rentenmark, of The rentenmarks shall gradually be withdrawn funds to be received from the rentenbank’s mortages, from circulation by the bank in accordance with the shall be embodied in a special contract between the bank and the German Government. This contract provisions contained in the appendix attached. as well as the statutes of the bank shall be duly ap XVI. ’Dollar-Schatzanweisungen (treasurybillsindollars) proved by the German Parliament. (a) The German Government shall abandon all its rights to the proceeds from the liquidation of the A p p e n d i x to A n n e x 1 Reichsbank (unless the present plan is put into execu THE LIQUIDATION OF THE RENTENBANK tion by means of the transformation of the Reichs bank), in return for which the latter will give the (Appendix provided for in Section XV of the plan Government an undertaking to assume responsibility for the bank.) for the repayment of the said bills not in excess of The Deutsche rentenbank was founded, and its oper 210,000,000 gold marks, under conditions to be settled ations regulated, by the decree of October 15, 1923. by the Reichsbank w7ith the holders of these bills. The capital and the initial reserve were fixed by this (b) At the same time, in order to guarantee the good decree at 3,200,000,000 rentenmarks, to be furnished faith of this operation, that is to say, in order to guar half by agriculture and half by industry and commerce, antee the Reichsbank against any loss resulting from including the banks. this operation, the German Government shall hand 1 he rentenbank holds a general mortgage, expressed over to the Reichsbank gold bills for an amount equal in gold marks, on industrial, agricultural, and commer to and falling due at the same date as the dollar bills cial property, amounting to 4 per cent of the value of in circulation. As soon as the liquidation of these this property as assessed for the Wehrbeitraggesetz.4 dollar bills has been completed, the Reichsbank will These mortgages bear 6 per cent interest for the return to the German Government the portion (if any) benefit of the rentenbank. of the bills which it has received, and which has not The rentenbank is authorized to issue bank notes been employed in insuring the liquidation. expressed in rentenmarks up to the amount of the XVII. The Reichsbank • capital and initial reserve (3,200,000,000 gold marks). (a) If the present plan is put into execution by ‘ Tho amount of this mortgage already amounts to 3,700,000,000 gold means of the transformation of the Reichsbank, the I marks. R EP O R TS O F C O M M IT T E E S T O R E P A R A T IO N C O M M IS S IO N 38 The rentenbank must open credits to the Reich dur ing the two years following its foundation up to the amount of 1,200,000,000 rentenmarks, of which 900,000,000 will bear 6 per cent interest and 300,000,000 will bear no interest. The rentenbank is authorized moreover to open credits to the Reichsbank and to the private banks up to 1,200,000,000 rentenmarks, in order to finance private economy. Up to the present the rentenbank has placed in circulation: 1. Seven hundred million, which have been delivered to the Reichsbank in order to provide for the credits to be granted by the latter to Gerihan manufacturers and merchants. This sum is therefore guaranteed by drafts or credits redeemable in rentenmarks. If and when the rentenbank is liquidated, no attention need be paid to them. 2. One milliard one hundred million rentenmarks which have been advanced to the Reich without any security but the signature of the latter, 900,000,000 of which bear 6 per cent interest per annum and 200, 000,000 bear no interest. In so far as concerns this latter sum of 1,100,000,000 the new bank (or the Reichsbank, if it is maintained) would assume the obligation vis a-vis the holders of these notes to redeem them gradually within 10 years. To this effect the rentenbank would undertake to remit to the bank, as fast as they came in, all sums received from its debtors, whether from the property holders affected by the rentenbank mortgage or from the State, up to the sum of 1,100,000,000. This undertaking of the rentenbank vis-a-vis the bank would be covered by all the mortgages and guar antees which it holds, as well as by the guarantee of the German Government itself. It should, moreover, be understood that all profits accruing to the Reich in virtue of its participation in the bank would be assigned by priority to the amortiza tion of its debt of 1,100,000,000. As soon as the payments by the rentenbank or by the Reich itself, as stated above, reach the figure of 1.100.000. 000 the German Government and the renten bank will be released from all liability vis-a-vis the bank. ANNEX NO. 2 TO T HE REPORT OF r H E FIRST COMMITTEE OF EXPERTS S ugg ested I n d e x of P r o s p e r it y BASIS OF COMPARISON THE INDEX BASE 3. In computing the base, the average statistics for the three years 1927, 1928, and 1929 shall be taken for ( b) budget receipts and expenditure; for (e) popu lation, and for (/) coal consumption per capita, and for the six years 1912 and 1913, 1926, 1927, 1928, and 1929 for the other categories (after appropriate adjust ments for the differences in population and the altered gold values to make the three earlier years comparable with the three later years in this respect). The percent age change for each of these six groups, compared COMPONENTS OF THE INDEX with the base, shall be separately computed and an 2. For the purpose of computing the index, the arithmetical average of the six percentage results taken as the index. following statistics shall be employed: (а ) The total of German exports and imports taken PAYMENT TO WHICH THE INDEX IS APPLIED together. 4. The index percentage shall be applied to the (б ) The total of budget receipts and expenditure amount of the standard payment, viz, 2,500,000,000, taken together, including those of the States of Prus to give the supplement for the year, except that for sia, Saxony, and Bavaria (after deducting from both the five years 1929-30 to 1933-34 it shall apply to sides the amount of the Peace Treaty payments 1.250.000. 000, or one-half of the standard payment included in the year). only. (c) Railroad traffic as measured by the statistics MINUTE ADJUSTMENTS IGNORED of the weight carried. 5. The supplementary payment is to be reckoned (d) The total money value of the consumption of sugar, tobacco, beer, and alcohol, within Germany only for each completed half per cent of the index, (measured by the prices actually paid by the con i. e., an index average of 11.35 per cent would be reckoned as 11 per cent. sumer) . (e) Total population of Germany (computed from COMPUTATION OF SUPPLEMENT the last available census data, vital statistics and 6. For the year 1929-30, the computation of the emigration records). supplement shall be made after the end of that year by (/) The consumption of coal (and lignite reduced to comparing the statistics of 1929 itself with the index coal equivalent) per capita. base. 1. In addition to the standard contribution referred to in paragraph 8 (c), there shall be paid for 1929-30 and following years a supplementary sum according to the growth in prosperity of Germany. This increase in prosperity for any year shall be measured by the extent to which the index, as defined below, on the statistics of the completed preceding year, exceeds the average statistics of the base years. R E P O R TS O F C O M M IT T E E S T O R E P A R A T IO N C O M M IS S IO N DEFICIENCIES 7. In the event of the index in any year producing, as the supplement,. a minus quantity, the basis pay ment should continue to be made, but subsequent supplementary payments shall not accrue due until allowance has been made therefrom for such deficiency or "minus” payment of previous years. DIFFICULTIES IN APPLICATION 8. Any disputed points upon the application of the statistics of this index shall be referred to the finance section of the League of Nations for arbitration. CHANGES IN THE VALUE OF GOLD 9. The German Government and the Reparation Commission should each have the right in any future 39 year, in case of a claim that the general purchasing power of gold as compared with 1928 has altered by not less than 10 per cent to ask for a revision on the sole and single ground of such altered gold value. The alteration to be made may apply both to the standard contribution and the supplementary payment. Failing mutual agreement, a decision should be given by an arbitral committee appointed by the League of Nations. After decision, the altered basis should stand for each succeeding year until a claim be made by either party that there has again been a change, since the year to which the alteration applied, of not less than 10 per cent. The alterations under this paragraph should be made by reference to such generally approved index numbers of prices (German or non-German), singly or in com bination as the arbitration may decide. ANNEX NO. 3 TO T HE REPORT OF TH E FIRST COMMITTEE OF EXPERTS N ote by t h e F ir s t C o m m it t e e of E x perts Of the assets and revenues of the German Reich and its constituent States subject to the application of article 248 of the peace treaty, the German railway system is undeniably the most important and also that which can be the most easily utilized for the purpose of reparation. . The German railway system comprises about 53,000 kilometers of lines, and the rolling stock will very shortly amount to— Locomotive engines (excluding elec tric and motor engines)________ 30, 850 Passenger vehicles_______________ 69, 253 Wagons_______________________ 748,753 A considerable portion of this rolling stock is of recent construction. Two-thirds of the whole (18,000 locomotives and 500,000 passenger vehicles and wagons) were brought into service in the last 10 years. The rolling stock at present possessed by the German rail way system is very superior both in quality and quan tity to that which was in use before the war. Speaking generally, it may be said that the equip ment of the German railways is modern and fully up to the level of the latest improvements in railway technique. The capital cost of the system amounts to not less than 26 milliard gold marks. The experts called in the services of eminent railway specialists, and requested them to make a study of the German railways; their report is attached. asked by the committee, especially as to the amount of net revenue which we considered they could yield for reparation purposes. We have now, as requested by the committee, brought together in a single docu ment the essential portions of these reports, together with our own conclusions. We desire to thank the German Minister of Railways and his staff for the manner in which they have assisted our inquiry in Berlin with information both verbal and documentary. In the short time at our disposal it has naturally not been possible for us to push our investigations very far, but we trust that the report which we now present is adequate for the purposes of the committee, and we think its substantial accuracy may be relied on. CAPITAL INVESTED IN THE GERMAN RAILWAYS In a preliminary report we stated that the capital value of the German railways might safely be taken at not less than 20 milliard gold marks. An official pub lication shows that the debt of the several States specifically entered as railway debt, less that portion of it applicable to the ceded territories, amounted in 1914 to 17.93 milliard gold marks. In March, 1920, at which date the railways were transferred from the ownership of the several States to that of the German Reich, the invested capital was reckoned as 25 to 28 milliard gold marks. This large increase is explained by the fact that at the date of the transfer— (а ) The value of the railways of the separate States was written up to conform to the real amount of capital G e n e r a l R e p o r t o n t h e G e r m a n R a il w a y s M a de that had been invested in them, much of which had never been or had ceased to be represented by railway to t h e F ir s t E x p e r t C o m m it t e e debt. B y S ir W i l l i a m A c w o b t h a n d M . L e v e r v e (б ) There was added to the old capital the value of M a r c h 26, 1924. the additions made during the war. Between March, Tn our earlier reports we described the situation of 1920, and March, 1923, the capital invested was further the German railways and replied to various questions increased to 25.86 milliard gold marks. The expendi 40 R EP O R TS O F C O M M IT T E E S T O R E P A R A T IO N C O M M IS S IO N ture for the current year and that which will still need to be incurred in payment for commitments al ready entered into will put the final figure well over 26 milliard gold marks. The above figures represent capital invested, which is sometimes a very different thing from capital value. But in this case the capital value of the German rail way system which comprises 53,000 kilometers, at 500,000 gold marks per kilometer, may be taken to be fully equal to the capital invested. Now, a large part of the system is double tracked; the lines, stations, yards, and buildings have been constructed to a high standard, and they are very amply equipped with upto-date rolling stock. A comparison with the capital cost per kilometer of the railways of other important countries, taking account of all the factors on both sides, gives good grounds for saying that the German figure of investment is by no means an excessive rep resentation of actual cost. NET REVENUE ATTAINABLE We think that a net annual revenue of one milliard gold marks per annum can reasonably be expected from the German railways. This is very slightly more than the net revenue earned before the war; but it was then earned very easily. No attempt was made to maxi mize net revenue, which was much more than suf ficient to meet the jnterest on the railway debt. On the one hand, the tariffs were kept low, especially for passengers. The guiding principle was, as has been recently expressed in a brochure published by Doctor Sarter, whose statement, as he is a highly placed official in the transport ministry, may be taken as authoritative: “ The State railways ought primarily to have regard to the progressive development of the economic life of the country and to treat the attain ment of net revenue as only of secondary importance. ” On the other hand, the operating expenses were unduly high, the staff was unnecessarily large, and magnificent stations and enormous shunting yards were worked at great expense. Moreover, as is shown by the figures which we have given above, the working expenses included year by year large sums for im provements and additions which might properly have been charged to capital. It may be thought—seeing that for some years past the gross receipts of the German railwajTs have not covered their expenses, and that recently the expendi ture was several times as great as the receipts, while even now the earnings are only equal to the expend iture—that this estimate of ours is unduly sanguine. But it is to be remembered that since the war al most every country has gone through a similar experi ence. Even in the United States, where there was no currency depreciation, the net income of the railways in 1920 was almost negligible; whereas in England, where currency depreciation is quite small, the receipts in 1921 fell short of the expenses. But in both coun tries the situation has now completely changed, and if in other countries the railways have still not regained financial equilibrium, experience sufficiently shows that this phase is only temporary. And Germany has one special circumstance of the first importance in her favor. On the railways of England and America the wages of the railway staff are, roughly, double what they were before the war. No such advance has taken place in Germany. On the contrary, the aver age wage is at present, we are informed, only 75 per cent of the pre-war wage. It is proposed in the cur rent year to increase this percentage to 93 per cent of the pre-war average. But there is no prospect of any such increase above the pre-war standard as has taken place in the two countries mentioned. And this for two reasons—the cost of living has not increased in Germany, as it has there, and, as German wages in other occupations have not risen, railway wages do not compare unfavorably. Naturally we do not suggest that a milliard of net revenue is attainable at the outset. But we think a substantial sum can,be obtained very shortly, and that the full amount should be reached within a period of three years. It should be arrived at in the manner following: During the war there was imposed in Germany, as in other countries, a transport tax. This tax still con tinues to be levied. It is included in the rates charged to the public but is paid over by the railways direct to the finance ministry and forms therefore no portion of the railway revenue. It is a tax on the gross receipts, and is fixed at 7 per cent on all receipts from freight traffic other than coal, and at 10 per cent to 16 per cent, according to class, on passenger traffic. On the average it amounts to 6 per cent of the total gross receipts. It is estimated to produce in the year 1924, 227,000,000 gold marks. If in future years the traffic increases, or if the same volume of traffic is charged at a higher rate, naturally the proceeds of the tax will increase propor tionately. It seems safe to assume that its yield will not fall below the present figure. Moreover, as it is levied on the gross and not on the net income, it is inde pendent of any variations in the cost of operation. If, as we recommend, the German railways in future are required to pay over the proceeds of this tax to the Reparation Commission, the commission will have from the outset a safe and important source of revenue at their disposal. There remains a sum of 800,000,000 gold marks in round figures to be obtained, and it can, in our judg ment, be obtained as net profit on the railways, on con dition that the tariffs are fixed at a reasonable level, that the number of employees is reduced to a reason able figure, and that in all other matters curtailment of expenses is secured by econmical operation on business lines. Before the war the German railways spent 70 marks for every 100 marks which they earned. In technical R E P O R TS O F C O M M IT T E E S T O R E P A R A T IO N C O M M IS S IO N railway language the “operating ratio” was 70 per cent. This was an unusually high ratio, especially having regard to the fact that the railways paid no taxes. It was a good deal higher than the English ratio, much higher than the ratio in France. But in every country there has been since the war, a marked increase in the ratio, and we do not think that under post-war. con ditions the German railways can be expected to operate at a ratio so low as 70 per cent. Not only have they now to bear the transport tax, but though a great rise in wages—the main cause of the rise of the operating ratio in other countries—is not to be expected in Ger many, the increased cost of materials, coal, and steel particularly, seems likely to be permanent. We think, however, that an operating ratio of 80 per cent ought to be attainable. We base this opinion in the first place on our investigation of German conditions, and especially on two facts. • 1. That new rolling stock has been acquired in the last few years in such large measure that the need of repairs and renewals will be exceptionally small for some years to come, and * 2. That the recent very large expenditure on fitting the freight wagons with continuous brakes should result in important operating economies. In the second place, we think our knowledge of what has happened and is happening in other comparable countries justifies us in asserting in broad terms that, given efficient and economical management, there is no apparent reason why the operating ratio should not be brought back in a short time to 80 per cent in Germany as it has already been brought back elsewhere. In England and America, as we have said, the wages of the staff have doubled, but the tariffs are only roughly 50 per cent above the pre-war tariffs. In the result, the operating ratio has become much higher than before and stands at present at about 80 per cent. But the remaining 20 per cent, calculated on a greatly increased gross revenue, suffices to give a return of over 4 per cent on the railway capital. Now in Germany a gross revenue of 4,000,000,000 gold marks per annum is in sight at the present moment. With a gross revenue of 4,000,000,000 gold marks per annum and an operating ratio of 80 per cent, the net revenue would be 800,000,000 gold marks. And this sum added to the 227,000,000 gold marks of the trans port tax yields a total of over 1 milliard gold marks. And the whole of this sum can be made available for reparation. The fall of the mark has wiped out the pre-war railway debt; the plan before the com mittee will, we understand, relieve the railways under the new management of responsibility for the debts recently incurred; and capital has been so lavishly spent in the last few years that there can be no justifi cation for further expenditure for some years to come. In future years we assume that, under commercial management, new capital will not be spent, unless with the assurance that the resulting profits or economies will at least suffice to meet the interest. 41 We shall revert to the matter of receipts and expendi ture when we come to discuss the budget estimate for the year commencing April, 1924. Meanwhile it may be useful to approach the subject from another point of view. One milliard is less than 4 per cent on the railway capital of 26 milliards. If we deduct the transport tax, which certainly does not exceed in amount the taxation levied on railways in other countries, the German railways are only required to earn a fraction over 3 per cent on their capital. And, as already stated, we have no reason to think that the German railways are overcapitalized; 3 per cent can hardly be regarded as an excessive rate of interest. In England the rates tribunal is required by statute to permit the railways, provided that their manage ment is efficient and economical, to charge rates ade quate to produce a net income of, roundly, 1 milliard gold marks on a capital somewhat less than that of the German railways. In America, the Interstate Commerce Commission, also acting under statutory authority, has decided that 5 | per cent is a reasonable return on railway capital and has authorized rates regarded as sufficient to produce this return. If the German railways are required to pay very little more than 3 per cent for reparations, they ought, under efficient and economical commercial manage ment, to earn a substantial surplus over and above, which can be applied in relief of the general taxation of the country. At the same time, it should be under stood that the profits on railways, like those of other commercial undertakings, vary from year to year. There are good times and bad times. The milliard which we have assumed as a reasonable return must be regarded as an average one year with another. As we have already said, the full net revenue will not be attained from the outset. A period of some years will probably need to elapse, for the German traffic has been seriously affected by the occupation of the Rhine-Ruhr railways. Time will be needed after the railways have been reorganized as a united system to bring the new system into work and to reestablish completely the old traffic. And this reorganization will mean expenditure. Fur ther, the necessary reform of the management will take time to carry out and will not produce its full effect at once. For all these reasons and naturally without commit ting ourselves to mathematical accuracy we think it reasonable to estimate that the net revenue apart from the transport tax, and after providing for building up of an adequate reserve, will increase as follows: Gold marks. First y e a r ................. ................. 4 0 0 ,0 0 0 ,0 0 0 Second year_______________ 550, 000, 000 Third and fourth years_____ 700, 000, 000 750, 000, 000 Fifth and subsequent years__ 800, 000, 000 42 R EP O R TS O F C O M M IT T E E S T O R E P A R A T IO N C O M M IS S IO N Measures to obtain results adequate net revenue as of primary importance, while It is evident, in the first place, that the railways in at the same time having regard to the progressive common with every other German undertaking can development of the economic life of the country and only give satisfactory results if the currency is stabil being careful not to kill or even impair the productive capacity of the goose that lays the golden eggs. ized and political and social tranquillity prevails. Moreover, as we have already said, the financial . As for the measures to be taken to obtain the results result which we have mentioned can only be attained indicated above we may repeat: The railways must be worked as a commercial enterprise—that is to say, on condition that the entire German railways are either with the determination, on the one hand, so to fix rates united in one system under a single management or as to produce all the receipts that can be obtained, divided in a reasonable manner into several systems and, on the other hand, to reduce the expenditure to working in harmony, with the same tariffs and* under a minimum. The management of the German rail the same general regulations. If we had to contem ways has hitherto been far from working to this stand plate separate systems wholly out of harmony with ard. \\ e shall show later that since the war the tariffs, each other, the results obtained would certainly not both for passenger and freight, have been kept too low’ correspond to our estimate of the net revenue obtain with the object of encouraging industry and commerce, able. Though that estimate assumes the existence of an and especially of favoring German export. The tariffs are still regarded as they were before the war, primarily undivided German railway system, it will of course be as a weapon in the hands of German trade, and only understood that, in making this assumption we do not express any opinion as to the course of action secondarily as a source of railway revenue. On the other hand, the expenditure on rolling stock which the allied Governments may think it desirable and works of every kind has been extravagant since to adopt or on the general question of military or the war, and the staff employed is at the same time economic guarantees for reparation and security. Finally our estimate takes for granted that the rail much too large and badly paid. It is, therefore, indispensable to make a radical ways will not be required to carry traffic for the Gov change in the policy followed by the railways hitherto. ernment or the community unless their services are paid But we do not believe that any German management for at a commercial rate. Hitherto the German rail will have the strength necessary to fight successfully ways have carried free for the post office not only against the traditional mental attitude unless there is mails but parcel traffic. The railways of Great Brit behind it the constant pressure of an expert control, ain receive at the present time from the post-office established and maintained in the interests of the payments for similar though smaller services amount Allies, to supervise the management in the matter ing to more than 4,000,000 pounds sterling per annum. There are other instances of a similar kind, but of less both of tariffs and of expenditure. We shall deal later with the question of the control importance with which it is not necessary to deal here. in greater detail. FUTURE CAPITAL EXPENDITURE Further, we regard a complete change in the organi We shall see later that the expenditure incurred zation as essential. We think that the recent estab since the war for new works, and especially for rolling lishment of a separate undertaking, with a separate stock has been very large. It has in our judgment budget and with a certain measure of independence, gone much beyond the real needs of the railways. though it is a move in the right direction, does not go For rolling stock alone there has been charged against far enough. The undertaking, though separate, still the various budgets, a sum of more than 3 milliard remains a Government undertaking. In our judg gold marks, which has enabled the railways to acquire ment it is necessary to go further and, while leaving to more than 18,000 new locomotives and more than Germany the ownership of the railways, to intrust the 400,000 new carriages and wagons. management for a period of years to a commercial We think, therefore, that, broadly speaking, the company, which will be German, but with a board of capital account can be entirely closed for some years directors containing representatives both of the share to come without any injury to the railways. But at holders and of the creditor allied powers. the same time we must not fail to call attention to the What this period of years should be, how the com statement of the German Government that the capital pany should be constituted, with what powers, and expenditure to be incurred in the year 1924 will with what restrictions is a matter which we under amount to over 500,000,000 gold marks, and that to stand the committee itself will deal with. We need complete the program a further expenditure of 236, only urge that the company and its management must 000,000 gold marks will be required in 1925. We have adequate freedom in the matter both of tariffs think that this program ought to be examined in and operation. And if we may vary the phrase of detail, and very drastically cut down. Doctor Sarter, we think that a commercially managed Still, after a certain time it will no doubt be necessary railway company ought to treat the attainment of an to incur new expenditure in enlarging stations or R E P O R TS O F C O M M IT T E E S T O R E P A R A T IO N C O M M IS S IO N building new lines. But as we have already said, a commercial administration will not embark on new capital expenditure unless it is evident that it will be directly reproductive. The cost can, therefore, be paid either directly, out of increased net revenue, or, if it is sufficiently important to justify this course, by loans charged on the increased revenue without trench ing on the revenue pledged for reparations. 43 Receipts The receipts for the budget in 1924 have been cal culated by assuming a traffic somewhat .greater than that in 1913, but less than that in 1921 and 1922, in which years the traffic was swelled by the activity of trade due to the fall of the mark. The figures are as follows: Actual in 1913 THE RAILWAY BUDGET— ORDINARY BUDGET It seems desirable to examine the estimate for the ordinary budget for the financial year from April 1, 1924, to March 31, 1925—in German financial matters called the year 1924—which has been drawn up by the German administration. It has been drawn upon the supposition that the Rhine-Westphalian Railways have been restored to German management. But even if and when this happens, it is probable that there will be confusion at the outset; a certain time must necessarily elapse before the normal working can be resumed and the ordinary currents of traffic restored; and further, certain exceptional expenses will have to be incurred which it is impossible to estimate exactly. This budget is, therefore, somewhat theoretical, and may be considered as representing the results to be obtained in the year 1925 rather than in the year 1924. Subject to these reservations, we will proceed to summarize and examine it. 35.122.000. 000 57.251.000. 000 Estimate for 1924 40,000,000,000 60, 000,000,000 The passenger receipts have been calculated on the basis of the tariffs which were in force at the time when the budget was framed. Later on, when we come to deal with tariffs, we shall point out that the third and fourth class fares were too low, and that the first-class fares which affect only a trifling number of passengers, were too high. Since March 1 the third and fourth class fares have been increased by 36 per cent, and the first-class fares have been slightly re duced. We may assume that the result will be an increase in passenger receipts of 30 per cent, which will raise the budget estimate of 850,000,000 to roughly 1,100,000,000 marks. The freight receipts have been calculated on the basis of an average charge of 4.5 gold pfennigs per ton kilometer. The tariffs in force last February, at the Ordinary budget including the Rhine-W estphalian time of our visit to Berlin, gave a higher average Railways receipt per ton kilometer of 5.5 gold pfennigs. But a I. EXPENSES general reduction of 10 per cent was made on March 1, Gold marks and others are in contemplation with the special object Salaries and wages________________ 1, 631, 007, 000 of encouraging national trade and industry. As we Cost of material: shall explain later, these reductions do not seem to us Supplies and con- Qold marks justified under present conditions. If rates were main sumable stores__ 545, 000, 000 tained at a reasonable level, we may assume that the Maintenance of way freight receipts would be about 10 per cent above the and works______ 294, 480, 000 budget estimate of 2,700,000,000 marks; that is, they Maintenance and re would amount to 2,970,000,000 marks. newal of rolling The receipts side of the budget would then be as stock and mechan follows: ical plant_______ 394, 000, 000 Other material costs. 1 4 0 ,51 3 ,0 0 0 Reserves__________ 200, 000, 000 Interest and repay ment of debt____ 325, 000, 000 ----------------- 1, 898, 993, 000 Total_____________________ 3, 530, 000, 000 II. RECEIPTS Passenger traffic__________________ Freight traffic____________________ Miscellaneous------------------------------Total_____________________ Surplus__________________________ i Gold marks Passenger traffic__________ 1, 100, 000, 000 Freight t r a f f i c __________ 2, 970, 000, 000 Miscellaneous__ ____ _____ 130, 000, 000 Total______________ 4, 200, 000, 000 Expenses As for the estimate of expenses for 1924, it is to be 850, 000, 000 noted that the expenditure for staff, 1,631,007,000 2, 700, 000, 000 gold marks, represents about 54 per cent of the actual 130, 000, 000 working expenditure of 3,005,000,000 gold marks. If we exclude interest and repayment of debt and reserve» 3 ,6 8 0 ,0 0 0 ,0 0 0 neither of which are properly included in working ex 150, 000, 000 penses, this proportion is much the same as that on the railways of the adjacent countries. We pointed 44 REPO R TS OF C O M M IT T E E S T O R E P A R A T IO N C O M M IS S IO N out in previous notes that the staff was unreasonably large. In 1919 there were 1,121,111 permanent staff and workmen employed; at the end of 1923 the number was still very nearly one million. They must have been extraordinarily badly paid, for the percentage of the wage bill to the total expenditure was reduced in the budgets of 1922 and 1923 to 29 per cent and 20 per cent, respectively, a figure absolutely abnormal. The expenditure for 1924 has been calculated on the basis of a staff reduced to 793,000, although on the 1st of January the number was still 936,800. A very drastic reduction is therefore, implied, and is in fact being carried through at this moment. But there will be no saving in money. Increase of wages will more than counterbalance the decrease in the number of staff, for an increase of salaries and wages amount ing to 18 per cent on the average is budgeted for. A table of the variations in the average payment per employee per annum in gold marks is given below: Year 1914 Feb ruary 1924 Budget estimate for 1924 2,352 1,331 1, 634 1,060 1,972 1,338 1,718 100 1,293 75 1,595 93 R E P O R TS O F C O M M IT T E E S TO R E P A R A T IO N C O M M IS S IO N system including the Rhine-Westphalian lines, under normal conditions. Certainly they will not be obtained in the year 1924, though they should be obtained very shortly thereafter. Interest and repayment of debt The sum of 325,000,000 set down in the budget for interest and repayment of debt during the year 1924 is divided into: „ Gold marks Interest___________________ 99, 000, 000 Repayment________________ 225, 000, 000 Cost of administration_______ 1, 000, 000 325, 000, 000 This debt represents liabilities recently incurred, for the old debt has practically disappeared. The total amount of the current debt is 312,000,000 marks. Particulars are given, in the reply of the Government to questions asked by the committee. There are short-term loans, overdue accounts, bills of exchange maturing, advances made by the ministry of finance or by the Reichsbank, and emergency currency issued by the railways which has to be redeemed. The interest charge for these debts is quite large. In certain cases we are told that interest is running at the rate of onetenth of 1 per cent per diem, that is 36 per cent per annum. Evidently debts of this kind should be paid off as soon as possible. In addition to these current debts amounting to 312,000,000, it is estimated that further debt will need to be incurred as follows: We feel bound to say that the increase proposed is entirely reasonable. The remuneration of the staff, especially in the upper and middle ranks, is quite inadequate, and, if good work is expected, it must be paid at its market rate. # Gold marks A reserve of 200,000,000 marks has been included to provide for contingencies, a course which we can Commitments for extraordinary ex penses up to March 31, 1924______ 110, 000, 000 not other than approve. For the expenditure of the extraordinary The total expenses for the year 1924, including this budget during the financial year 1924 387, 000, 000 reserve and interest and repayment of debt, to which • we shall refer later, are set down in the budget as For expenditure which will be necessary when the Rhine-Westphalian rail 3.530.000. 000 gold marks. With the tariffs on the ways are handed back___________ 200, 000, 000 basis which we have taken above, the receipts will be 4.200.000. 000 gold marks. This would give a surplus T otal--------------------------------697, 000, 000 of 670,000,000 gold marks. This surplus would be Add debt already incurred__________ 312, 000, 000 ntft profit because the reserve of 200,000,000 and 325.000. 000 gold marks for interest and repayment of Total debt,actual and anticipated 1, 009, 00 0 ,00 0 the new debt has been included in the expenses. Further, it is to be remembered that the transport As we have said, the ordinary budget for 1924 pro tax represents in effect a further net profit from the vides an amount of 225,000,000 marks for repayment railways. If we reckoned this tax at 10 per cent on of debt. But it is evident that these expenditures the passenger receipts and at 7 per cent on the receipts charged on the extraordinary budget tend to increase from freight other than coal, we should obtain for 1924 rapidly, and it is therefore necessary to cut down the a figure of 276,000,000 gold marks. extraordinary budget. To this question we now turn. The total net income of the railways would then be 670+ 276= 946,000,000 marks, which is very close to THE EXTRAORDINARY BUDGET the milliard which we have suggested is attainable within a few years. A budget of extraordinary expenditure has been But as we have said already, these results are appli drawn up for the interim period from November 15, cable to the entire German railways worked as a single 1923, to March 31, 1924. It covered originally an 45 ROLLING STOCK expenditure of 220,000,000, but was subsequently reduced to 170,000,000 marks, diyided as follows: Below is a comparison based on figures furnished to us Chapter I— Gold marks in Berlin, of the German railway rolling stock before Dwellings______________________ 8, 000,000the war and in 1924. We have ignored electric locomo Additional rolling stock. _______ 77, 000,000tives and motor cars: Ktinze Knorr brake_____________ 3, 000,000 Miscellaneous__________________ 15, 000,000 Steam lo Car Chapter II— comotives riages Wagons Doubling of road________ 6, 000,000 27,940 62,050 657,150 6, 000,000End of 1913___ ____ _______ ____ _ Electrification__________________ 29, 966 67,800 723,100 Stations______ 32, 000,000January, 1924............................................... Repair shops____________________ 13, 000,000 Miscellaneous___________________ 10, 000,000 Further rolling stock ordered last year from private firms and not yet delivered amounts to 884 locomo Total___________________ 1 7 0 ,000,000 tives, 1,453 carriages, 25,653 wagons. Delivery of this These expenses are to be covered partly by credits stock was due by the beginning of May, but has been already available, and partly by new credits to an delayed owing to the occupation of the Rhur. It is amount of 110,000,000. not now expected to be complete till the end of the year. These figures show that the whole of the rolling The ministry has also furnished us with a statement of other extraordinary expenses which in their judg stock handed over, either at the Armistice or together ment are still necessary for the financial year 1924. with the territory ceded under the treaty of peace, has We summarize them as follows: been replaced by new. Old and out-of-date rolling stock, which could only be replaced to a very small ex Chapter I— Gold marks Dwellings___________ 15, 000, 000 tent during the war, has been written off and replaced Additional rolling stock 110, 000, 000 since 1920, and a considerable quantity of additional Electric rolling stock__ 20,000, 000* rolling stock has been built. It is worth while producing a table showing the loco Kunze Knorr brake___ 28, 000, 000 Miscellaneous________ 40, 000, 000 motives written off and replaced for each of the last 11 years: Locomotives Chapter II— written oil New tracks__________ 10,000, 000 1913. 600 Doubling of road_____ 13, 000, 000 1914. 379 10,000, 000 1915. Electrification_______ 253 94, 000, 000 1916. Stations_____________ 237 36, 000, 000 1917. Repair shops_______ 220 11,000, 000 1918. Miscellaneous.!______ 167 191 Total___________________ 387, 000, 000 1919. 690 In addition to this expenditure of 387,000,000 marks 1920. 1, 849 in 1924, it is estimated that a further sum of 236,000,000 1921. 1922. 1, 585 will subsequently be required merely to complete 1, 500 1923 works already begun. This represents the final state of a program amounting altogether to 1,610,000,000 marks. This estimated expenditure, which will have to be covered by loans, has, so we are told, already been reduced to an absolute minimum. All the same, we think it ought to be reexamined point by point in order to stop or at least postpone work not absolutely necessary, except where it has been carried to such a point that it had better be completed. The works and the rolling stock of the German rail ways were very fully adequate before the war. Since the war no money has been spared to enlarge works and buildings and to renew and even increase the rolling stock to an extent which will make it impossible to justify any new expenditure of this nature for some years to come. We give below particulars as to the rolling stock which bear^out this statement. Total. 7, 671 The same thing has happened with carriages and wagons. We give a table showing the new rolling stock acquired since 1914: Steam locomo Carriages Wagons tives Delivered: 1914-1918............ ................. .................. 1919-1923...................................... ........... Ordered but not yet delivered................. 8,859 8,506 884 11,832 12,313 1,453 181,196 246,388 25,653 18, 249 25, 598 453, 237 The result is that 18,249 locomotives and 478,835 carriages and wagons, two-thirds of the entire stock, have been built within the last 10 years, and that R EP O R TS O F C O M M IT T E E S T O R E P A R A T IO N C O M M IS S IO N 46 accordingly the rolling stock of the German railways is much superior to that which they possessed in 1914. Replacement of rolling stock on this colossal scale has necessarily entailed enormous expenditure. We are unable to give the actual cost, for it is spread over various budgets. The figures which have been given to us show an expenditure, up to the end of 1922 only, of 2,267,774,488 marks. This figure does not include the cost of replacing the rolling stock handed over to the allied powers in 1919, 1920, and 1921, which was paid for by special credit granted by the ministry of finance, amounting when reduced to gold marks to 739,347,006. The replacement of rolling stock written off is charged against the ordinary railway budget. Additions to rolling stock are charged against the extraordinary railway budget. From November 15, 1923, to April 1, 1924, rolling stock to an amount of 150,000,000 gold marks will be so charged. A further expenditure of 50,000,000 marks in the ordinary budget and of 110,000,000 marks in the extraordinary budget is proposed for the year 1924. KUNZE KNORR CONTINUOUS BRAKE The application of the Kunze Knorr continuous brake to freight trains has also implied large expend iture. It was decided in 1918, while the war was still going on, to adopt this policy in order to release a large number of brakesmen and to make possible an increase of speed of freight trains, more especially of military trains. This policy has been energetically pursued since the war; on the one hand, all the new wagons ordered have been fitted with continuous brakes, and on the other hand, the equipment of the old stock hasbeen pushed on. The entire program is expected to be completed by April 1, 1925. The total expenditure will amount to 400,000,000 marks, of which 117,000,000 still remain to be paid. But it should be said that the Kunze Knorr Company has agreed to spread the payment over a period terminating only on October 1, 1926. TARIFFS Freight.—A study of the freight tariffs of any country at any time involves prolonged investiga tion of a vast mass of bewildering detail. To present in brief outline the broad general effect is almost impossible. Certainly the short time available has not made the task possible for us. In Germany its difficulty is increased by various special circumstances. In 1921 the whole basis of the freight tariffs was altered by the abandonment for a large part of the traffic of flat mileage rates, and the substitution there for of Stafeltarife, that is, rates under which the charge per mile decreases as the mileage increases. Simul taneously, most of the exceptional tariffs, under which the bulk of the traffic had hitherto passed, were withdrawn. Many of them have since been restored in a modified form. And this is only the railway side of the difficulty. The currency question complicates the whole story. Tariff advances were at the outset made in the shape of percentage increases of existing rates. Then came a period when an index figure was adopted with a varying multiplicator. Finally in November, 1923, the tariffs were calculated on a gold basis. The result, as we are informed, was that the freight tariffs were found to be on a level so high in comparison with the capacity of the traffic to bear the rates, that reductions on a large scale became absolutely necessary. We are far from satisfied that this was or is the case. We feel convinced that further investigation would support our general conclusions that the freight rates have been, and are proposed to be reduced in a manner and to an extent which can not be justified from the railway point of view, and that this has resulted from the training and mental attitude of the officials, who have been brought up to share the views expressed in the quotation from Doctor Sarter which we have given above. At the same time we feel it necessary to utter a •note of warning. Our conclusion that freight tariffs might be a good deal higher than the German officials think they can profitably be is based mainly on the average receipts per ton-kilometer to-day as compared with the pre-war figures. We are told that these figures give a misleading impression of present-day facts, and numerous comparisons of certain im portant rates and classes of rates, pre-war and post war have been submitted to us, which would, if typical, put a different complexion on the matter. In spite of these tables we still adhere to the opinion we have expressed. But the committee will appreciate that what we have said is only an expression of opin ion, and can not claim to be a considered judgment based on fully ascertained statistical facts. We have found it impossible to satisfy ourselves how high the present German freight tariffs really are. The earliest documents submitted to us stated that the freight tariffs might be assumed to be double the pre-war tariffs. The facts do not seem to us to bear out this statement. Before the war the freight charge per ton-kilometer averaged 3.36 gold pfennigs. It is estimated by the officials that in November, 1923, at the moment when the gold mark was substituted for paper marks of indefinite value as the medium of payment for railway services, the average rate was double the pre-war. In other words, according to the official estimate, the average rate in November, 1923, should have been 6.72 pfennigs 'per ton-kilo meter. But this in no more than an estimate, and we doubt its accuracy. From this date there began a process which is still continuing of repeated and important reduction of R E P O R TS O F C O M M IT T E E S T O R E P A R A T IO N C O M M IS S IO N 47 The effect of (1) will be permanent; the effect of (2) rgtes regarded as excessive. There is statistical ground for believing that in the early part of January, will probably diminish with time; the effect of (3) 1924, the average rate was 5.89 pfennigs, an advance, will presumably be only temporary. We can not esti that is, not of 100 per cent but of 75 per cent above mate what proportion of the ascertained results has the pre-war average. On January 20 a number of been due to these three causes respectively. But it is important reductions came into force, and the estimate clear that, if in future years the tonnage does not based on such statistics as were available, was in the increase, while the average length of haul goes back middle of February th a t the then average rate was to anything approaching the pre-war figure, the effect 5.55 pfennigs, an advance on pre-war rates of 65 per on the railway revenue will be quite serious. Before we leave the question of freight tariffs, we cent. The reductions are, however, still going on, and some of them are of great importance. On March desire to make one observation. We have admitted 1 an all round reduction of 10 per cent was made on that the facts are obscure; that our investigations have not been and could not be pushed very far. We a large part of the traffic. The budget estimate of freight traffic receipts is have acknowledged that we have hesitated as to certain made on the assumption that the average freight rate conclusions. It may well be that, where we have ex during the year will have been brought down to not pressed a definite opinion, time will prove the opinion more than 4.50 gold pfennigs, which is equivalent to wrong. All this we have had in mind; it does not affect the an advance over the pre-war tariffs of only 33 per cent. No doubt this estimate errs, as was intended, on the thing which from the point of view of the committee is the really important matter, that we retain the convic side of caution. On this policy we will make two observations. tion that the German railways can and should produce Taken as a whole, we have difficulty in believing that a net revenue of one milliard gold marks per annum all particular reductions made and proposed can be available for reparation. Our forecast may well prove justified. Even assuming that in certain cases reduc erroneous on certain points, too optimistic in one tions have been and are desirable in the interest of direction, too pessimistic in others. But our estimate the railways, we feel convinced th at reductions are is based on broader grounds than tariff details and to being conceded which need not be made, and that at it we adhere. Passenger tariffs .—The German railways have least in some cases the percentage of reduction is unnecessarily large. We have learned that excep nominally four classes of passengers, but first-class tional tariffs involving great reductions, both for carriages are not run on local trains and fourth-class import of raw materials and for export of German carriages are not run on express trains. The fares produce, are being very freely introduced. The before the war were, respectively, at 7 pfennigs, 4.5 import rates for jute have been reduced by 25 per cent, pfennigs, 3 pfennigs, and 2 pfennigs per kilometer. for raw cotton and raw wool by 50 per cent. A reduc" In April, 1917, the transport tax, amounting to 16 tion of the rate for miscellaneous wares exported by per cent, 14 per cent, 12 per cent, and 10 per cent on sea, amounting to 30 per cent, is on the point of coming the gross receipts from the four classes, respectively, into force, and a reduction of 30 per cent to 40 per cent was introduced. In spite of the tax, which is estimated to amount for in the rates for steel and iron exported by sea is con 1924 to 85,000,000 gold marks, the railway manage templated. There is a point in co nnection with the freight tariffs ment did not raise fares till September, 1923. At this and freight revenues 'which, though the precise facts date the fares were increased, including tax, to 19.6 are obscure, is of considerable importance. The pfennigs, 9.9 pfennigs, 3.3 pfennigs, and 2.2 pfennigs budget estimate for 1924 assumes, apparently with good per kilometer for the four classes, respectively. There reason, that the ton-kilometers to be carried in 1924 fore, the third and fourth class fares were only increased will be roughly equal to those of 1913. But conditions by the amount of the tax, while the first and second have greatly changed in the interval. The number of class fares were more than doubled. The result' of tons carried has fallen apparently by about 20 per fares so obviously out of proportion was to empty the cent, while the distance the average ton travels has higher classes. Accordingly in December last the increased in corresponding ratio. The German officials first and second class fares were reduced by one-third. adduce three main causes for the increase in the But even then the first-class fare was four times the third class and six times the fourth class. Naturally average length of haul: the first class was absolutely empty, being used by 1. The introduction in 1921 of Stafeltarife. 2. Changes in the previous currents of traffic con 7 passengers out of 10,000, while 7 passengers sequent on the war and the establishment of new out of 100 traveled second class. A good deal more than half the passengers travel in the fourth class and political frontiers. 3. Diversion of traffic in consequence of the occupa a good deal more than one-third in the third class. Seeing that a third-class passenger could till a few tion of the Rhine-Ruhr territory. R E P O R TS O F C O M M IT T E E S T O R E P A R A T IO N C O M M IS S IO N R E P O R TS O F C O M M IT T E E S T O R E P A R A T IO N C O M M IS S IO N 48 weeks ago travel 30 kilometers and a fourth-class passenger 45 for 1 gold mark with an ordinary ticket, and that more than half the total number of passengers in fact travel with season tickets issued at a rate roughly one-half of the ordinary rate—could travel, that is, respectively 60 and 90 kilometers for 1 mark— it is not surprising to find it admitted that the rates for passenger traffic have been quite insufficient to cover the working expenses. At length, as from the 1st of March, while the first-class fares have been further reduced to a level which may possibly secure a few additional first-class passengers, the third and fourth class fares have been increased by 36 per cent. The fares of the four classes are now 9 pfennigs, 6 pfennigs, 4.5 pfennigs, and 3 pfennigs per kilometer and the ratio between the classes is less unreasonable than hitherto. We can hardly think that these new fares will be unduly burdensome to the German public, seeing that the German third-class fares per kilometer will still be only half the corresponding fare either in England or in the United States. But the public have so long been accustomed to be carried at noncommercial rates that we think some falling off of traffic is to be expected, at least at the outset. We have accordingly esti mated that a 36 per cent increase in fare will only produce a 30 per cent increase in receipts. FUTURE CONTROL--- THE RAILWAY COMMISSIONER It is evident from the facts and figures set out above that the German Government has since the war run the railways in a manner which can not be defended. On the receipts side it has failed to raise the revenue which might have been and ought to have been raised. On the expenditure side it has spent capital not merely on restoring the pre-war situation, but on betterments of all kinds which under the existing conditions can not be justified. The railways have not merely been restored to their pre-war state of efficiency, but have been brought up to a much higher standard, a standard which to the best of our knowdedge is superior to that of any other country. We are given to understand that even inside the ministry itself this policy has been severely criticised. The excuse is that the pressure on the one hand of the great manufacturers to keep their works going and to avoid a wholesale dismissal of employees, which might lead to revolts or even revo lution, was too strong to be resisted; while on the other side, the poverty of the mass of the population was so great that the Government was compelled to main tain railway rates at a low level. Whatever may have been the reason, there can be no doubt of the facts. Our own view is that, while the reasons above had considerable weight, the action taken was by no means wholly due to external pressure. The officials in the tariff section of the ministry were, as we have repeat edly said, only too ready to subordinate railway interests to nonrailway circumstances. And the exec utive officers, whether charged with engineering or traffic management, were afflicted with what it is not too strong to describe as megalomania. They re garded it as due to the dignity of the German Reich that buildings should be magnificent, that railway plant should be up to a very high standard, that such and such services should be given, and so on. They had never been taught the commercial necessity of cutting their coat according to their cloth. Now the mere transference of the railways from State to company management will not of its^Jf alter this mental attitude. A large part of the board will be German; the general manager will be German; and his responsible officials will be the same men who have inspired and carried out the railway policy of the past. We think it therefore essential that a railway commis sioner should be appointed by and on behalf of the Allies to supervise and, if it should hereafter become necessary, to control in their interest the German management. We will, therefore, in concluding this report, deal with what in our opinion should be the functions of the railway commissioner and the organi zation of his staff. THE RAILWAY COMMISSIONER The railway commissioner must be a person who is acknowledged in the railway world as being in the first rank. It must be left for him, when appointed, to say what assistance he needs, in order to be able to assume responsibility for control of all branches of railway management. It will be his duty also to consider how far it is necessary to have local repre sentatives in any or each of the districts into which the German railway system may hereafter be divided. We assume that when appointed he will produce to the board an outline of the organization and the staff that he regards as necessary, and it will be for the board to approve his scheme. He must have the right to receive, of course, all reports, statistical and financial returns, proposals for extra-routine expendi ture, whether on capital or revenue account, for changes in tariffs or for the concession of exceptional rates and the like, when they are of such importance as would normally require the sanction of the general manager. He must also have the right to call for any further reports, returns, and statistics, as he may think necessary, in order to enable him to form an independent judgment. Being in possession of full and up-to-date information as to everything that is happening or is proposed, his first duty will be to decide whether to approve or disapprove. ‘If he disapproves, or even hesitates to approve, he will discuss the matter with the general manager. He may be of opinion that things are going wrong, or that a course of action inconsistent with the railways being able to earn a financial return is likely to be adopted. In such a case it will be his duty, if he fails to induce the general manager to modify his policy, to bring the matter to the attention of the board in order that they may be in a position to take such action as they think fit. It is to be hoped that, if the right man is appointed to the post, he will be able to work in entire harmony with the general man ager; and that the general manager, so far from resent ing his interference, will welcome his support in putting a stop on the one hand to unnecessary expenditure, and in enforcing on the other hand the establishment and the maintenance of tariffs proper and adequate to secure for the railways as much net revenue as can reasonably be obtained without unduly hampering the trade of the country. A second function of the commissioner will naturally be to make for the foreign members of the board reports on any points which they may regard as of serious importance. We may suggest the reasonable ness of the greatly reduced German export tariffs as a sample of this class of question. It is clear that the Allied Nations have a right to claim that the net revenue of the German railways should not be reduced in order to give to German manufactures an unreason able advantage in overseas markets. 49 It does not seem necessary to discuss in detail what would be the position of the commissioner if the German railways failed to yield the net revenue fixed as reasonable for reparation purposes. We assume that, broadly speaking, in this case the commissioner general will take over the fuhctions of the general manager, and that, in lieu of discussing with the general manager or recommending to the board of directors, he would be empowered to issue positive orders, whether for stopping expenditure which he considered unjustifiable or for an increase which he considered reasonable in existing tariffs. It is evident that it would be necessary to require the German Govern ment to agree in advance that, if payment on the agreed scale failed to be reached or even if there was serious danger that this failure would occur in the immediate future, the commissioner, as the repre sentative of the Allies, should be entitled to enter into full control. W. M. A c w o r t h . . G. L e v e r v e . ANNEX NO. 4 TO THE REPORT OF TH E FIRST COMMITTEE OF EXPERTS C o n c e s s io n of th e W o r k in g o f C o m pa n y the R a il w a y s to a CONCESSION OF THE WORKING OF THE RAILWAYS The working of the Germany railways shall be legally transferred to a company by a fixed date. The law will ratify the contract to be entered into between the German Government and the company to which the concession is made. The contract will provide that no change can be made in the conditions of the concession without the consent of the company and the trustee for the bondholders referred to below. The law will further provide that the company shall have a monopoly of all railway extension in Germany. The charter of the company will be annexed to and approved by this law. Before being submitted to the German Parliament the law will have to be approved by the Reparation Commission. The conditions under which the working of the German railway system will be transferred to the company by this law shall be as set forth below. The company will be of German nationality. . The company shall be responsible for the working, upkeep, and normal development of the railways, including rolling stock and equipment, and will be entitled, subject to the provisions hereinafter contained as to the powers of the German Government and the railway commissioner, to conduct its business in such manner as the company may think proper. The German Government shall have such control over the tariffs and service of the railways as may be necessary to prevent discrimination and to protect the public, but such control shall never be exercised so as to impair the ability of the railroad company to earn a fair and reasonable return on its capital value, including adequate provision for its bonds and pre ferred shares, a return on its ordinary shares, and ade quate reserves for all purposes including amortization of capital. The plan to accomplish the foregoing shall be worked out by the organization committee herein after referred to. The company shall as from the commencement of the concession be entitled to charge the tariffs then in force. Thereafter the company shall be entitled to vary the tariffs or any of them from time to time, subject to the provisions of articles 365 and 378 of the treaty of Versailles. It shall be the duty of the organization committee to settle the manner in which, subject always to the preceding provision, the control of the German Gov ernment over the service and the tariffs shall be exercised. The term of the concession shall be at least of sufficient length to allow of the amortization of the bonds according to the provisions hereinafter con tained. On the expiration of the concession, the company shall return to the German Government free from all charge, the whole of the railway undertaking, including all rolling stock and equipment, in thoroughly good and complete working order. As the consent of the German States is necessary under the German law of 1920 for any alienation of or charge upon the German railways, the German Gov \ 50 R E P O R TS O F C O M M IT T E E S T O R E P A R A T IO N C O M M IS S IO N ernment shall make in this respect all necessary arrangements with the States concerned. These arrangements shall be ratified by the law granting the concession. This law shall confer upon the company the right to mortgage any property belonging to the railways. It shall also contain an undertaking that neither the Reich nor the States nor any public authority shall impose on the railway company any new direct tax, whether upon receipts either gross or net, or upon movable or immovable property or in respect of the employees of the company or otherwise howsoever. THE RAILWAY COMPANY ARTICLE I.— Capitalofthecompany The total capital which will be created, added to the first mortgage bonds for 11 milliard marks gold referred to below, will correspond to the capital cost of the German railway system (26 milliard marks gold). Preference shares will be created to the amount of 2 milliard gold marks, bearing a fixed rate of dividend and entitled to participation in the profits of the rail ways, after payment of the annual payments men tioned below. This dividend and this participation, as also the terms on which the German Government may pay off or repurchase these shares, will be fixed by agreement between the German Government and the organization committee described below. These preference shares will be sold by the company for the profit of the German Government and of the company itself, one-fourth of the sum thus obtained will be the property of the German Government and three-fourths the property of the company. The sales of shares will be made under such conditions that the German Government will receive the whole sum due to it within two years. If the German Govern ment so requires, the proceeds of the first sale of shares may be reserved for its use. The balance of the capital cost of the German rail way system (viz, 13 milliard gold marks) will be represented by ordinary shares, to be owned by the German Government and to be kept or sold by it as it prefers. ARTICLE II.— Administrationandmanagement The company will be administered by a board of directors of at least 18 members, who shall all be busi ness men of experience or railway experts. Half of these will be appointed by the German Government and half by the trustee referred to below. As soon as preference shares are issued to the public, the holders of these shares shall be entitled to elect four members of the board in place of four members appointed by the German Government. The organization committee will also fix the dura tion of the terms of office of the directors of each class. Of the nine members of the board of directors appointed by the trustee, five may be German na tionals. The chairman of the board will be elected for one year by a three-fourths majority of the members of the board and will be eligible for reelection as long as he possesses the necessary qualifications. • As soon as the preference shareholders shall elect directors, the chairman shall be chosen from the directors so elected. He will in addition to his vote as a member of the board, have a second or casting vote. The general manager of the company shall be of German nationality. He will not be eligible for a seat on the board. He will be appointed by a three-fourth majority vote of the board. He may be removed by the same majority. If, however, his removal is requested by the commissioner (provided for in Article III below) on account of violation of the charter of the company or of failure to comply with the instructions of the board of directors, he may be removed by a simple majority vote of the board. Whatever decisions may be taken with regard to the operation of the railways, it must be understood that any breaking up of the working of the system into local divisions must not in any event affect the financial and tariff unity of the undertaking. ARTICLE III.— Commissioner The railway commissioner shall be a person accepted in the railway world as being in the front rank. He shall be appointed by a majority vote of the foreign members of the board of directors. He shall not be a member of the board. He will have an adequate staff of experts in railway matters and in accountancy. The commissioner will have a general right of in spection over the whole railway system and all the railway installations and subdivisions, either in person by deputy. He shall also be entitled to receive all reports, sta tistical and financial returns, proposals for extra routine expenditure whether on “ capital” or “ reve nue” account, for changes in tariffs or for the conces sion of exceptional rates, and the like, which are of such a nature as would normally require the sanction of the general manager. The railway commissioner will further be entitled to call for any other reports, returns, or statistics which he may consider necessary in order to enable him to form an independent opinion. All this information shall be furnished promptly, fully, and accurately at his request. If any measure in connection with con struction, operation, or tariffs tends substantially to menace the rights or interests of the bondholders or of the Reparation Commission, as defined below, and R EP O R TS O F C O M M IT T E E S T O R E P A R A T IO N C O M M IS S IO N in particular to endanger the payment at the due dates, referred to in Article V below, he shall discuss the question with the general manager. If he can not persuade the latter to change his line of conduct, he must lay the question before the managing board, in order that it may take any measures it may deem necessary. If the service of the bonds hereinafter mentioned is in jeopardy, the commissioner shall have regard to the provisions for the security of the bondholders herein after contained. The expenses of the railway commissioner and his staff shall be an operating charge upon the receipts of the railways. ARTICLE IV.—Bonds 51 If in any year the German railways fail to realize receipts sufficient to allow of the payments above mentioned (it being understood that the company may draw upon whatever reserves may be available for this purpose until such reserves are exhausted), the railway commissioner shall have the right to take such action as the trustee for the bondholders may consider is necessary to protect the rights of the bond holders, including the right to operate, to lease, or to sell all or any of the railways and property subject to the mortgage or charge of the bonds. From and after the end of the fourth year from the date of the formation of the company, the bonds shall be amortized, under the conditions to be deter mined by the trustee with the approval of the Repara tion Commission, by the application in each year of such part of the annual payments above mentioned as shall not be required for the interest on the bonds. The German Government and the company shall also be entitled at any time to pay to the trustee sums additional to the above payments with the authoriza tion of the Reparation Commission which shall as certain from the transfer committee that the transfer of these additional funds does not disturb the transfer of the annual payments. Any sums so paid shall be applied first to the discharge of any interest in arrear and next upon six months’ public notice in redeeming at par all or any part of the bonds for the time being outstanding. The Reparation Commission shall be entitled, with a view to the mobilization of the bonds, to divide the same in any manner which it may think expedient into different classes with different rights—as to priority of charge, rate of interest, repayment of capital, and otherwise—against the annual payments to be made by the company, and to issue to the public, upon such terms and generally in such manner as the commission may think proper, bonds, debentures, debenture stock, certificates of indebtedness or other securities of any nature secured upon the whole or any part of the bonds. The company shall not be able to issue other bonds than those referred to above without the authorization of a three-fourths majority of the members of the board, of which majority two must be foreigners. All payments of interest and capital in respect of the bonds shall be free from all German taxation, except in so far as the persons entitled thereto may be liable under German law to the payment of German direct taxation. Subject as herein provided, the form of the said bonds and all provisions as to the enforcement and repayment thereof, including drawings and giving time for payment, shall be settled by the trustee with the approval of the Reparation Commission. The company shall forthwith, after its creation, issue without payment and for the purpose of repara tion, to a trustee appointed by the Reparation Com mission, first mortgage bonds to a nominal amount of 11 milliard gold marks carrying interest at 3 per cent per annum for the first financial year of the com pany, at 4 per cent plus a bonus of 25,000,000 for the second, 5 per cent for the third and subsequent years, and to be amortized by a sinking fund as hereinafter provided. Payment of these bonds shall be guaranteed by the German Government and they shall be signed both on behalf of the company and by the finance minister acting on behalf of the German Government. These bonds shall be secured by a first registered mortgage or charge on the corpus and revenues of all immovable property used by or belonging to the company present or future, and by a first floating charge on all its fixed and movable plant, rolling stock and all installations. The company shall be author ized by the concession to create this mortgage and charge, the duration of which shall not be limited to the period of the concession. This mortgage and this first floating charge shall be expressed to be in favor of the trustee to be appointed by the Reparation Commission, provided always that the company and the German Government shall be entitled at any time, with the consent of the trustee, to sell or dispose of any particular property used by the railway company which may be considered to be no longer needed by the latter, upon such terms as to the application of the proceeds of the sale as may be agreed upon by the trustee. The service of the bonds shall be assured by the following payments which shall be made to the trustee from the gross receipts of the company and before the ascertainment of any net profits; that is to say: For the first financial year of the com- aold marks pany____________________________ 350, 000, 000 For the second financial year----.---------- 465, 000, 000 ARTICLE V.— EnforcementofGovernmentguarantees For the third financial year---------------- 550, 000, 000 If the company shall at any time make default in For the fourth and subsequent financial years_________ - _________________ 660, 000, 000 meeting the service of the bonds, the trustee may in R EP O R TS O F C O M M IT T E E S T O R E P A R A T IO N C O M M IS S IO N 52 lieu of or in addition to the measures mentioned in the last preceding article present the accrued coupons or any bonds due for repayment to the commissioner of controlled revenues who shall pay them at their face value out of the portion of the receipts of the assigned revenues falling to the share of the German Govern ment. The coupons and bonds so paid shall be in cluded at their face value in the repayments made by the commissioner of controlled revenues to the German Government. The amounts so paid may only be repaid by the company to the Government after the necessary provision has been made for the current and the next coupons on the b^nds and for the fixed dividend for the current year on the preference shares. ARTICLE VI.— Transportation tax The company shall on behalf of the Government pay to the Reparation Commission the proceeds of the transportation tax as at present levied, i. e., a tax of 7 per cent on the gross receipts from all freight traffic other than coal, and a tax of 10 per cent to 16 per cent, according to class, on the gross receipts from all passenger traffic. This payment shall be made dur ing the first and each of the following years of the con cession and until the conclusion of any extension, even if in the course of the concession the whole of the bonds have been paid off. The rate of the transportation tax shall not be reduced during the whole of the concession. The proceeds of the tax may be employed by the trustee to secure the issue of a special series of bonds for 3 milliard gold mark, or thereabouts. ARTICLE VII.—Financial arrangements The bank account shall be kept at the new bank. Payments by the company herein before prescribed shall be paid to the account of the railway commis sioner. The latter shall transfer these sums to the credit of the agent for reparation payments. ARTICLE Vm.— Anticipatory redemption ofbonds If all the first mortgage bonds should be redeemed before the expiration of the term of the concession by special subsidy by the German Government to the company, the Government shall be entitled to require that the functions of the railway commissioner herein before mentioned shall come to an end and that the foreign directors shall be replaced by German directors. In default of other arrangements the transportation tax shall continue to be paid to the Reparation Com mission. The German Government shall in that case also have the right to purchase or repurchase the preference shares at par, plus dividend and arrears of dividend if accrued. ARTICLE IX.— Organization committee A temporary committee with the title of the “ Organi zation committee of the German railway company” shall be constituted in order to work out, subject to the foregoing provisions, the details necessary for the creation of the German railway company and the exe cution of this plan. The committee shall consist of two delegates appointed by the German minister of railways, the railway specialists, Sir William Acworth and M. Leverve, who are familiar with the discussions which have led to the adoption of this scheme, or a nominee or nominees to be appointed by them jointly together with a fifth member of neutral nationality to be chosen by the four thus appointed or, in default of such choice, to be appointed by the Reparation Commission. This organization committee will come to an end as soon as may be after the railway company has been constituted, the railway commissioner appointed and this plan has been put into operation. The expense of the committee and of their staff shall be an operating charge upon the receipts of the German railways. ARTICLE X.—Arbitration The law to be enacted by the German Parliament shall provide that so long as the functions of the rail way commissioner hereinbefore mentioned shall not have come to an end, if any dispute or difference should arise between the Reparation Commission or non government represented thereon, on the one side, and the company and the German Government, or either of them, on the other side, or between the company and the German Government, as to the interpretation of any provision of the said law, or of the charter of the company, or of this plan, or as to anything to be done under any of them respectively, whether in respect of the capital and obligations of the company or of its external or internal management, or otherwise how soever, the same shall be referred to the decision of an arbitrator who, if the German Government so desires, shall be of neutral nationality to be nominated by the president for the time being of the Permanent Court of International Justice, and the decision of the arbitrator so appointed shall be final. REPORTS OF COMMITTEES TO REPARATION COMMISSION 53 ANNEX NO. 5 TO TH E REPORT OF THE FIRST C O M MITTEE OF EXPERTS P lan I n d u s t r ia l D e b e n t u r e s trolled revenues, who shall purchase them at their nominal value, by means of the funds under his con trol which are destined to be paid over to the German I. The German Government shall provide bonds or Government. The commissioner will include the debentures of industrial concerns to a total nominal coupons for their nominal value in the “ reversements ” value of 5 milliards of gold marks, bearing 5 per cent to the German Government, which will have recourse interest and 1 per cent for sinking fund per annum. against the defaulting debtor. The German Government might, by means of sub These bonds shall be the individual obligations of the several concerns and shall be secured as to principal, sidies, encourage the repurchase of the bonds by the interest, and sinking fund payments by a first mortgage mortgagors and thus free itself from its guaranty. on the plant and property of the respective concerns TAX-EXEMPTION PROVISION making them. IV. The said bonds and mortgages until redeemed The term “ industrial concerns” shall include not only manufacturing concerns but navigation, mining, shall be exempt from taxation in Germany, unless and any other similar concerns which the organization they shall be held by German nationals, in which case they shall be taxed like other similar bonds and mort committee may indicate. gages so held by German nationals and without dis DELIVERY TO TRUSTEE crimination. for THE AMOUNT AND FORM II. The mortgage bonds or debentures above pro vided for, with suitable coupons covering the interest payments, shall be delivered by the German Govern ment to the trustee to be appointed by the Reparation Commission, who will hold them, collect the coupons thereon, paying the proceeds into the account of the agent for reparation payments, or dispose of them in whole or in part from time to time under the orders of the Reparation Commission. The debtor may make proposals to the trustee for their immediate or gradual redemption, and the committee recommends that the trustee be empowered to give preference to such pro posals of redemption, and especially those of which the redemption would be effected by the use of foreign cur rencies, before offering such bonds in the open market or otherwise. In the event that no proposals of a satisfac tory plan of redemption are made to the trustee by any individual maker of the bonds within six months after such bonds shall have been delivered to him by the German Government, then the trustee, in his discretion, but with due regard to the protection of the credit of the debtor, shall be free to dispose of the same in such manner and on such terms as the Reparation Commis sion may authorize. GUARANTY BY GERMAN GOVERNMENT III. The German Government shall guarantee the principal, interest, and sinking fund payments on such bonds; in consequence, in case of default the matured coupons can be presented to the commissioner of con TEMPORARY ORGANIZATION COMMITTEE V. A temporary organization committee shall be formed for the purpose of taking all necessary measures within the scope of the foregoing plan and for fixing the details of organization. This committee shall in clude a representative of the German Government, a representative of industry, two members appointed by the Reparation Commission and a fifth member of neutral nationality to be chosen by the four thus ap pointed, or in default of such choice to be appointed by the Reparation Commission. POWERS OF THE ORGANIZATION COMMITTEE VI. (a) The organization committee shall have all powers to work out the details of the plan in such form as may be fair alike to the German Government, to the industrial concerns and to the Reparation Com mission, bearing in mind that it is the purpose and in tent of the plan to insure for reparations accountlthe payment of the 5 milliards of gold marks with interest thereon at 5 per cent per annum and a sinking fund of not less than 1 per cent thereon, which in and of itself will determine the maturity of the bonds. (b) The organization committee shall have the power to determine the form and character of the mortgages, and, in case the concerns are too small to make indi vidual mortgage issues practical and desirable, the committee shall have the power to devise some method of handling them, or may waive them altogether, pro vided the total sum of 5 milliards is maintained. 54 R EP O R TS O F C O M M IT T E E S T O R E P A R A T IO N C O M M IS S IO N R EPO R TS O F C O M M IT T E E S T O R E P A R A T IO N C O M M IS S IO N ANNEX NO. 6 TO THE REPORT OF THE FIRST COMMITTEE OF EXPERTS T h e T r a n sf e r of R e p a r a t io n P a y m e n t s fro m G e r m an RESTRICTION ON PURCHASE BY THE CREDITORS C u r r e n c y in t o F o r e ig n C u r r e n c y a n d t iie COOPERATION OF THE BANK V. T h e goods su p p lied b y G erm a n y to th e cred ito r c o u n tries u n d e r p a ra g ra p h IV (a) a b o v e a n d p a id for b y th e b a n k as a b o v e p ro v id e d sh all be fo r th e sole use of th e co u n trie s receiving th e m fo r th e ir in te rn a l re q u ire m e n ts, in clu d in g th e re q u ire m e n ts of th e ir colo nies a n d dependencies. T h e goods so d eliv ered shall n o t be e x p o rted from th e c o u n try receiving th e m , ex cep t b y a g re e m e n t b etw een th e c o m m itte e ac tin g u n an im o u sly a n d th e G erm an G o v e rn m e n t. V I. In a d d itio n to its pow ers u n d e r p a ra g ra p h IV , th e co m m itte e m a y , on th e in stru c tio n s of th e R e p a ra tio n C om m ission a n d a t th e re q u e st of th e c re d ito r s ta te s , b y d e b itin g th e ir a c c o u n ts, tra n s fe r m a rk s to p riv a te in d iv id u a ls fo r th e p u rp o se of m ak in g p u rch ases in G erm a n y , such re in v e stm e n t n o t to be of a te m p o ra ry c h a ra c te r, a n d such p ro p e rty being of classes con ta in e d in a sch ed u le agreed to b etw een th e co m m ittee a n d th e G erm an G o v e rn m e n t a n d m odified from tim e to tim e b y sim ilar a g re e m e n t. In a rriv in g a t such a g re e m e n t th e G erm an G o v e rn m e n t sh all be re q u ired to h av e d u e re g a rd to th e n ecessity fo r m a k in g m ax i m u m p a y m e n ts to its cre d ito rs, b u t i t sh all also be e n title d to h a v e re g a rd to m a in ta in in g its co n tro l of its ow n in te rn a l econom y. I I I . T h e co m m itte e will be in c o n ta c t w ith th e p resi d e n t a n d th e com m issioner of th e b a n k . COOPERATION BY THE GERMAN GOVERNMENT AND THE BANK U se of B a la n c e s n o t T r a n sf e r r e d TRANSFER COMMITTEE I. T h e p lan p ro v id es t h a t all p a y m e n ts fo r th e a c c o u n t of re p a ra tio n s, ho w ev er d e riv e d , a re to be first m ad e in th e form of d e p o sits in th e b a n k , p ro v id ed for in th e p la n , to th e c re d it of “ T h e a g e n t fo r re p a ra tio n p a y m e n ts .” T h e w ith d ra w a ls from th is d e p o sit shall be m ad e by th e a g e n t fo r re p a ra tio n p a y m e n ts only, u n d er th e d irectio n of a c o m m itte e com posed of five m em bers know n as “ th e tra n s fe r c o m m itte e .” COMPOSITION AND SELECTION OF MEMBERS I I . T h e tra n sfe r c o m m itte e shall be com posed of six m em bers; th e a g e n t fo r re p a ra tio n p a y m e n ts sh all be a m em b er a n d th e ch a irm a n ; th e o th e r five m em bers shall be persons qualified to deal w ith foreign-exchange q u estio n s. T h e y sh all co n sist of a n A m erican m em b er, a F re n c h m em b er, a n E n g lish m em b er, a n Ita lia n m em b er, a n d a B elgian m em b er. E a c h of th e m shall be ap p o in te d by th e R e p a ra tio n C om m ission, a fte r th e m em b er of th e g en eral b o a rd of th e b a n k of th e sam e n a tio n a lity h a s been c o n su lted . POWERS OF THE COMMITTEE IV . T h e co m m ittee shall h a v e p ow er, a n d it shall be its d u ty : (a ) T o a p p ly such b a n k b alan c es fo r p a y m en ts for deliveries in k in d a n d p a y m e n ts u n d e r th e re p a ra tio n recovery a c t, in a c c o rd an ce w ith th e p ro g ram estab lish ed p erio d ically b y th e R e p a ra tio n C om m ission, a fte r c o n su lta tio n w ith th e tra n s fe r co m m ittee as to th e c h a ra c te r a n d a m o u n t of such d eliveries. ( 6) T o c o n v e rt th ese b a n k b alan c es in to foreign c u r rencies from tim e to tim e a n d a fte r conversion to re m it th e m in acco rd an ce w ith th e in s tru c tio n s of th e R e p a ra tio n C om m ission. B o th th e foregoing pow ers (a ) a n d ( 6) to be exercised to th e e x te n t to w hich, in th e ju d g m e n t of th e com m itte e , th e foreign exchange m a rk e t w ill p e rm it, w ith o u t th re a te n in g th e sta b ility of th e G erm an cu rren cy . (c) T o in v e st fro m tim e to tim e in b o n d s o r o th e r loans in G erm a n y such a m o u n ts as th e c o m m itte e m a y deem w ise. T h e c o m m itte e sh all p ro ceed to m ak e th ese in v e stm e n ts as soon as th e a m o u n t of th e cre d its exceeds th e su m w hich th e b a n k will keep on d ep o sit. On th e o th e r h a n d , th e co m m itte e m a y sell th e bon d s w hich it h as a c q u ire d o r liq u id a te th e loans w hich it has g ra n te d w h en ev er in its o p inion th e sum s m a y be c o n v e rte d in to foreign ex change, o r th e b a n k can ac c e p t a d d itio n a l d ep o sits. V II. T h e G erm an G o v e rn m e n t a n d th e b a n k shall u n d e rta k e to fa c ilita te in ev ery reaso n ab le w ay w ithin th e ir p o w er th e w ork of th e c o m m itte e in m ak in g tra n sfe rs of fu n d s, in cluding such ste p s as will aid in th e co n tro l of foreign exchange. W hen th e c o m m ittee is of th e opinion th a t th e b a n k ’s d isc o u n t ra te is n o t in re la tio n to th e necessity of m ak in g im p o rta n t tr a n s fers, it shall inform th e p re sid e n t of th e b a n k . ATTEMPTS TO DEFEAT TRANSFER V III. In th e e v e n t of c o n certed financial m an eu v e rs e ith e r b y th e G o v e rn m e n t or b y a n y g ro u p , for th e p u rp o se of p re v e n tin g su ch tra n s fe rs , th e co m m ittee m ay ta k e su ch a c tio n as m ay be n ecessary to d e fe a t su ch m an eu v e rs; a n d in such c ircu m stan ces it m ay su sp en d th e o p e ra tio n of p a ra g ra p h X , m a y a c c u m u la te th e fu n d s or em ploy th e m in th e p u rc h a se of a n y k ind of p ro p e rty in G erm an y . TAX-EXEMPTION PROVISION I X . T h e G erm an G o v e rn m e n t sh all n o t ta x th e d e p o sits in th e b a n k or goods p u rc h a se d for th e c red ito r c o u n tries p e n d in g rem o v al, n o r a n y secu rities or loans re p re se n tin g in v e s tm e n t of fu n d s p e n d in g tra n sfe r, n o r a n y p ro p e rty p u rc h a se d u n d e r th e p ro v isio ns of th e p a ra g ra p h n e x t p reced in g . T h is ex em p tio n does 55 n o t ap p ly to p ro p e rty p u rch ased u n d e r p a ra g ra p h V I, b u t on th e o th e r h a n d , th e re should be no ta x dis crim in atio n a g a in s t such p ro p e rty . t h a t th e conditions of tra n sfe r n ecessita te, a n d th e sta n d a rd s of p a y m e n t laid dow n in th e p la n shall be resum ed a t a n y tim e w hen th e y can o p e ra te w ith o u t th e lim its of accu m u latio n herein laid dow n being PROVISIONS FOR LIMITATION OF ACCUMULATION exceeded. X. (a) W hen th e accu m u latio n of fu n d s n o t tr a n s ( b) T h e co m m ittee shall h av e pow er to suspend ferable u n d er th e provisions of su bdivisions ( 6) a n d (c) a ccu m u latio n before reach in g 5 m illiard gold m a rk s, of p a ra g ra p h IV shall h av e reach ed th e sum of 5 m il if tw o -th ird s of its m em bers are of th e opinion t h a t liard gold m a rk s (w h eth er rep resen ted by b a n k deposits such accu m u latio n is a m enace to th e fiscal or econom ic or lo an s), th e p a y m e n t for tr e a ty charges p ro v id ed for situ a tio n in G erm an y or to th e in te re sts of th e cred ito r shall be reduced to such an a m o u n t as will cover th e countries. tran sfers an d p a y m e n ts p ro v id ed for u n d e r su b d iv i (c) T h e co m m ittee shall, b y a tw o -th ird m a jo rity , sion ( 6) a n d (c) of p a ra g ra p h IV w ith o u t ad d itio n a l h av e pow er to w aive th e lim it a cc u m u latio n s u n d e r accu m u latio n . Such p a rtia l suspense of G e rm a n y ’s th e co nditions p ro v id ed for in p a ra g ra p h V III. obligations shall be o p e ra tiv e only d u rin g th e period ANNEX NO. 7 TO THE REPORT OF THE FIRST COMMITTEE OF EXPERTS NOTE ON THE CURRENCIES CIRCULATING IN GERMANY IN JANUARY, 1924 6 C h apter I .— P a p e r - M ark C urrency A. LEGAL TENDER 1. Reichsmarks.— R e ic h m a rk s a re issued by th e R eich sb an k u n d e r a privilege g ra n te d to i t by th e b an k in g law of M arch 1 4 , 1 8 7 5 . In 1 9 1 3 th e circu la tio n of p a p e r m a rk s a m o u n te d to 2.1 m illiard; on J a n u a r y 3 1 , 1 9 2 4 , it h ad reach ed th e figure of 4 8 3 .7 trillio n (E n g lish ) p a p e r m a rk s, rep re se n tin g 4 8 3 .7 m il lion gold m a rk s a t th e ra te of 1 gold m a r k = l billion p a p e r m a rk s. 2. Notes of private banks.— B an k s, w hich a t th e tim e of th e p ro m u lg atio n of th e law of M arch 1 4 , 1 8 7 5 , h ad th e rig h t to issue n o tes, h a v e re ta in e d th is privilege. T h e n u m b er of th e s e b a n k s, w hich w as originally 3 2 , h as decreased progressively; a t th e p re s e n t tim e th e re are only fo u r p riv a te b a n k s, n am ely: B ayerische B a n k e n , Sachsiche B a n k , B adische B a n k , W u rtem bergische N o te n b a n k . T h e to ta l circu latio n of n o tes issued b y th e se four in s titu tio n s am o u n te d in 1 9 1 3 to 1 4 0 ,0 0 0 ,0 0 0 gold m a rk s. A t th e end of J a n u a r y , 1 9 2 4 , it rep resen ted a b o u t 100,000 gold m a rk s. 3 . Reichskassenscheine.— T h ese cu rren cy n o tes w ere issued a t th e tim e of th e fo rm a tio n of th e R eich sb an k (1 8 7 5 ) in o rd er to m ak e i t possible to p lace th e fiduciary circu latio n on a sou n d basis b y m ean s of th e w ith d raw al of th e S ta te n o tes th e n in c irc u la tio n . T he issue w as originally fixed a t 120,000,000 gold m a rk s, corresponding ex actly to th e w a r tre a s u re (in gold) d ep o sited a t S p a n d a u . T h e c ircu latio n , w hich reached th e figure of 3 2 0 ,0 0 0 ,0 0 0 in 1 9 2 0 , p rogressively de creased u n til A u g u st, 1 9 2 3 , w hen i t still am o u n te d to 2 0 0 ,0 0 0 ,0 0 0 gold m a rk s. A t t h a t d a te th e ' R eichs kassenscheine in c ircu latio n w ere co m p letely w ith d ra w n . 4. Darlehenskassenscheine.— (B o n d s issued by th e D arlelienskassen d u rin g th e w a r.) T h e issue reached its m ax im u m figure in O cto b er, 1 9 2 2 (1 4 m illiard p a p e r m a r k s ); th ese bonds ceased to figure in th e sta te m e n ts as from A u g u st, 1 9 2 3 , w hen th e circu latio n a m o u n te d to only 11 m illiard p a p e r m a rk s, corresponding to less th a n 10,000 gold m a rk s. B. AUXILIARY INSTRUMENTS OF PAYMENT 1. Issue of secured notgeld.— T h e issue of notgeld (em ergency cu rren cy ) w as re g u la te d b y th e law of Ju ly 1 7 , 1 9 2 2 . T h is currency w as issued w ith a view to su p p lem en tin g t h a t issued b y th e R eich , th e R eich s b a n k , a n d th e p riv a te b a n k s of issue, th e to ta l v alu e of w hich in circu latio n w as c o n sta n tly decreasing as a re s u lt of th e fall of th e m a rk . T h e p rev io u s a u th o riz a tio n of th e m in iste r of finance w as necessary. T h e n o tg eld w as to be secured by a d ep o sit in fixed valu es, earm a rk e d in fa v o r of th e R eich M in ister of F in a n c e , a n d corresp o n d in g to th e a m o u n t placed in c irc u la tio n , less th e a c tu a l o r e stim a te d expenses of issue. T h is a sse t w as to rem ain a t th e R e ic h sk re d ita n sta lt a t B e r lin , w hich w ould allow in te re s t a t 2 p e r c e n t less th a n th e ra te of d isc o u n t of th e R eich sb an k . T h e cover for th e notg eld m ig h t also co n sist of th re e m o n th s tre a su ry bonds; b u t in th is case it w as th e R eich sb an k w hich w ould issue th e n o tg eld a n d a c c e p t th e d ep o sit in tre a su ry bond? offered as g u a ra n te e . A u th o riz a tio n to issue no tg eld w as g ra n te d to public a n d p riv a te o rg an izatio n s for a to ta l figure w hich a t th e end of 1 9 2 3 a m o u n te d to 7 .6 trillio n p a p e r m a rk s, co rresp o n d in g to 7 .6 m illion gold m a rk s. T h e circu latio n of th is no tg eld am o u n te d on D ecem ber 3 1 , 1 9 2 3 , to 3 .4 trillio n p a p e r m ark s; t h a t is, 3 .4 m illion gold m a rk s. An e n d e a v o r h as since been m a d e to w ith d raw th e n o tg eld from circu latio n ; a decree of J a n u a ry 2 , 1 9 2 4 , p rescrib ed th e co m p lete w ith d ra w a l in c e rta in un o ccu p ied te rrito rie s. On J a n u a r y 3 1 , 1 9 2 4 , * In the English text of this document the English system of numera th e c irc u latio n a m o u n te d to 1 .4 trillio n p a p e r m a rk s, tion is followed throughout. o r 1 .4 m illion gold m a rk s. 56 R EP O R TS O F C O M M IT T E E S T O R E P A R A T IO N C O M M IS S IO N _ Issue of unsecured notgeld.— N u m ero u s em ergency currencies h a v e been issued w ith o u t a u th o riz a tio n from th e G erm an G o v e rn m e n t, a n d w ith o u t th e fo rm a tio n of a g u a ra n te e d e p o sit, b o th by p u b lic a n d p riv a te o rg an izatio n s a n d even b y p riv a te in d iv id u a ls. T h e a m o u n t of th is n o tg eld issued w ith o u t a u th o riz a tio n o r g u a ra n te e a n d in c irc u la tio n a t th e e n d of J a n u a r y , 1 9 2 4 , is e stim a te d by th e G erm an G o v ern m e n t as follows: p re p a ra tio n s fo r th e issue of th e re n te n m a rk n o t being sufficiently a d v a n c e d ) to issue sm all d e n o m in a tio n s of th e gold lo an . Gold marks I n un occupied te r r ito r y ------------ 2 7 , 6 0 0 , 0 0 0 In occupied te r r ito r y --------------- 132, 0 0 0 , 0 0 0 3 . Railway notgeld.— In o rd e r to co v er th e w ork in g deficit, th e R eich railw ay s issued 1 1 4 trillio n p a p e r m a rk s d u rin g 1 9 2 2 a n d 1 9 2 3 . T h is c u rren cy w as secured b y a R eich d e p o sit a t th e R e ic h sb a n k of 9 0 .0 0 0 . 0 0 0 re n te n m a rk s. A t th e en d of J a n u a r y , 1 9 2 4 , 5 6 ,0 0 0 ,0 0 0 w ere still in circ u la tio n . C h apter I I .— I n str u m e n ts at a of P a y m e n t in G o ld o r F ix e d V a l u e R EP O R TS OF C O M M IT T E E S T O R E P A R A T IO N C O M M IS S IO N T h ese sm all d e n o m in a tio n s w ere issued u p to a to ta l a m o u n t of 2 9 6 ,0 0 0 ,0 0 0 gold m a rk s, 4 ,0 0 0 ,0 0 0 of w hich w ere exch an g ed a g a in s t re n te n m a rk s in J a n u a r y , 1 9 2 4 , in acco rd a n c e w ith th e p rivilege g ra n te d to th e holders in th is re sp e c t. As will be seen la te r, 1 0 ,0 0 0 ,0 0 0 of th is gold loan h a v e been assigned as p a rtia l se c u rity fo r th e no tg eld of a fixed v alu e issued b y th e railw ay s. . A t th e en d of Ja n u a ry ; 1 9 2 4 , th e re fo re , th e circu la tio n w as as follows: Gold marks L arg e n o te s ----------------------------- 19 4, 000, 0 0 0 Sm all n o te s------------------------------ 2 9 2 , 0 0 0 , 0 0 0 T o ta l.............. ........................ 4 8 6 ,0 0 0 ,0 0 0 4. Notgeld secured by 6 per cent treasury bonds ( 6 per cent Schatzanweisungen)Since th e sm all gold loan certificates p ro v ed insufficient for th e m o n e ta ry circu la tio n , th e P ro v in ces, to w n s, ch am b e rs of com m erce, a n d th e la rg e r in d u s tria l u n d e rta k in g s w ere given a u th o rity to c re a te em ergency cu rren cy on a gold m a rk basis, to be covered b y gold loan certificates of large d en o m in a tio n s. O w ing to th e sc a rc ity of th e la tte r , th e a u th o ritie s issuing n o tg eld w ere given p erm ission to p ro v id e co v er in th e form of 6 p e r c e n t tre a su ry b o n d s expressed in d o llars a n d gold m a rk s, specially cre a te d fo r th is p u rp o se b y th e decree of O cto b er 20, 1 9 2 3 . T h ese b o n d s fall d u e on D ecem b er 1, 1 9 3 2 , a n d a re red eem ab le a t p a r in G erm an cu rre n c y on a gold basis. 1. Rentenmark.— T h e re n te n b a n k w as c re a te d by th e decree of O cto b er 15 , 1 9 2 3 . T h e m e th o d of c re a tio n a n d o p e ra tio n is k n ow n. T h e issue of n o te s in re n te n m a rk s beg an on N o v em b e r 15 , 1 9 2 3 . A ccording to th e b a la n c e sh e e t of th e re n te n b a n k on J a n u a r y 3 1 , 1 9 2 3 , th e a m o u n t issued a t t h a t d a te w as 1 .3 7 4 .0 0 0 . 0 0 0 re n te n m a rk s. T he in tro d u c tio n of th e re n te n m a rk h as sto p p e d th e issue of no tg eld of fixed v alu e. 2. Dollar treasury bonds (Dollarschatzanweisungen) .— T h e law of M arch 2, 1 9 2 3 , a u th o riz e d th e issue of d o llar T h e to ta l a m o u n t of n o tg eld th u s secured (exclusive tre a s u ry bo n d s fo r a to ta l a m o u n t of $ 5 0 ,0 0 0 ,0 0 0 of th e n o tg eld issued by th e railw ay s a n d to w hich we (2 1 0 ,0 0 0 ,0 0 0 gold m a rk s ). T h ese b o n d s, issued in will refer la te r) sto o d a t 110, 000,000 gold m a rk s on d e n o m in atio n s of from $ 5 to $ 1 0 0 , do n o t b e a r J a n u a r y 3 1 , 1 9 2 4 . in te re st, b u t a re re d eem ab le in gold a t 120 p e r c e n t on T h is n o tg eld is to be g ra d u a lly w ith d ra w n from cir A pril 15 , 1 9 2 6 . cu la tio n a g a in s t re d e m p tio n in loan b o n d s o r G erm an T h ese tre a su ry b o n d s h a v e been fu lly su b scrib ed . cu rre n c y . R e d e m p tio n w as to begin on J a n u a r y 15, T h e \ h av e been used in G erm a n y as a m ean s of p a v 1 9 2 4 , a n d it is ho p ed t h a t th e full a m o u n t will h av e m e n t. been called in n o t la te r th a n A pril 1, 1 9 2 4 . 3 . Gold loan (Wertbestandige Anleihe).— T h is loan 5. Treasury' bonds and interim bonds issued by the a u th o riz e d b y th e law of A u g u st 14, 1 9 2 3 , is fo r a States. C e rta in S ta te s issued fixed v alu e lo an s, som e to ta l su m of 5 0 0 ,0 0 0 ,0 0 0 gold m a rk s, w hich h as been of th e certificates fo r w hich w ere of such sm all d en o m i fully su b scrib ed . T h e b o n d s a re expressed in d o llars. n a tio n s t h a t th e y still serv e as in s tru m e n ts of p a y T h e sm all d en o m in a tio n s of fro m o n e -te n th to $5 do m e n t. T h e to ta l v alu e of th e se b o n d s a m o u n ts to n o t b e a r in te re s t a n d a re re d eem ab le a t 1 7 0 p e r c e n t a b o u t 5 0 ,0 0 0 ,0 0 0 gold m a rk s. A tte m p ts a re being on S ep tem b e r 2, 1 9 3 5 . B onds fo r $10 o r m o re b e a r m a d e to recall th e se sm all d en o m in a tio n s b y c o n v e rt 6 p e r c e n t in te re st a n d a re red eem ab le a t p a r on th e in g th e m in to la rg e r d en o m in a tio n s. sam e d a te . T h ese larg e d e n o m in a tio n s w ere issued 6. Certificates issued by the banks of Hamburg and first for a to ta l su m of 1 6 4 ,0 0 0 ,0 0 0 gold m a rk s. S u b Schleswig-Holstein.—T w o b a n k s, th e H a m b u rg e r B an k s e q u e n t issues of larg e d e n o m in a tio n s raised th is figure von 1 9 2 3 A. G . a n d th e S chlesw ig-H olsteinische G oldto 2 0 4 ,0 0 0 ,0 0 0 gold m a rk s. g iro b a n k A. G. w ere a u th o riz e d by th e R eich M in ister I n O cto b er, 1 9 2 3 , th e m o n e ta ry s itu a tio n h a v in g of F in a n c e to deliv er, in exchange fo r cu rren cies, “ d is becom e in to le ra b le on a c c o u n t of th e fall of th e p a p e r c o u n t c e rtific a te s” (V e rrech n u n g ssch ein e), w hich still m a rk , a n d w age ea rn e rs h a v in g in siste d u p o n being serv e as in s tru m e n ts of p a y m e n t. I t is th e in te n tio n p a id in cu rre n c y of fixed v alu e, th e R eich d ecid ed (th e of th e G erm an G o v e rn m e n t to disp en se w ith th ese gold certificates as soon as a gold cu rren cy h a s been re in sta te d . T h e H a m b u rg e r B an k issued certificates to th e a m o u n t of 2 5 ,0 0 0 ,0 0 0 gold m a rk s. N o p a r tic u la rs are av ailab le reg ard in g th e a m o u n t issued by th e Schlesw ig-H olsteinische G o ld g iro b an k , b u t th e figure is inconsiderable. 7. Notgeld issued by the railways.— In o rd er to cover th e ir deficit, th e G erm an railw ay s w ere a u th o riz e d to issue, in a d d itio n to th e p a p e r m a rk no tg eld referred to ab o v e, no tg eld h av in g sta b le v alu e to th e a m o u n t of 200, 000,000 gold m a rk s— 10, 000,000 of th is issue w ere secured b y gold loan bo n d s, as explained above, th e rem ain in g 1 9 0 ,0 0 0 ,0 0 0 being secured b y 6 p e r cen t tre a su ry bo n d s, as a lread y s ta te d . T h e n o tg eld issued by th e railw ays am o u n te d to 1 3 1 ,9 0 0 ,0 0 0 on J a n u a ry 3 1 , 1 9 2 4 . T his em ergency cu rren cy is to be w ith d raw n from circu latio n b y m ean s of a loan to be issued la te r b y th e railw ays. T able of I n strum en ts t io n in of P aym ent in G e r m a n y in J a n u a r y , C ir c u l a 1924 Approximate value in millions of gold m arks7 I. In s tru m e n ts of p a y m e n t expressed in p a p e r m arks: R eich sb an k n o tes (as p e r re tu rn d a te d 3 1 / 1 / 2 4 )__ 483. 7 N o tes of th e fo u r p riv a te b a n k s of issu e__________ 0. 1 N o tg eld issued by th e ra il w ays a n d secured b y a d ep o sit of 9 0 ,0 0 0 ,0 0 0 re n te n m a rk s at th e 56. 0 R e ic h sb a n k ____________ N otgeld issued a g a in s t th e d ep o sit of se c u rity in cu rren cies______________ 1. 4 N otgeld issued w ith o u t cover— In occupied te r r ito r y . 132. 0 In unoccupied te r ri to r y ......................... 27 . 6 T o ta l----------------------------------- TT 11. T ' 57 Approximate value in millions of gold marks In s tru m e n ts of p a y m e n t ex pressed in gold o r h av in g fixed value: R e n te n m a rk s (as p e r r e n t e n b a n k re tu rn of 3 1 /1 /2 4 ) 1 , 3 7 4 . 0 D o llar tre a su ry bonds ( D o llarsch atzan w e i s u ngen, law of M arch 2, 210. 0 1 9 2 3 ) ---------------------------G old lo an (W e rtb e sta n d ig e A nleihe, law of A ugust 14, 1 9 2 3 ) ------------------------------4 8 6 .0 N o tg eld secured b y 6 p er cent tre a s u ry bonds (6 p e r c e n t S c h a tz a n w eisungen, law of O cto b er 2 0 , 1 9 2 3 ) ___________ 1 1 0 .0 T re a su ry b onds a n d in te rim bon d s issued by th e S ta te s ________________ 50 . 0 C ertificates issued b y th e b an k s of H a m b u rg an d Schlesw ig-H olstein (V er re c h n u n g ssch ein e)______ 35 . 0 N o tg eld issued b y th e ra il w ays a n d secured by 6 p e r c e n t tre a su ry bon d s ( 10, 000,000 of w hich are secured by gold lo a n )_____________ 131. 9 T o ta l___________ _____ _____ I I I . D e n o m in atio n al cu rren cy in re n te n p fen n ig s------------------------------------------ G ra n d t o t a l ________________ 700. 8 1 Calculated on the basis of 1 gold m ark-1 billion paper marks. 2, 3 9 6 . 9 15 8. 0 3, 2 5 5 . 7 N o t e .— T h is to ta l does n o t in clu d e th e foreign c u r rencies a t p re s e n t in G erm an y , w hich, according to th e e stim a te m ad e by th e Second C o m m ittee of E x p e rts , w ould a m o u n t to 1, 200, 000,000 gold m a rk s, a figure w hich h as been confirm ed b y a G erm an a u th o r ita tiv e source. 58 R E PO R TS O F C O M M IT T E E S TO R E P A R A T IO N C O M M IS S IO N • E E P O E T S OF C O M M IT T E E S T O R E P A R A T IO N C O M M IS S IO N ANNEX NO. 9 TO THE REPORT OF THE FIRST COMMITTEE OF EXPERTS ANNEX NO. 8 TO THE REPORT OF THE FIRST COMMITTEE OF EXPERTS P r o v is io n a l S u r v e y o f t h e B u d g e t fo r 19241 I n view of th e circu m stan ces m en tio n ed ab o v e, a n y COMPARATIVE POSITION OF DIFFERENT IN COMES DRAWN FROM DIVIDENDS IN THE e stim a te s are a tte n d e d w ith exceptional difficulties. An a tte m p t is m ad e below to em plo y a v ailab le bases YEARS 1920-21, 1923-24, AND 1924-25 I. G E N E R A L A D M IN IST R A T IO N OF T H E REICH A. Ordinary B udget Q u e s t io n S u b m it t e d t o t h e G e r m a n G o v e r n m e n t In millions of— In millions of— Revenue 1. Taxes on property, traffic, trade and transfer (direct taxes)......... - ........ ......... 2. Custom and excise duties (indirect taxes). 3. Nontax revenues from public services___ Total of ordinary revenues................ Pounds Dollars 4,004 1,080 60 200.2 54.0 3.0 1,001.0 270.0 15.0 5,144 by Expenditure Gold marks 257.2 Gold marks Pounds 1. Interest on, and amortis. of debt of Em pire......................................................... Provision for invalids, war pensions, etc. Army and Navy............... ....................... Police. ................................... Industrial and cultural purposes............ Unemployment benefit............................ Social and other expenditure .............. Finance and taxation departments ___ General administrative expenses other than the above............................... 10. Assignments to the States and com munes................... ....................... Total of ordinary expenditure.......... Dollars 156 810 450 208 28 500 360 380 7.8 40.5 22.5 10.4 1.4 25.0 18.0 19.0 39.0 202.5 112.5 52.0 7.0 125.0 90.0 95.0 250 1Z5 62.5 1,800 90.0 450.0 4,942 247.1 1, 235. 5 2. Public buildings....................... 3. Settlement of war expenditure 4. Settlement of expenditure for the Ruhr— 6 44 20 60 0.3 2. 2 1.0 3.0 5.0 15.0 Total of extraordinary expenditure.. 130 6.5 32.5 253. 6 1,268.0 2. 3. 4. 5. 6. 7. 8. 9. 1,286.0 B. E xtraordinary B udget 1. Revenue from the mint______________ 2. Other revenues.......................................... Total of extraordinary revenues... Total of A and B ........ ...................... 90 40 4.5 2.0 22. 5 10.0 130 6.5 32.5 5,274 -263.7 1,318.5 1. For war damages and removal of effects 1. 5 II. E X E C U T IO N OF TH E T R E A T Y OF VERSAILLES 1. Cash reparation payments............._......... (Discharge of debt due to the Reichsbank for redemption of an exchequer bill given to Belgium.) 2. Clearing office payments......................... 3. Cost of armies of occupation___________ 4. Rhineland commission________________ 5. Other interallied commissions including reparation commission_______________ 6. Restitution, substitutions, and disman tlement costs........................................... 7. Home expenditure incurred by the carry ing out of the treaty of Versailles......... Total of expenditure. 2.6 13.0 18.0 1.7 0.3 1.5 90.0 8.5 0.9 4.5 0.5 2.5 8.0 40.0 32.0 160.0 BALANCE I. General administration of the Reich II. Execution of the treaty of Versailles. * Total of expenditure__________ Revenues_______________ ____ Deficit_______________ 5,072 640 253.6 1,268. 0 32.0 " 16R 0 5,712 5,274 285.6 263.7 1,428. 0 1,318.5 438 21.9 109.5 1 The figures of this table can only serve as a preliminary estimate and are given with all reserve. This estimate of the revenues assumes « m. nVtha°Re^°h°m!f tv,n'ty between occupied and unoccupied territory, renewed administrative and fiscal supremacy in occuDied territorv morS directed fetotheiratredJ m iL °mPOn6nt StatCS’ that the tales to be levied according to the goneral Iaws of the Reich and the States are once 59 th e F ir s t C o m m it t e e of E xperts A ssum e fo u r m en w ith incom es in gold m ark s: 1 5 ,0 0 0 , 1 0 0 ,0 0 0 , 5 0 0 ,0 0 0 , 1 ,0 0 0 ,0 0 0 ; (a) w holly from div id en d s of G erm an in d u s tria l com panies; ( b) onehalf from G erm an a n d one-half from foreign co m p a nies. W h a t a m o u n t of incom e ta x (or its s u b s titu te s ) plus c a p ita l ta x will be p a y a b le on th e scales for 1 9 2 0 - 2 1 , 1 9 2 3 - 2 4 , 1 9 2 4 - 2 5 , resp ectiv ely ? R eply of th e G erm an G overnm ent F o r th e follow ing reasons it is im possible to m ak e reliable e stim a te s of th e k in d desired: 1. B ecause th e fiscal b u rd en for 1 9 2 0 - 2 1 can n o t be calc u lated ow ing to th e influence of th e d ep reciatio n of th e cu rren cy . 2 . B ecause no assessm ent exists for 1 9 2 3 b ased on sliding scale ra te s for t h a t year; in d eed fo r 1 9 2 3 p re p a y m e n ts an d p a y m e n ts of balan ce w ere collected w hich w ere reg u larly calc u la te d on a coefficient of th e 1 9 2 2 tax es a n d w ere th e re fo re n o t e n tirely im m u n e from th e influence of th e d ep reciatio n of th e cu rren cy . 3. B ecause no incom e ta x levied on a sliding scale exists so fa r for 1 9 2 4 ; th e p re p a y m e n ts fo r 1 9 2 4 are collected m ore according to e x te rn a l sta n d a rd s; th e a c tu a l incom e for 1 9 2 4 will n o t be assessed u n til 1 9 2 5 , w hen it will be based u pon a tariff w hich will be d e te rm in e d b y law in th e course of th e y e a r 1 9 2 4 . P a rtic u la rs concerning th e form of th e tax es will be fo u n d in th e m em o ran d u m tra n s m itte d (see for 1 9 2 0 - 2 1 : E nglish te x t, pages 8 1 , 96 ; F re n c h te x t, pages 8 1 , 97; for 1 9 2 3 - 2 4 : E nglish te x t, pages 8 3 - 8 4 , 9 6 ; F ren ch te x t, pages 8 4 , 9 7 ). R eference should be m a d e to th e s ta te m e n t concerning th e b u d g e t estim a te s of th e w ages ta x a n d th e p re p a y m e n ts on th e incom e an d c o rp o ratio n tax es for 1 9 2 4 tr a n s m itte d as V (a) I I 1 4 8 0 , of F e b ru a ry 16 , 1 9 2 4 . I t sh ould fu rth e r be p o in te d o u t t h a t incom e from d iv id en d s to th e a m o u n t m en tio n e d existed in G er m a n y before th e w ar to a lim ited e x te n t only a n d is u n lik ely to be fou n d a fte r 1 9 2 2 , ow ing to econom ic d ev elo p m en ts d u rin g th e period of d ep reciatio n of th e cu rren cy . As early as 1 9 2 0 , th e re w ere only six ta x p a y e rs in G erm an y who h ad a n incom e from in v e stm e n ts of from 3 , 000,000 to 10, 000,000 p a p e r m a rk s, t h a t is, from 2 0 0 ,0 0 0 to 6 6 7 ,0 0 0 gold m a rk s a n d 66 w ith an incom e from in v e stm e n ts of from 1 ,0 0 0 ,0 0 0 to 3 ,0 0 0 ,0 0 0 p a p e r m a rk s, t h a t is, a b o u t 6 7 ,0 0 0 to 2 0 0 ,0 0 0 gold m a rk s. F ro m a b o u t th e m id d le of 1 9 2 2 incom e from in v e s tm e n ts h ad p ra c tic a lly d isap p eared . for v a lu a tio n as req u ire d in th e q u estio n n aire. T h e estim a te s given in th e inclosed ta b le show ing th e charg e on incom es from d iv id en d s of 5 0 ,0 0 0 , 1 0 0 ,0 0 0 , 5 0 0 ,0 0 0 , an d 1 ,0 0 0 ,0 0 0 gold m a rk s fulfill th e conditions se t fo rth in th e q u e stio n n a ire — (а ) T h a t th e w hole incom e is d raw n from d iv id en d s of G erm an in d u s tria l com panies. ( б) T h a t h alf th e incom e is. d raw n from G erm an a n d half from foreign in d u s tria l com panies. I t w as necessary, in d raw in g u p th is ta b le , to include in th e calc u latio n of th e charges on incom e derived from d iv id en d s of G erm an in d u s tria l com panies, th e tax es w hich h ad to be p aid b y th e G erm an com panies if th e y d is trib u te d d iv id en d s to th e a m o u n ts in q ues tion; it m u s t n o t be fo rg o tte n t h a t th is ta x is d ed u cte d before th e d is trib u tio n of th e d iv id en d s. In co n v ertin g th e incom e in gold in to p a p e r m ark s a n d th e tax es in p a p e r m a rk s in to gold m a rk s, th e ra te of th e d o llar has been used as th e basis. T h is w as possible because th e incom e is in d ic a te d in gold, a n d th erefo re th e calcu latio n of th e ta x a t th e d o llar ra te affords a basis for com p ariso n . In m ak in g th e calcu latio n th e follow ing assu m p tio n s h av e been m ade: I. For 1920-21 .— T h e d iv id en d h as been p aid to th e ta x p a y e r in 1 9 2 0 . T h e ta x p aid b y th e co m p an y has first been d ed u c te d from th e p ro fits w hich th e co m pany m ad e in 1 9 1 9 an d on w hich it p aid th e ta x in 1 9 2 0 . A fu r th e r p rio r charg e consists of th e 10 p e r c e n t ta x on rev en u e from c a p ita l w hich w as d e d u c te d from th e G erm an d iv id en d s of th e ta x p a y e r a t th e tim e of th e ir re c e ip t in 1 9 2 0 a n d w hich he p aid in 1 9 2 1 for his foreign d iv id en d s. F ro m th e rem ain in g rev en u e, a fte r d ed u c tio n of th e ta x on rev en u e from c a p ita l, th e ta x p a y e r has p a id his incom e ta x for 1 9 2 0 acco rd in g to schedule. In e stim a tin g th e a c tu a l fiscal b u rd e n , a c c o u n t has been ta k e n of th e fa c t t h a t th e incom e w as o b ta in e d in th e y ear 1 9 2 0 , t h a t th e co rp o ra tio n ta x a n d th e ta x on rev en u e from c a p ita l w ere p aid a t th e tim e of receiving th e d iv id en d s, t h a t is also in 1 9 2 0 , a n d t h a t on th e o th e r h a n d th e ta x on rev en u e fro m c a p ita l in resp ect of foreign d iv id en d s a n d th e incom e ta x w ere n o t p a id u n til 1 9 2 1 , a n d w ere th erefo re p a id in a d ep re c ia te d cu rre n c y . On th e basis of th e av erag e do llar ra te , one gold m a rk w as in 1 9 2 0 e q u iv a le n t to 15 p a p e r m a rk s a n d in 1 9 2 1 to 2 4 .9 p a p e r m a rk s. Example 1 .— L e t us assum e th e incom e from d iv i den d s in G erm an com panies in 1 9 2 0 to be 5 0 ,0 0 0 gold m a rk s = 7 5 0 ,0 0 0 p a p e r m a rk s. B efore d is trib u tin g 7 5 0 ,0 0 0 p a p e r m a rk s, a co m p an y in 1 9 2 0 h a d to p a y an av erag e ta x of 1 2 7 ,5 0 0 p a p e r m a rk s. T h e 7 5 0 ,0 0 0 p a p e r m a rk s d u e to th e person receiving d iv id en d w ere, u p o n re c e ip t, red u ced b y 10 p e r cen t; t h a t is, by 60 . R EP O R TS OF C O M M IT T E E S T O R E P A R A T IO N C O M M IS S IO N 7 5 ,0 0 0 p a p e r m a rk s. In 1 9 2 0 , th e re fo re , 2 0 2 ,5 0 0 p a p e r m a rk s w ere p a id in tax es = 1 3 ,5 0 0 gold m a rk s. F ro m th e rem ain in g 6 7 5 ,0 0 0 p a p e r m a rk s he h a d to p a y th e sum of 3 5 6 ,6 0 0 p a p e r m a rk s in incom e ta x = 1 4 ,3 2 1 gold m ark s in 1 9 2 1 . T h e to ta l charge w as th e re fo re 2 7 ,8 2 1 gold m a rk s. Example 2 .— L e t us assu m e th e incom e from d iv i dends in G erm an co m panies in 1 9 2 0 to be 2 5 ,0 0 0 gold m a rk s = 3 7 5 ,0 0 0 p a p e r m a rk s a n d from foreign com pan ies 2 5 ,0 0 0 gold m a rk s, m ak in g a to ta l of 5 0 ,0 0 0 gold m a rk s = 7 5 0 ,0 0 0 p a p e r m a rk s. B efore d is tr ib u t ing 3 7 5 ,0 0 0 p a p e r m a rk s, G erm an co m p an ies h a d , in 1 9 2 0 , to p a y a n a v erag e ta x of 6 3 ,7 5 0 p a p e r m a rk s = 4 ,2 5 0 gold m a rk s. T h e 3 7 5 ,0 0 0 p a p e r m a rk s in G er m a n d iv id e n d s d u e to th e recip ien t w ere, u p o n re c e ip t, red u ced by 1 0 p e r cen t; t h a t is, by 3 7 ,5 0 0 p a p e r m ark s = 2 ,5 0 0 gold m a rk s. In 1 9 2 0 , th e re fo re , 6 ,7 5 0 gold m a rk s w ere p a id in ta x e s. In 1 9 2 1 th e p erso n d raw in g d iv id en d s h a d in th e first place to p a y a 10 p e r c en t ta x on rev en u e from c a p ita l on th e 3 7 5 ,0 0 0 p a p e r m ark s; t h a t is, 3 7 ,5 0 0 p a p e r m ark s = 1 ,5 0 6 gold m a rk s. F u rth e rm o re , a fte r d ed u ctio n of th e ta x on re v en u e from c a p ita l he h a d to p a y on th e rem a in in g 6 7 5 ,0 0 0 p a p e r m a rk s a n incom e ta x of 3 5 6 ,6 0 0 p a p e r m a rk s = 1 4 ,3 2 1 gold m a rk s. In th is case th e 1 9 2 1 tax e s th u s a m o u n t to 1 5 ,8 2 7 gold m a rk s. In c lu d in g th e 1 9 2 0 tax es th e to ta l ch arg e is th erefo re 2 2 ,5 7 7 gold m a rk s. I I . For 1923-24.— I t is assu m ed t h a t th e d iv id en d s for 1 9 2 3 h av e been d is trib u te d to th e sh areh o ld ers. In th e to ta l p rio r charge th e ta x on fo rtu n e s h as n o t been ta k e n in to a c c o u n t. O nly th e co rp o ra tio n ta x w hich u n d e r th e law of M a rc h 2 0 , 1 9 2 3 , on th e d e p re ciatio n of c u rren cy , w as p a id b y th e c o m p an y fo r th e business y e a r 1 9 2 2 , w hich y e a r w as ta k e n as th e basis for th e d istrib u tio n of d iv id en d s, h as been in d ic a te d as th e p rio r ch arg e. On th e basis of th e ta riff th e p rio r charge am o u n te d to 4 5 p er cen t. O wing, how ever, to th e g re a t d e p re c ia tio n of c u rren cy in 1 9 2 3 , th e gold value on th e d a te of p a y m e n t w as in sig n ifican t. T h e p rio r charge h as been in d ic a te d th e re fo re a t only 3 p e r cen t, since th e d o llar ra te a t th e tim e of th e p a y m e n t of th e ta x , t h a t is on A pril 2 5 , a m o u n te d to 2 9 ,2 0 0 , nam ely a b o u t fifteen tim e s th e av erag e d o llar ra te for 1 9 2 2 (1 ,8 8 5 .7 8 ). In m a n y cases, ow ing to d elay in closing th e b a la n c e sh e e t a n d to th e co n se q u e n t delay in p ay in g th e ta x e s th e p rio r charge w as, as a re su lt of th e ra p id d e p re c ia tio n of c u rren cy , m u ch less th a n 3 p e r c e n t. In th e case of th e person receiv in g d iv i d en d s, th e ta x in d ic a te d is t h a t w hich he h a d to p a y as in creased p re p a y m e n ts a n d p a y m e n t of b a lan c e fo r 1923. Since th e re w as no p ro p e r assessm en t fo r incom e ta x on a sliding scale fo r 1 9 2 3 , th e p a y m e n ts of b a lan c e for 1 9 2 3 h a v e been d e te rm in e d acco rd in g to th e ta x p a y e r’s c a p a c ity to p a y on th e basis of his gold m a rk p a y m e n ts in 1 9 2 3 , a n d in c e rta in cases on th e basis of a lav ish e x p e n d itu re . If, on th e basis of th e m a te ria l a t its disposal th e finance office can assu m e t h a t th e ta x p a y e r h a d a gold m a rk incom e of 5 0 ,0 0 0 or 1 0 0 ,0 0 0 m a rk s, a ch arge of a t le a s t 2 5 p er c e n t m a y be allow ed fo r. If th e re a re really cases of still h ig h er incom es, a ch arg e of 3 5 p e r c e n t on 5 0 0 ,0 0 0 gold m a rk s a n d of 4 0 p e r c e n t on 1 ,0 0 0 ,0 0 0 gold m a rk s will be p a id . T h e to ta l ch arg e th e re fo re a m o u n ts to 2 8 p e r c e n t in th e case of incom es of 5 0 ,0 0 0 a n d 1 0 0 ,0 0 0 gold m a rk s d eriv ed fro m d iv id en d s p a id b y G erm an com panies; if h a lf of th e incom e is d eriv ed fro m foreign com panies h a lf of th e p rio r ch arg e c o n stitu te d b y th e co rp o ratio n ta x does n o t com e in to c o n sid eratio n a n d th e to ta l ch arg e th e re fo re a m o u n ts to 2 6 $ p e r cen t. F o r incom es of 5 0 0 ,0 0 0 gold m a rk s th e to ta l ch arg e re p re se n ts 3 8 p e r c e n t o r 3 6 $ p e r c e n t, fo r 1 ,0 0 0 ,0 0 0 gold m a rk s 4 3 p e r c e n t or 4 1 $ p e r cen t. I I I . For 1924-25 .— I t is assu m ed t h a t th e d iv id en d for 1 9 2 4 is d is trib u te d to th e sh areh o ld ers. T h e p rio r ch arg e in d ic a te d is th e ta x w hich th e c o m p an y h as p a id as co rp o ra tio n ta x p re p a y m e n ts a n d p a y m e n t of b a lan c e fo r 1 9 2 3 . T h e ex am ple of 5 0 ,0 0 0 gold m a rk s h as been calcu la te d as follow s-^-l gold m a rk w as 4 4 9 p a p e r m a rk s, acco rd in g to th e av e ra g e ra te s of exchange of th e d o llar fo r 1 9 2 2 ; 5 0 ,0 0 0 gold m a rk s th e re fo re eq u al 2 2 ,4 5 0 ,0 0 0 p a p e r m a rk s. F ir s t p re p a y m e n t (u n d e r th e c u rren cy d e p reciatio n law of M a rc h 2 0 , 1 9 2 3 ) 2 0 p e r c e n t = 4 ,4 9 0 ,0 0 0 p a p e r m a rk s, p a id on M ay 2 5 (1 gold m a rk = 1 2 ,1 9 0 p a p e r m a rk s) = 3 6 9 gold m ark s. Second p re p a y m e n t (u n d e r th e law fo r increases of J u ly 9 - A u g u s t 11 , 1 9 2 3 ), 6 0 0 X 1 0 p e r c e n t = 1 ,3 4 7 ,0 0 0 , 0 0 0 p a p e r m a rk s, p a id on A u g u st 2 5 (v a lu e of th e gold m a rk = 1 ,1 2 0 ,0 0 0 ) = 1 ,2 0 3 gold m a rk s. P a y m e n t of b alan c e on J a n u a ry 10, 1 9 2 4 (u n d e r a r t i cle I, sectio n 2, of th e second fiscal em ergency d e c re e ), 0 .6 0 gold m a rk on each 1 ,0 0 0 m a rk s of th e 1 9 2 2 fiscal d e b t; th e 1 9 2 2 fiscal d e b t in re sp e c t of d iv id en d s a m o u n te d to 4 5 p e r c e n t of th e su m of 2 2 ,4 5 0 ,0 0 0 p a p e r m a rk s in d ic a te d ab o v e; t h a t is, to 1 0 ,1 0 2 ,5 0 0 p a p e r m a rk s. C o n seq u e n tly , th e final p a y m e n t of 0 .6 p e r th o u s a n d in gold = 6 ,0 6 1 gold m a rk s. T h e to ta l p rio r ch arg e, th e re fo re , a m o u n ts to 7 ,6 3 3 gold m a rk s. In th e case of th e p erso n receiving th e d iv id e n d th e o nly p a y m e n ts d em a n d e d a re th o se to be p a id as in co m e-tax p re p a y m e n ts a n d as ta x on fo rtu n e s in 1 9 2 4 . T en p e r c e n t o nly is first d e d u c te d a t th e source from th e re v en u e fro m in v e stm e n ts as in co m e-tax p re p a y m e n t; th is is, th e re fo re , 5 ,0 0 0 gold m a rk s on 5 0 ,0 0 0 gold m a rk s. F o r th e ta x on fo rtu n e s it is assu m ed t h a t th e d iv id en d s p a id b y G erm an com panies av e ra g e 1 p e r c e n t of th e q u o te d v alu e; even th is c o m p u ta tio n m u s t, h ow ever, be to o h ig h fo r a g re a t m a n y G erm an com p an ies a t th e p re se n t tim e . In th e case of foreign com p an ies i t is assu m ed t h a t th e d iv id en d s a m o u n t to 5 p e r c e n t of th e q u o te d value of th e sh are; 5 0 ,0 0 0 m a rk s in d iv id e n d s fro m G erm an R EPO RTS O F C O M M IT T E E S T O R E P A R A TIO N com panies, th erefo re, re p re se n t a q u o ted value of 5 ,0 0 0 ,0 0 0 m ark s. For th e sh areh o ld ers’ p a y m e n ts in resp ect of th e ta x on fo rtu n es th is is valu ed a t only half th e q u o te d v alu e— th a t is, 2 ,5 0 0 ,0 0 0 m a rk s— since th e co m p an y itself has to pay a ta x on fo rtu n es for w hich th e fo rtu n e is assum ed to be a t least th e to ta l q u o ted value of th e sh ares. On a to ta l fo rtu n e of 2 ,5 0 0 ,0 0 0 m a rk s th e ta x on fo r tu n es am o u n ts to 1 7 ,5 0 0 m a rk s. T h e provisional charge on an incom e of 5 0 ,0 0 0 m ark s from d iv id en d s from G erm an com panies is th erefo re as follows: Gold marks T ax on co rp o ra tio n s-------- ----------------- 7, 6 3 3 D eduction a t th e source from rev en u e from in v e s tm e n ts_________________ 5, 0 0 0 T ax on fo rtu n e s................................................1 7 ,5 0 0 61 C O M M IS S IO N n o t com e in to co n sid eratio n . T h e finance office is, how ever, e n title d to collect p re p a y m e n ts from th e ta x p a y e r w ith d u e co n sid eratio n to his req u ire m e n ts. No sum is, how ever, included in th e inclosed ta b le on th is acco u n t; for, as explained ab o v e, th e calc u latio n s for 1 9 2 4 - 2 5 c o n s titu te only provisional ta x p a y m e n ts, w hich re p re se n t p re p a y m e n ts on th e d efinitive incom e ta x for 1 9 2 4 . F o r th e 1 9 2 4 incom e, th e ta x p a y e r will still be assessed a t th e beginning of 1 9 2 5 , an d he will th e n h av e to m ak e considerable p o stp a y m e n ts, w hich are co rrespondingly h ig h er in th e case of incom e from foreign d iv id en d s from w hich no d ed u ctio n a t th e source h as been m ad e in G erm an y . N o sum could be included for p o stp a y m e n ts, as th e necessary reg u latio n s m u s t first be en a c te d by law d u rin g th e course of 1 9 2 4 (in p a rtic u la r th e ra te s of ta x a tio n ). T o ta l_________________ - _____ 30 , 1 3 3 If half th e div id en d s com e from a foreign co m p an y , th e charge in resp ect of th e ta x on c a p ita l is as follows: T w enty-five th o u s a n d m a rk s from G erm an com panies. Q uoted valu e 2 ,5 0 0 ,0 0 0 (1 p e r c en t in te re st) ( half of w hich is co u n ted ; t h a t is, 1 ,2 5 0 ,0 0 0 m a rk s. T w enty-five m a rk s from foreign com panies. Q uoted value 5 0 0 ,0 0 0 m a rk s (5 p e r ce n t in te re s t) co u n ted in full, since th e co m p an y does n o t p a y th e ta x on fo r tu n es in G erm an y . T he q u o ted value used for th e ta x on fo rtu n e s is therefore 1 ,7 5 0 ,0 0 0 m a rk s a n d th e sum p aid in resp ect of th e ta x 1 1 ,3 7 5 m ark s. As half of th e d iv id en d s com e from foreign com panies, th e d ed u ctio n a t th e source on half th e rev en u e from in v e stm e n ts in th is case also provisionally does Definitive charge Income in gold marks 60,000 1_______ . . . __________ ____ 60,000 .....................- --------------100,000 ' . ......... ........ ....................... 100,0003........................................ 500,000'.................. . . . . ........ .......... 500,000 3 ____ ________ ___________ 1,000,000'............. ........................... 1,000,000 3................................................... . Charge in respect of corporation tax and tax on fortunes; Corpora nonrecur tion tax, Corpora rent charge tax on rev tion tax,in in respect enue from come tax, of income capital, in 1923-24 tax prepay come tax, ments, 1920-21 1924-25 27,821 22,577 57,586 47,098 295, 707 243,267 593,357 488, 477 14,000 13, 250 28,000 26, 500 190.000 182,500 430,000 415,000 30,133 17,691 60, 266 37,133 313,830 194, 415 627,660 388,830 1 German companies. 1 Half from German and half from foreign companies. REPORT OF THE SECOND COMMITTEE OF EXPERTS COVERING LETTER ing th e a m o u n t of G erm an ex p o rted c a p ita l a n d of brin g in g it back to G erm an y . We w ere convened in P aris on th e 2 1 s t of J a n u a r y , 1 9 2 4 , a n d we h av e held a lto g e th e r 3 8 m eetin g s, first in P aris, th e n in B erlin, a n d finally again in P aris. W e h av e exam ined n u m erous w itnesses a n d have av ailed ourselves of th e services of tra in e d econom ists, tech n ical ad v isers an d e x p e rt a c c o u n ta n ts. W e h av e also stu d ied th e p u b lished w orks on th e su b je c t by w ell-know n econom ists, an d each m em b er of th e c o m m ittee has fu rn ish ed re p o rts on p a rtic u la r problem s. O ur e stim a te s re la te to th e 3 1 s t of D ecem b er, 1 9 2 3 . L a te r e v e n ts m ay , of course, h av e e ith e r in creased or d ecreased th e a m o u n t of G erm an c a p ita l a b ro a d . In o u r in v e s tig a tio n of th e a m o u n t of c a p ita l ow ned T e x t of t h e R e po r t « by G erm an s in foreign co u n tries, we w ere co n fro n ted In p u rsu an ce of a decision of th e R e p a ra tio n by very consid erab le difficulties. T h ere are m an y C om m ission'of th e 3 0 th of N o v em b er, 1 9 2 3 , we w ere w ays by w hich G erm an s can acq u ire c a p ita l a b ro a d , created a co m m ittee to consider th e m eans of e s tim a t b u t in m o st cases no precise figures can be given. I t D kak M r . C h a ir m a n : I h av e th e h o n o r to p re se n t th e u n an im o u s re p o rt of th e co m m itte e a p p o in te d by th e R e p a ra tio n C om m ission to in q u ire in to th e a m o u n t of G erm an exported c a p ita l a n d to consider th e m ean s of bringing it back to G e rm a n y . In laving before you th e re s u lt of o u r lab o rs m ay I. be p e rm itte d in th e n am e of th e c o m m itte e to express th e hope t h a t our w ork m ay a ssist in solving th e p ro b lem s involved in th e execution of th e tr e a ty of peace. I rem ain , y o u rs fa ith fu lly . R. M cK en n a . T h e C h a ir m a n , Reparation Commission. 62 R EP O R TS. OF C O M M IT T E E S TO is nearly alw ay s a m a tte r of e stim a te , a n d th e u tm o s t we could h ope to do w ith a n y degree of c e rta in ty w as to lay dow n lim its betw een w hich th e a c tu a l a m o u n t is to be fo u n d . T h e d ista n c e w hich d ivides th ese lim its m a rk s th e w a n t of p recision of th e m a te ria l a t o u r disposal. One m e th o d of in v e stig a tio n , to in s titu te an in q u iry th ro u g h b a n k e rs a n d business m en in th o se co u n tries in w hich G erm an c a p ita l is believed to be deposited or in v e ste d , w as rejected by us a t th e o u tse t. We have av ailed ourselves of all in fo rm a tio n of a public or official c h a ra c te r sup p lied from co u n tries ou tsid e G erm an y , b u t we w ere of opinion t h a t it w ould be n eith er p ro p e r n o r useful to re q u e s t th e disclosure of specific tra n sa c tio n s w hich in gen eral w ould h av e been e n te re d in to u n d e r a n im plied co n d itio n of secrecy. M oreover, we fe lt t h a t even th o u g h all o b tain ab le in fo rm a tio n w ere freely given to u s, it m u st be ex trem ely defectiv e, as m u ch G erm an c a p ita l in foreign c o u n tries is c e rta in in existing circu m stan ces to be hid d en in v ario u s w ays u n d e r assu m ed nam es. T he m eth o d we h av e a d o p te d is a lto g e th e r d ifferen t. O ur first ste p w as to form an e stim a te of th e to ta l valu e of G erm an c a p ita l a b ro a d a t th e o u tb re a k of w ar. N ext we considered w h a t w as th e n e t re d u c tio n in th is to ta l a t th e tim e of th e A rm istice. We to o k in to acco u n t on one side th e b alan c e of tra d e , a d v an ces by G erm any to h e r Allies, loss by seizure a n d s e q u e s tra tion of p ro p e rty confirm ed b y th e V ersailles T re a ty a n d loss th ro u g h d ep re c ia tio n of th e v alu e of p ro p e rty a n d securities. O n th e o th e r side we considered th e sales of G erm an secu rities, th e sales of gold, th e a ccu m u latio n of in te re st, a n d finally th e effect on th e tra d e balance of th e im p o rts in to G e rm a n y -fro m occupied territo ries. T hese im p o rts w ere com m o d ities e ith e r requisitioned w ith o u t p a y m e n t, or p aid for, in th e case of B elgium a n d P o la n d , largely by m a rk s w hich rem ained in th e c o u n try , a n d , in R o u m a n ia a n d occu pied F ran c e , as well as in B elgium a n d P o la n d , by local currencies w hich th e G erm an G o v e rn m e n t caused to be p rin te d a n d issued for th e p u rp o se. F in ally , s ta rtin g from th e basis of th e rem ain in g p re-w ar G erm an assets, we ex am in ed in d e ta il th e various m ean s by w hich G erm an s can h a v e increased or dim inished th e ir c a p ita l a b ro a d d u rin g th e period from th e A rm istice to th e close of th e y e a r 1 9 2 3 . T h e reliab ility of o u r final e stim a te d ep en d s u p o n th e com pleteness of o u r e x a m in a tio n of th e d ifferen t elem ents w hich m ak e u p th e to ta l of G erm an foreign acq u isitio n s a n d of th e v ario u s w ays in w hich such acquisition s m ay h a v e been ex p en d ed . T he chief m e th o d b y w hich G erm an s h a v e a cq u ired foreign assets since th e A rm istice h as been b y th e sale of m ark b a n k balan c es. O ur e stim a te of th e to ta l sum u n d e r th is h ead h as been o b ta in e d by a p ro ced u re founded upon th e p rin cip le t h a t ev ery foreign sale by R E P A R A T IO N C O M M IS S IO N a G erm an of a m a rk b a n k b alan c e c reates a t th e m o m en t of sale a c o rresp o n d in g h o lding of a foreign b an k b alan c e in G erm an y . T h e p eriodic to ta ls of foreign b alan c es show n in th e books of th e G erm an b an k s w ere disclosed to us, a n d w ith th e a ssista n ce of e x p e rt a c c o u n ta n ts we h av e been ab le to a sc e rta in th e n e t proceeds expressed in gold d eriv ed fro m th e sale of m a rk s. I t is in te re stin g to n o te t h a t th e foreign assets a cq u ired in th is w ay a m o u n te d to b etw een seven a n d eig h t m illiards of gold m a rk s, th e w hole of w hich in consequence of th e final d e v a lu a tio n of th e m ark was lo st by m o re th a n one m illion foreigners w ho a t one tim e or a n o th e r w ere b u y e rs of m a rk c red its. T h is figure is one of th e c re d it fa c to rs in e stim a tin g th e final to ta l. O th er p rin c ip a l sources of G erm an foreign assets h a v e been th e sale of goods, secu rities, real e sta te , precious m e ta ls a n d m a rk b a n k notes; in te re st a ccu m u latio n s, to u r is t e x p e n d itu re in G erm a n y , G erm an holdings in ceded te rrito rie s in P o la n d , D a n tz ig , e tc ., foreign m oney expended by th e allied arm ies of occu p a tio n , re m itta n c e s fro m G erm an s a b ro a d , earnings of sh ip p in g , railw ay a n d can al fre ig h ts for foreign goods in tr a n s it th ro u g h G e rm a n y , in su ran ce p ro fits, etc. On th e o th e r h a n d , G erm an foreign a ssets h a v e been ex p en d ed on th e p u rc h a se of goods im p o rte d , cash p a y m e n ts to th e Allies, in te re s t p a id on G erm an securities held a b ro a d , G erm an to u r is t e x p e n d itu re , etc . On all th e se h e ad s of re c e ip t a n d e x p e n d itu re, th e G erm an s ta tis tic a l reco rd s a n d e stim a te s, official d a ta , b a n k e rs, a n d bu sin ess re p o rts, a n d o th e r sim ilar evi dence, h a v e b een su b je c te d b y u s to th e m o st critical sc ru tin y , a n d th e ir re lia b ility h a s been te s te d b y our e x a m in a tio n of w itnesses a n d in sp e c tio n of original sources of in fo rm a tio n . O ur in v e stig a tio n s a n d th e ev idence o b ta in e d led us to d iscard e n tire ly th e values of G erm an im p o rts a n d e x p o rts as s ta te d in th e official re p o rts, a n d to re v a lu e all co m m o d ities on th e basis of th e th e n c u rre n t w orld prices w ith such allow ances as th e special circu m sta n c e s of G erm an tr a d e a t th e tim e m ay h a v e re n d e re d necessary . A fter a close ex a m in a tio n of all th e fa c to rs w hich m a k e u p th e to ta l su m , we a re of o p inion t h a t G erm an c a p ita l a b ro a d of ev ery k in d , in c lu d in g c a p ita l of v ary in g degrees of liq u id ity a n d c a p ita l in v e ste d in p a rtic ip a tio n s in foreign com p an ies a n d firm s, an d a fte r ta k in g in to a c c o u n t all c re d it a n d d e b it item s, w as a t th e end of th e y e a r 1 9 2 3 n o t less th a n 5 .7 m illiard gold m a rk s a n d n o t m o re th a n 7 .8 m illiard gold m a rk s, a n d w e th in k t h a t th e m id d le figure of 6j m illiard gold m a rk s is th e a p p ro x im a te to ta l. W e d ra w special a tte n tio n to th e foreign cu rren cy in G e rm a n y , w hich, th o u g h n o t in c lu d e d in o u r v a lu a tio n of c a p ita l h eld a b ro a d , is so closely a k in to a foreign a sse t t h a t it m u s t n o t be overlo o k ed . I t m a y indeed be said t h a t th is c u rre n c y , th e to ta l of w hich w e e sti REPORTS OF C O M M IT T E E S TO m a te a t n o t less th a n 1 m illiard tw o h u n d re d m illion gold m ark s, is a G erm an holding in th e m o st liquid form for conversion in to foreign assets. On th e o th e r h a n d , on a b ro ad view of G erm an finan cial ca p a c ity , th e valu e of th e p ro p e rty in G erm an y held by foreigners should n o t be left o u t of ac c o u n t. T h e a n n u a l yield from th is p ro p e rty , w h e th e r in th e form of re n t, in te re st, or d iv id en d s, is a t p re s e n t inco n sid erab le a n d m ay a t a n y tim e becom e s u b je c t to special ta x a tio n , p a rtic u la rly in th e case of re n t in resp ect of real e s ta te p u rch ased a t th e low prices c u rre n t in recen t y ears. We e stim a te , a fte r v ery close s tu d y of th e q u estio n , t h a t th e real e s ta te a n d securities ow ned in G erm an y by foreigners re p re se n t a v alu e of from 1 to 1§ m illiard gold m ark s. T h e co m m ittee h a v e th o u g h t i t d esirab le to give in an annex to th is re p o rt a d d itio n a l in fo rm atio n in resp ect of th e ir e stim ates of G erm an assets a b ro a d in 1 9 1 4 as well as of th e p rin cip al cre d it a n d d e b it facto rs, b o th d u rin g a n d since th e w ar, t h a t h a v e gone to m ak e up th e final to ta l of G erm an c a p ita l a b ro a d . T h e second p a r t of o u r in q u iry w as to in v e stig a te th e m ean s of b rin g in g exported cap ital b ack to G er m an y . T h e so-called flight of ca p ita l in th is in sta n c e w as in th e m ain th e re su lt of th e usual fa c to rs. I t arose p rin cip ally from th e failure of th e G o v ern m en t to b ring its b u d g e t in to p ro p er re la tio n , a n d , as a corrollary of such failu re , from th e raisin g of large loans a p d th e d irect issue of p a p e r m oney. Secondly, it w as d ue to th e actio n of sp ecu lato rs a n d tim id in v esto rs who sold th e ir m ark s a g a in st th e cu rren cy of o th e r co u n tries, w hile th e ex p o rters of goods re ta in e d a b ro a d all t h a t w as possible of th e proceeds of th e ir sales. In th e p a rtic u la r case u n d e r in q u iry , how ever, th e flight of ca p ita l w as a c c e n tu a te d b y th e a ttitu d e of th e people of G erm any to w ard p a y m e n ts to h e r w ar cred ito rs an d w as m ark ed b y new a n d ingenious devices an d schem es for ev ading re s tric tiv e legisla tio n a n d for cloaking th e real ow nership of foreign balances. T h e failure of th e m eth o d s em ployed, b o th old a n d new , d e m o n stra te s th e final ineffectiveness of re s tric tiv e legislation w hen successful evasion is so richly re w ard ed . N eith er legal e n a c tm e n t n o r severe p en alties resu lted in disclosure of assets a b ro a d or h am p ered th e flight of ca p ita l. W e feel t h a t th is w ould h av e been tr u e w h eth er th e G o v ern m en t h ad or h ad n o t used its b e st endeavors to enforce th e law s a n d re g u la tio n s. In o u r opinion th e only w ay to p re v e n t th e exodus of ca p ita l from G erm an y an d to encourage its re tu rn is to era d ic a te th e cause of th e o u tw a rd m o v em en t. R E P A R A T IO N 63 C O M M IS S IO N In flatio n m u s t be p e rm a n e n tly sto p p ed . If th e issue of cu rren cy is s tric tly confined w ith in th e tru e lim its of n a tio n a l re q u ire m e n ts on a sta b le basis of valu e, th e G erm an w ith c a p ita l ab ro ad will feel assured t h a t he will suffer no loss in b rin g in g it hom e; th e sp ecu lato r ' can no longer look fo r a p rofit from th e sale of m a rk s. W e h av e a lre a d y seen in th e case of A u stria how , w hen th e cu rren cy is fairly stab ilized , th e necessities of foreign tr a d e te n d to b rin g back existing foreign balances. R e stric tiv e legislation, w hich in th e m ain has p ro v ed fu tile in p re v en tin g th e e x p o rt of c a p ita l, becom es superfluous th e m o m en t th e re is no longer a n y in d u c e m e n t to evad e th e law . I t is ind eed to be feared th e law s p u rp o rtin g to com pel th e re tu rn of ca p ita l w ould h av e th e rev erse effect to t h a t w hich m ig h t be w ished. T h e m e th o d of securing a cu rren cy in G erm an y cap ab le of m a in ta in in g a sufficiently sta b le in te r n a tio n a l v alu e covers th e w hole q u estio n of b u d g e ta ry eq u ilib riu m a n d th e e sta b lish m e n t of a b an k of issue on a sou n d basis. T hese m a tte rs , w hich fall o u tsid e th e scope of o u r in q u iry , h av e been referred b y th e R e p a ra tio n C om m ission to a n o th e r c o m m ittee w hose con clusions w e h av e th e a d v a n ta g e of know ing. If effect is given to th e ir reco m m en d atio n s, we th in k t h a t a con sid erab le p a r t of th e G erm an assets now in foreign co u n tries will re tu rn in th e o rd in a ry course of tra d e . W hile we a re of opinion t h a t special legislation to p re v e n t th e ex p o rt of c a p ita l o r com pel its re tu rn is n o t req u ired w hen a c o u n try 's finance is on a sta b le basis, w e recognize t h a t in th e case of G erm an y a period of tra n s itio n m u s t necessarily ensue before sta b ility can be o b ta in e d a n d confidence re sto red . W e suggest t h a t d u rin g th is period an a m n e sty should be g ra n te d for a lim ited tim e from th e p en alties im posed by existing e n a c tm e n ts a n d t h a t special te rm s be offered for su b scrip tio n s to G o v ern m en t loans m ad e in foreign currencies. W ell-conceived m easures of th is k in d w ould be helpful in h a ste n in g th e re tu rn of ca p ita l a n d th e final re s to ra tio n of financial eq u ilib riu m in G erm an y , co n d itio n s w hich a re essential to th e p a y m e n t of re p a ra tio n . W e desire to express o u r sincere th a n k s to th e officers of th e R e p a ra tio n C om m ission, a n d to th e econom ists, sta tistic ia n s , a n d e x p e rt a c c o u n ta n ts w ho h av e aided us, for w hose v alu ab le assistan ce we are g re a tly in d e b te d . R e g in a l d M cK e n n a , H enry Chairman. M . R o b in s o n . A n d r £ L a u r e n t -A t t iia l in . M a r io A l b e r t i. A lbert A p r il 9, 1 9 2 4 . E. Jan ssen . 64 REPORTS O F C O M M IT T E E S T O R E P A R A TIO N ANNEX S ummary I. A ssets a b ro a d in 1 9 1 4 . I I . P erio d of th e w ar: a. S u rp lu s of im p o rts a n d G e rm a n y ’s a d vances to h er Allies; b. D ep re c ia tio n of p re -w a r foreign assets; se q u e stra tio n a n d liq u id a tio n m easu res; c. P ro fits realized b y G erm a n y in occupied te rrito rie s; d. Sale of gold a n d G erm an securities; e. R e tu rn from G erm an assets a b ro a d . I I I . P o st-w a r p eriod: a. S u rp lu s of im p o rts a n d cash p a y m e n ts m a d e b y G e rm a n y u n d e r th e Peace T re a ty ; b. Sales to foreigners of m a rk c re d its and b an k n o te s; c. Sales of gold; d. Sales of G erm an real p ro p e rty a n d G erm an securities; e. E x p e n d itu re b y foreigners tra v e lin g in G e rm an y a n d by G erm an s tra v e lin g a b ro a d ; / . E x p e n d itu re s by th e arm ies of o ccu p atio n ; g. E a rn in g s from sh ip p in g , in su ra n c e , tr a n s it, e tc.; h. In co m e from G erm an in v e s tm e n ts a b ro a d a n d from foreign in v e s tm e n ts in G erm an y ; re m itta n c e s m a d e by G e rm an s resid in g a b ro a d ; i. G erm an p riv a te p ro p e rty in ceded te r r i to ries; . j. Foreign b a n k n o te s in G erm an y . I. A s s e t s A b r o a d in 1914 T h e valu e of G erm an a ssets a b ro a d in 1 9 1 4 h as been e stim a te d by d ifferen t eco n o m ists a t sum s v a ry in g betw een 2 0 a n d 3 5 m illiard gold m a rk s. B eside th ese unofficial e stim a te s tw o e stim a te s of a n official n a tu re , as well as a census, h av e been m ad e by th e G erm an G o v e rn m e n t. T h e earlier of th e se tw o official e sti m ates is t h a t m a d e in 1 9 0 5 b y th e im p erial a d m ira lty ; th e la te r one w as su p p lied b y th e G erm an G o v e rn m e n t in 1 9 2 4 in re p ly to a q u estio n raised b y th e second C o m m itte e of E x p e rts . T h e census, w hich only covered secu rities, w as m a d e by th e G erm an G o v ern m e n t d u rin g th e w ar, in A u g u st, 1 9 1 6 . In th e q u estio n p u t to th e G erm an G o v e rn m e n t th e co m m itte e n o t o nly ask ed fo r a n e s tim a te of th e foreign assets held by G erm an n a tio n a ls in 1 9 1 4 , b u t also re q u ested it to su b m it its c o m m en ts on th e v ario u s e stim a te s a lre a d y m a d e by G erm an eco n o m ists. All th ese d o c u m e n ts— e stim a te s of G erm an econo m ists, a n d th o se of n e u tra l, allied a n d a sso ciate d c o u n tries, official e stim a te s a n d census, a n d th e replies of th e G erm an G o v e rn m e n t— h a v e been exam ined C O M M IS S IO N a n d c o m p ared . T a k in g in to a c c o u n t all th e fa c to rs of v a lu a tio n , th e c o m m itte e h as com e to th e conclu sion t h a t th e figure of 2 8 m illiard gold m a rk s m ay be acc e p te d as re p re se n tin g th e v alu e of G erm an assets a b ro a d a t th e tim e of th e d e c la ra tio n of w ar, it being u n d e rsto o d t h a t th is figure of 2 8 m illiard s com prises only th e assets a b ro a d belonging to G erm an n a tio n als resid in g in G e rm an y a n d n o t th o se belonging to G erm an n a tio n a ls resid in g a b ro a d . In th is e stim a te secu rities h a v e been ta k e n a t th e ir face v alu e in gold m a rk s. I I . P e r io d o f t h e W ar (a ) SURPLUS OF IMPORTS AND GERMANY’S ADVANCES TO HER ALLIES T h e difficulty e n c o u n te re d b y G e rm a n y in e x p o rt ing h er goods d u rin g th e w ar, as well as h e r p e rs iste n t en d e a v o rs to in crease h e r im p o rts b y e v e ry possible m ean s, in o rd e r to p ro v id e fo r th e re q u ire m e n ts of h e r a rm ies, n a tu ra lly p ro d u c e d a su rp lu s of im p o rts, co n sid erab ly in excess of th e figures of th e n o rm al p re-w ar deficit. T o th is deficit in G e rm a n y ’s foreign tr a d e b a lan c e m u s t be a d d e d th e sum s a d v a n c e d by G e rm an y to h er allies to e n ab le th e m to p a y for th e ir im p o rts, fo r w hich she receiv ed no co rresp o n d in g re tu rn . T h e figure in d ic a te d fo r th e se tw o item s m ay be con sid ered to be reliab le a n d a m o u n ts to a n a g g re g a te su m of 1 5 .2 m illiard gold m a rk s, s u b je c t to th e m od ificatio n s referred to in p a ra g ra p h (c). (b) DEPRECIATION OF PRE-WAR FOREIGN ASSETS; SEQUESTRATION AND LIQUIDATION MEASURES V arious e stim a te s of th e re d u c tio n in G erm an assets a b ro a d d u rin g th e w ar as a re s u lt of d e p reciatio n have been m a d e by several eco n o m ists, w hose figures are generally b ased on an e stim a te d to ta l of fro m 2 0 to 2 5 m illiard gold m a rk s fo r G erm an a ssets in 1 9 1 4 . T h eir e stim a te s seem to o low , if we ta k e as a basis th e figure of 2 8 m illiard s a d o p te d by th e c o m m itte e fo r G erm an a ssets a b ro a d in 1 9 1 4 . T h is im pression is m o reover confirm ed by in fo rm a tio n w hich th e c o m m ittee has o b ta in e d b y its ow n in v e stig a tio n . I t is im possible to a d o p t a d efin ite figure in d e te r m in in g th e v alu e of th e a ssets seized a n d liq u id a te d in th e allied a n d asso ciate d co u n trie s. On th e basis of in fo rm atio n o b ta in e d b y th e c o m m itte e from th e G o v ern m e n ts of th e allied a n d asso ciate d pow ers as well as from G e rm a n y , th e c o m m itte e h as been ab le to e sti m a te a t a p p ro x im a te ly 16 .1 m illiard gold m a rk s th e re d u c tio n in G erm an a ssets a b ro a d d u rin g th e w ar, as a re s u lt of d e p re c ia tio n a n d liq u id a tio n a n d se q u e stra tio n m easu res. In a d o p tin g th is figure no allow ance has been m a d e fo r th e fa c t t h a t c e rta in G erm an assets a b ro a d m a y h a v e been u tilized to co v er th e p a y m e n t of im p o rts, n o r fo r th e fa c t t h a t G erm an a ssets ab ro ad m a y h a v e in creased ow ing to th e a c c u m u la tio n of th e in te re st a c cru in g on th e se assets. T hese several item s 1a re discussed elsew here. T h e a b o v e figure th erefo re REPO R TS OF C O M M IT T E E S T O R E P A R A T IO N C O M M IS S IO N 65 F in ally , foreign assets w ere re q u ired b y G e rm a n y , especially in B elgium an d F ra n c e , n o ta b ly by m eans of se q u e stra tio n of securities, coupons, a n d o th e r cred its, a n d th e se , like th e b a n k n o tes m en tio n ed ab o v e, served in p a r t to p ay for im p o rts from neighboring n e u tra l co u n tries. I t m u s t also be p o in ted o u t t h a t w hen th e G erm an coal c e n trale in B elgium issued ex p o rt licenses for coal for H o llan d , S w itzerlan d , or Sw eden, th e G erm an a u th o r ity k e p t for itself th e foreign cu rren cy th u s o b ta in e d , a n d forced th e m ines to a ccep t p a p e r m ark s. T h e c o m m ittee has ad o p te d th e figure of from 5 .7 to 6 m illiard gold m a rk s as corresp o n d in g to t h a t p o r (c) PROFITS REALIZED BY GERMANY IN OCCUPIED tio n of th e profits deriv ed from th is e x p lo itatio n of TERRITORIES B elgium , n o rth e rn F ra n c e , P o lan d , L ith u a n ia , R u An ex am in atio n of G erm an econom ic m easures ta k e n m a n ia , e tc ., re p resen tin g im p o rts for w hich no p a y m e n t in B elgium d u rin g th e w ar, to w hich th e a tte n tio n of w as m ad e a n d w hich, in consequence, h ad n o t been th e co m m ittee w as called, suggested t h a t s u b s ta n tia l allow ed for in h er b alan ce of acco u n ts. profits h ad accrued to G erm an y from th e ex p lo itatio n (d) SALE OF GOLD AND GERMAN SECURITIES of occupied te rrito rie s. C o n seq u en tly , th e co m m ittee has m ad e a careful s tu d y covering n o t only G erm an T h e sale of gold a n d securities w as th e p rin cip al o p eratio n s in B elgium a n d n o rth e rn F ran ce b u t also m ean s w h ereb y G erm an y p a id for h e r im p o rts d u rin g th o se in P oland an d R u m a n ia . th e w ar. T h e ex p o rt of gold, w hich to o k place m ain ly N o a tte n tio n has been p aid to th e p u rely m ilita ry d u rin g th e early y ears of th e w ar, reach ed a to ta l asp ects of these o p eratio n s, such as, for in stan ce, a m o u n t of 1 m illiard gold m ark s. requisitions in ten d ed to pro v id e for th e p a rtia l su b sist As reg ard s G erm an secu rities, w idely d iverging ence of th e G erm an occupying tro o p s. Q uite a p a rt estim a te s h av e been m ad e of th e a m o u n ts sold. In from such m a tte rs , how ever, it w as found t h a t th e o u r opinion th e to ta l figure is n o t fa r from 1 m illiard profits realized by G erm an y by req u isitio n s a n d by gold m ark s. o th e r m eth o d s in occupied te rrito rie s are closely con (e) RETURN FROM GERMAN ASSETS ABROAD nected w ith th e deficit of th e G erm an b alan c e of tra d e . W ith th e help of G erm an official d o cu m en ts, in p a r T h e rev en u e w hich G erm an y d eriv ed from h er assets tic u la r re p o rts b y th e m ilita ry a d m in is tra tio n draw n a b ro a d w as very co n sid erab ly d im inished im m ed iately up d u rin g th e w ar an d G erm an m e m o ra n d a estim a tin g a fte r th e d e cla ratio n of w a r a n d fu rth e r red u ctio n s th e value of w ar d am ages, th e c o m m ittee h as ascer occu rred d u rin g th e p eriod of h ostilities. ta in e d t h a t th e profits realized by G erm an y w ere I t sh o u ld , in d eed , be n o te d t h a t in te re st ceased to p rincipally o b tain ed as follows: be p a id on th e assets held b y G erm an y in co u n tries G erm any o b tain ed in occupied te rrito rie s consider w ith w hich she w as a t w ar. Sqm e of these assets able q u a n titie s of com m odities w hich, th ro u g h th e w ere sold d u rin g th e w ar a n d th e d ep reciatio n of o th ers o p eratio n of centralized im p o rtin g com panies specially becam e v ery m a rk e d to w a rd th e end. created for th is pu rp o se, w ere tra n s p o rte d to G erm an y O n th e o th e r h a n d , th e in d u s tria l securities, p a r for in te rn a l con su m p tio n . M ost of th ese goods w ere tic u la rly th o se of n e u tra l co u n tries, c o n tin u ed to p ay eith e r n o t p a id for a t all, or w ere p a id for in p a p e r in te re s t a t ra te s fre q u e n tly hig h er th a n before th e w ar. m ark s w hich w ere su b seq u en tly le ft in th e c o u n try W hile th e co m m ittee h as been u n ab le to d eterm in e a n d am o u n te d in th e case of B elgium to 6 m illiard ex actly th e v a ria tio n s for each y e a r of th e w ar in th e p a p e r m ark s, or w ere p u rch ased th ro u g h th e m edium rev en u e d eriv ed from G erm an assets a b ro a d , it has a t of issues of local p a p e r cu rren cy . T h e special o b ject le a s t been ab le to m ak e an e stim a te w hich m ay be ta k e n of such issues, according to a s ta te m e n t b y th e G erm an as v ery n early a c c u ra te . staff, w as to en ab le G erm an y a n d h er allies to receive goods from occupied te rrito rie s free of charg e d u rin g th e I I I . P ostw ar P er io d w hole period of h ostilities. (a) SURPLUS OF IMPORTS AND CASH PAYMENTS MADE By req u isitio n or in exchange for p a p e r m a rk s or BY GERMANY UNDER THE PEACE TREATY local cu rren cy G erm any also o b ta in e d considerable q u a n titie s of th e currency of in v ad ed co u n tries. T h u s, O ne of th e m ain causes of th e re d u c tio n of G erm an in th e n o rth of F ran ce th e G erm an m ilita ry a u th o ritie s assets a b ro a d d u rin g th e p o stw ar period arose from im posed on tow ns fines an d levies for w hich p a y m e n t th e necessity for G erm an y to cover th e deficit, in her w as req u ired in G erm an m oney, gold coin, or notes of tr a d e b alan c e a n d to m eet th e cash p a y m e n ts w hich h ad to be m ad e to th e Allies u n d e r th e T re a ty of th e B ank of F ran ce. re p re se n ts a n e t re d u ctio n in G erm an assets a b ro a d for w hich G erm an y d u rin g th e w ar period received no re tu rn . T hese assets u n d e rw e n t a fu rth e r decrease in valu e d u rin g th e period follow ing h o stilities, w hich decrease w as ta k e n in to a c co u n t. L astly , th e c o m m ittee is of opinion t h a t b o th d u rin g a n d since th e w ar, th e cate g o ry of assets in n e u tra l co u n tries has likew ise u n dergone a red u c tio n in v alu e, an d t h a t in p a rtic u la r th e g re a te r p a r t of such secu rities held by G erm ans has no Ion gee a v alu e e q u iv a le n t to th e ir face valu e, even ta k in g in to a c c o u n t th e effect of th e decline in th e valu e of gold. 66 K E P O R TS O F C O M M IT T E E S T O R E P A R A T IO N C O M M IS S IO N gains acc ru in g to G erm an econom y as a w hole. T h e d a ta fu rn ish e d b y th e b a n k s w ere s u b m itte d to careful checking b y th e e x p e rt a c c o u n ta n ts , a n d it w as fou n d t h a t th e y h a d been co rre c tly com piled. C re d its in G erm an m a rk s w ere p u rc h a se d b y th e citizens of a g re a t m a n y n a tio n s, b u t th e la rg e st a m o u n ts w ere ta k e n b y th e citizens of a re lativ ely re s tric te d g ro u p of c o u n tries. T h e m e th o d s used in d e te rm in in g th e v alu e of th e a ssets ac q u ire d b y th e G erm an b a n k s in th is w ay w ere su b je c te d to a n in te re stin g check w hich co n sisted of ta k in g a single a c c o u n t of a fo reig n er w ho h a d engaged in sp e c u la tiv e o p e ra tio n s on a co n sid erab le scale, an d c o n v e rtin g th e figures of th e tra n sa c tio n s to a gold basis for ev ery d a y on w hich a n y d e b it or c re d it e n try w as reco rd ed . T h e re s u lts in d ic a te d t h a t th e re w as no te n d e n c y fo r th is d e ta ile d m e th o d of conversion to yield re su lts m a te ria lly d ifferen t fro m th o s e fo u n d by th e m o re g en eral m ass m e th o d s t h a t i t w as n ecessary to em ploy in c o m p u tin g th e figures for G e rm a n y as a w hole. W hen th e w hole in q u iry , w hich w as of co n siderable (£>) SALE TO FOREIGNERS OF MARK CREDITS AND le n g th , h a d been c o m p leted i t w as fo u n d t h a t G erm any BANK NOTES h a d p ro fited b y th e sale of m a rk c red its b y a n a m o u n t of fro m 7 to 8 m illiard s of gold m a rk s. In a d d itio n th e G erm an y h as acq u ire d foreign assets in larg e sale of p a p e r m a rk s in foreign co u n trie s h a d re su lte d in volum e since th e a rm istic e th ro u g h open in g c re d it p ro fits a m o u n tin g to fro m 6 0 0 to 7 0 0 m illions of gold a cco u n ts in h er b a n k s fo r th e b en efit of foreigners. m a rk s, o r a to ta l fro m th e se tw o sources of 7 .6 to 8 .7 T hese cre d its w ere p a id fo r b y th e foreigners in th e m illiard s of gold m a rk s. m oney or c re d its of o th e r co u n trie s, a n d as th e y u n d e rw e n t a c o n s ta n t sh rin k a g e in re a l v alu e th ro u g h (c) SALES OF GOLD th e d e p re c ia tin g v alu e of th e m a rk , G erm an econom y p ro fited larg ely fro m th e tra n sa c tio n s. T h e com G erm an official s ta tis tic s reco rd sales a b ro a d by m itte e m ad e a careful s tu d y of th e values so acq u ire d G erm an y p rin c ip a lly in th e y e ars 1 9 1 9 - 1 9 2 1 a n d 1 9 2 3 by a n in v e stig a tio n , w ith th e a id of e x p e rt a c c o u n t of gold to a to ta l a m o u n t of 1| m illiard gold m a rk s. a n ts , of th e m a rk c re d it b alan c es on foreign a c c o u n t in T h e a c c u ra c y of th e se figures is n o t d isp u te d . th e p rin cip a l b a n k s of G e rm an y d u rin g th e p o stw a r y ears. (d) SALES OF GERMAN REAL PROPERTY AND GERMAN I t w as fo u n d t h a t th e re h a d been d u rin g th is fiveSECURITIES y e a r perio d m ore th a n a m illion in d iv id u a l a c c o u n ts D u rin g th e p erio d c h a ra c te riz e d b y th e ra p id d e p re of th is k in d . In m o st cases th e m a rk c red its of th ese acco u n ts h a d n o t b een im m e d ia te ly u tilized a n d h a d ciatio n of th e m a rk , sales of real p ro p e rty to foreigners un d erg o n e a process of sh rin k a g e th ro u g h th e d e re ach ed a n u n w o n te d d e v e lo p m e n t in G erm an y . In e stim a tin g th e p ro ceed s of such sales, th e co m p reciatio n of m a rk v alu es t h a t a m o u n te d to a v e rita b le m itte e h a d b efore i t v ario u s sta tis tic s in d ic a tin g in ev a p o ra tio n . T h e w ork of th e e x p e rt a c c o u n ta n ts w as d ire c te d to d e ta il th e n u m b e r a n d a m o u n t of sales of real p ro p e rty d eterm in e as n e a rly as possible th e ag g re g a te a m o u n t to foreig n ers since th e w a r in som e of th e p rin cip al of th e sh rin k a g e s in th e se v ery n u m ero u s a c c o u n ts to w n s of G e rm a n y , a n d also in d is tric ts , of v ary in g t h a t w as d u e to th e d e p re c ia tio n of th e v alu e of th e econom ic c h a ra c te r. As re g a rd s secu rities, G e rm an y w as a b le d u rin g th e m a rk . W ith th is e n d in view th e leadin g b a n k s in G erm an y w ere a sk ed to tra n sc rib e fro m th e ir books first p a r t of th e p o st-w a r p erio d to m a rk e t som e of h er th e d a ta show ing th e c re d it b alan c es a n d th e a m o u n ts secu rities a b ro a d , b u t as soon as h e r financial po sitio n of d e b its in th e a c c o u n ts of all foreigners a t th e close b ecam e m ore u n c e rta in m o st of th e se tra n sa c tio n s of each m o n th fro m th e e n d of 1 9 1 8 to th e e n d of 1 9 2 3 . w ere su sp en d ed . In th e a g g re g a te th e c o m m itte e considers t h a t sales A fter th e su m s in d ic a te d h a d been c o n v e rte d to gold e q u iv a le n ts a t th e c u rre n t ra te of ex ch an g e, it of G erm an re a l p ro p e rty a n d secu rities to foreigners w as possible to d ra w close in ferences as to th e to ta l a m o u n te d to a b o u t 13^ m illiard gold m ark s. V ersailles. T hese tw o ite m s to g e th e r a m o u n t to be tw een 9 a n d 1 0 m illiard gold m a rk s. As a lre a d y s ta te d in th e re p o rt, th e figures given in th e official G erm an foreign tr a d e sta tistic s a re q u ite in a c c u ra te fo r c e rta in perio d s. T h is o b se rv a tio n a p plies p a rtic u la rly to th e figures orig in ally p u b lish ed . F o r th is reaso n , it w as necessary to revise com p letely th e b alan c e given fo r e v ery y e a r. T a k in g in to ac c o u n t th e v a rio u s fa c to rs e n te rin g in to th e calc u la tio n , th e c o m m itte e is of o p inion t h a t th is revision h as m ad e it possible to re a c h a figure m o re n early e q u a l to th e a c tu a l excess of im p o rts th a n h a d been th e case in p rev io u s re p o rts dealing w ith th is q u estio n . T h e fixing of th e a m o u n t of th e deficit in th e tr a d e b a lan c e is of tru e im p o rta n c e , since a n y v a lu a tio n t h a t is to be m a d e of G erm an assets rem a in in g a b ro a d largely d ep en d s on th e figure finally a d o p te d fo r t h a t deficit. T h e cash p a y m e n ts m ad e b y G erm an y to th e Allies— to th e R e p a ra tio n C om m ission, u n d e r th e re p a ra tio n recovery a c t, p a y m e n ts to th e clearin g office, e tc .— do n o t give rise to d isp u te . REPO R TS O F C O M M IT T E E S T O R E P A R A T IO N C O M M IS S IO N 67 ( e) EXPENDITURE BY FOREIGNERS TRAVELING IN GER- below t h a t p ro d u ced b y G erm an assets a b ro a d before th e w ar. T h e assets held ab ro a d b y G erm an y since ’ MANY AND BY GERMANS TRAVELING ABROAD th e w ar re p re se n t indeed only a sm all a n d for som e D u rin g th e five years w hich h a v e elapsed since th e p a r t u n p ro d u c tiv e fra c tio n of h e r p re-w ar holdings. arm istice, considerable sum s h a v e been sp e n t in G er I t is tr u e , on th e o th e r h a n d , t h a t th e p a y m e n ts w hich m a n y b y large n u m b ers of foreigners w ho h av e tra v e le d G erm an y h as h a d to m ak e since 1 9 1 9 in resp ect of a n d lived in th e c o u n try . O ur e stim a te of th e ex p en d i G erm an secu rities held by foreigners h av e been incon tu r e b y th ese tra v e le rs w as fa c ilita te d b y th e official siderable. A fter a careful s tu d y of th e q u estio n , th e sta tistic s k e p t b y th e larg est G erm an tow ns a n d b y th e c o m m ittee cam e to th e conclusion t h a t a set-off of th e special re p o rt on th e su b je c t su p p lied b y th e G erm an tw o item s— incom e fro m G erm an in v e stm e n ts ab ro ad G o v ern m en t. T h e co m m ittee w as ab le to o b ta in a a n d incom e from foreign in v e stm e n ts in G erm an y — fairly ex act idea of th e n u m b e r of foreigners w ho cam e resu lted in a sm all b alan ce in G e rm a n y ’s fav o r for to G erm an y d u rin g th e perio d in q u e stio n , th e av erag e th e w hole of th e p o st-w ar perio d . le n g th of th e ir s ta y a n d th e d aily ex p e n d itu re of each T h e re m itta n c e s se n t to G erm an y b y G erm an tra v e le r. n a tio n a ls residing a b ro a d a n d G erm an connections As a g a in s t th is , n u m ero u s G erm an tra v e le rs belo n g an d sy m p ath izers a m o u n t to a considerable figure in ing m o stly to th e w ealth ier classes h a v e sta y e d in G e rm a n y ’s fav o r. foreign co u n tries, especially in th e la s t tw o or th re e y ears. T h e ir ex p e n d itu re has to be d e d u c te d fro m th e (i) GERMAN PRIVATE PROPERTY IN CEDED TERRITORIES e x p e n d itu re b y foreigners in G erm an y referred to M o st of th e v a lu a tio n s of G erm an p ro p e rty a b ro a d ab o v e, a n d v ery considerably red u ces th e a m o u n t of h av e ta k e n little or no a c c o u n t of th e v alu e of G erm an th e G erm an assets realized from t h a t source. p riv a te p ro p e rty in th e ceded te rrito rie s of Silesia, (/) EXPENDITURE BY ARMIES OF OCCUPATION P osen, D an zig , etc. T h ese p ro p e rtie s a re in clu d ed in o u r ow n e stim a te D u rin g th e p o st-w ar period, a c e rta in su m h as been realized b y G erm an y th ro u g h th e e x p e n d itu re in in so fa r as, acco rd in g to th e defin ition a d o p te d b y th e foreign cu rren cy , or in m ark s b o u g h t w ith foreign c o m m ittee, th e y are ow ned b y G erm an s resid in g in cu rrency, b y th e tro o p s occupying G erm an te r rito ry . G erm an y . A lth o u g h it is v ery difficult to d eterm in e E ach of th e G o v ern m en ts h av in g or h av in g h a d w ith a n y precision th e e x te n t of th e se p ro p e rtie s, th e arm ies of o ccupation in G erm an y h as supplied th e co m m ittee considered t h a t i t should n o t exclude from co m m ittee w ith a d etailed e stim a te of th e ex p en d itu re its v a lu a tio n c e rta in in d u s tria l assets, p a rtic u la rly m ad e b y th e officers a n d m en or b y th e various arm y th o se in U p p e r Silesia. services. T hese estim ates w ere checked in several w ays b y a series of calculations re la tin g to each a rm y ’s different m eth o d s. T h e re su lts of th ese d ifferen t calcu latio n s h av e been com bined. (J) FOREIGN BANK NOTES IN GERMANY T h e re is in G erm an y a large q u a n tity of foreign b a n k n o tes (d o llars, florins, S can d in av ian crow ns, (g) EARNINGS FROM SHIPPING, INSURANCE, TRANSIT, ETC. Swiss fran cs, p o u n d s sterlin g , a n d m ore especially in th e occupied te r rito ry , B elgian a n d F ren ch fra n c s). T h e E a rn in g s from shipping, in su ran ce, com m issions, exceptional p lig h t of th e G erm an m a rk h a s influenced tr a n s it, w ere an im p o rta n t source of G erm an incom e G erm an s in acq u irin g s ta b le currencies w herever p rio r to 1 9 1 4 , b u t d u ring th e w ar such earn in g s in possible a n d on a large scale. T h ese foreign notes g re a t m easure d isap p eared . In th e five y ears 1 9 1 9 h av e rem ain ed in th e c o u n try in s te a d of finding th e ir 1 9 2 3 som e of th e lost gro u n d h as been reg ain ed , p a r w ay a b ro a d ag ain th ro u g h th e n o rm al ch an n el of tra d e , ticu larly in th e field of shipping a n d in su ran ce, a n d as w ould h a v e been th e case in o rd in a ry circu m stan ces. th e co m m ittee h as ta k e n th is ite m in to a c c o u n t. V arious e stim a te s of th e to ta l a m o u n t of such no tes w ere m ad e m G erm an y , p a rtic u la rly to w a rd s th e en d (h) INCOME FROM GERMAN INVESTMENTS ABROAD AND of 1 9 2 3 . T h e co m m itte e h as co m pared th e d ifferen t FOREIGN INVESTMENTS IN GERMANY— REMITTANCES estim a te s w ith th e in fo rm a tio n w hich i t collected in MADE BY GERMANS RESIDING ABROAD G erm an y a n d o th e r co u n tries. I n its o pinion, th e T h e to ta l a m o u n t of th e incom e p ro d u ced b y G erm an value of th e foreign n o tes existing in G erm an y a t th e assets a b ro a d since 1 9 1 9 is of course s u b s ta n tia lly en d of 1 9 2 3 a m o u n te d to a b o u t 1 .2 m illiard gold m a rk s. o R EPO R T O F C O M M IT T E E O F EXPER TS ON REPARATIO NS With Annexes and Concurrent Memorandum ALSO S E T T L E M E N T O F BELGIAN M A R K CLAIM T Reprinted from Federal Reserve Bulletin July, 1929 UNITED STATES GOVERNMENT PRINTING OFFICE WASHINGTON : 1929 TABLE OF CONTENTS Page P art P art P art P art P art P art P art P art 1. 2. 3. 4. 5. 6. 7. 8. P a r t 9. P a r t 10. P a r t 11. P a r t 12. A p p o in tm e n t, te rm s of reference, a n d c o n s titu tio n ____________________________________________ M eetings of c o m m itte e ______________________________________________________________ _ A ttitu d e of th e c o m m itte e ____________________________________ '_________________ T h e s tu d y of G e rm a n y ’s econom ic c o n d itio n s_________________________________________________ C ourse of th e p ro ceed in g s____________________________________________________________ _ _ _ B an k for In te rn a tio n a l S e ttle m e n ts____________________________________________________________ T h e influence of th e fo rm of th e a n n u ity on th e a m o u n t____________________________________ 7 A n n u itie s___________________________________________________________________ __ ______ C o m p o sitio n of th e a n n u itie s— 8 (a ). S ource a n d s e c u ritie s _________________________________________________________ 8 (b ). P ro g re s s io n ___________________________________________________________________ 8 (c ). T h e n o n p o stp o n a b le a n n u itie s _________________________________________________ 8 (d ). T h e p o stp o n a b le a n n u itie s ____________________________________________________ 8 (e ). M easu res of s a fe g u a rd ________________________________________________________ 8 (f ). D eliv eries in k in d _____________________________________________________________ L iq u id atio n of th e p a s t_______________________________________________________________ C om m ercialization a n d m o b iliz a tio n ____________________________________________________ T h e new p lan c o n tra ste d w ith th e D aw es p la n ________________________________________________ C onclusions______________________________________________________________________ __ _ A nnex A nnex A nnex A nnex A nnex A nnex A nnex A nnex A nnex A nnex I . S uggested o u tlin e for th e o rg an izatio n of th e B an k fo r In te rn a tio n a l S e ttle m e n ts_______ I I . L e tte r from th e p re sid e n t of th e R e ich sb an k to M r. O w en D . Y o u n g _____________________ I I I . M o b ilizatio n _________________________________________________________________ IV . C o nditions of p o stp o n e m e n t of tra n s fe r a n d of p a y m e n t_________________________________ V. A nnex of o rg an izatio n c o m m itte e s________________________________________________________ V I. T h e B elgian m a rk c la im ________________________________________ _________ ___________ V ia . L e tte r from D o cto r S c h ach t to M r. O w en D . Y o u n g _____________________________________ V Ib . L e tte r fro m H e rr K a stl to M r. L a m o n t__________________________________________________ V ic. L e tte r fro m M . F ra n c q u i to M r. O wen D . Y o u n g ________________________________________ V II. D istrib u tio n of th e a n n u itie s p ro p o sed b y th e ex p erts of th e cre d ito r c o u n tries rep resen ted on th e c o m m itte e ___________________________________________________________________ A nnex V III. G u a ra n te e fu n d in resp ect of u n c o n d itio n al a n n u itie s _____________________________________ l j 2 2 3 4 7 9 iq n n n 12 12 13 14 15 23 24 25 26 26 27 27 27 28 29 C o n c u rre n t m e m o ran d u m b u t n o t a p a r t of th e re p o r t____________________________________________ _____ 30 S e ttle m e n t of th e B elgian m a rk c la im _______________________________________ ______ __________ 31 (hi) _ _ _ R E P O R T OF COMM I T T E E OF EXPERTS O N REPARATIONS W e tr a n s m it h erew ith to th e G o v ern m en ts w hich to o k p a r t in th e G eneva decision a n d to th e R e p a ra tio n C om m ission our p roposals fo r a com plete a n d final s e ttle m e n t of th e re p a ra tio n p ro b lem , in clu d in g th e s e ttle m e n t of th e o b ligations re su ltin g from th e existing tre a tie s a n d ag reem en ts b etw een G erm an y a n d th e cre d ito r pow ers, a n d we u n an im o u sly recom m end th e follow ing p la n to th e G o v ern m en ts concerned. PA RT 1 A p p o in t m e n t , T erm s o f R eference, and C o n s t it u t io n T his c o m m ittee o rig in ated w ith th e decision ta k e n by th e B elgian, B ritish , F ren ch , G erm an , Ita lia n , an d Jap a n e se G o v ern m en ts to e n tr u s t to in d e p e n d e n t ex p erts th e ta s k of d raw in g u p proposals for a com plete a n d final s e ttle m e n t of th e re p a ra tio n p ro b lem . T w elve ex p erts w ere to be chosen am o n g th e n a tio n a ls of co u n trie s w hich p a rtic ip a te d in th is decision a n d tw o am o n g th e n a tio n a ls of th e U n ited S ta te s of A m erica. E ach of th e ex p erts in v ite d w as em pow ered to a p p o in t an a lte rn a te . T h e a p p o in tm e n ts of th e in v ite d ex p erts as m em bers of th e co m m ittee w ere m ad e according to th e follow ing procedure: T h e B elgian, B ritish , F ren ch , I ta lia n , a n d Ja p a n e se ex p erts w ere a p p o in te d b y th e R e p a ra tio n C om m ission u pon th e n o m in atio n of th e ir resp ectiv e G o v ern m en ts. T h e G erm an ex p erts w ere a p p o in te d by th e G erm an G o v ern m en t. T h e ex p erts being citizens of th e U n ite d S ta te s of A m erica w ere a p p o in te d b y th e R e p a ra tio n C om m ission co n jo in tly w ith th e G erm an G o v ern m en t. T h e m a n d a te of th e c o m m ittee of ex p erts th u s form ed is se t fo rth in th e follow ing te rm s of reference: " T h e B elgian, B ritish , F re n c h , G erm an , Ita lia n , a n d Ja p a n e s e G o v ern m en ts, in p u rsu a n c e of th e decision reach ed a t G eneva on S e p te m b e r 16 , 1 9 2 8 . w hereby it w as ag reed to se t u p a co m m itte e of in d e p e n d e n t financial ex p erts, h ereb y e n tr u s t to th e c o m m ittee th e ta s k of d raw in g u p pro p o sals for a co m plete a n d final s e ttle m e n t of th e re p a ra tio n p ro b lem . T hese p roposals sh all in clu d e a se ttle m e n t of th e o b ligations resu ltin g from th e existing tre a tie s a n d a g reem en ts b etw een G erm an y a n d th e c re d ito r pow ers. T h e co m m ittee sh all ad d ress its re p o rt to th e G o v ern m en ts w hich to o k p a r t in th e G en ev a decision a n d also to th e R e p a ra tio n C o m m issio n .” T h e co m m ittee w as c o n s titu te d w ith th e follow ing m e m b e rsh ip : B elgian ex p erts: M . E m ile F ra n c q u i, M . C am ille G u tt. A ltern ates: B aro n T e rlin d e n , M . H . F a b ri. B ritish ex p erts: Sir Jo sia h S ta m p , G . B. E .; L ord R ev elsto k e. G. C . V. O. A ltern ates: Sir C harles A ddis, K . C . M . G .; Sir B asil B la c k e tt, K . C . B ., K . C . S. I. 64497—29 F ren ch experts: M . E m ile M o reau , M . Je a n P a rm en tier. A ltern ates: M . C . M o rct, M . E d g a r Allix. G erm an ex p erts: D r. H ja lm a r S c h a c h t, D r. A . V oegler. A ltern ates: D r. C . M elchior, H e rr L . K a stl. Ita lia n ex p erts: D r. A lberto P irelli, M . Fulvio S uvich. A ltern ates: M . G iuseppe B ian ch in i, M . B runo D o lc e tta . Jap a n e se ex p erts: M r. K ongo M ori, M r. T a k a sh i A oki. A ltern ates: M r. S ab u ro S onoda, M r. Y asum une M a tsu i. A m erican ex p erts: M r. O wen D . Y oung, M r. J. P . M organ. A ltern ates: M r. T h o m as N . P erk in s, M r. T . W . L a m o n t. W e h av e to record o u r deep sense of re g re t a t th e d e a th of L ord R ev elsto k e, w hich to o k place su d d en ly a t a n early h o u r on F rid a y , A pril 1 9 . B y his untim elyrem oval from o u r counsels we suffered th e loss of one w hose un failin g ta c t an d w isdom h a d g ained th e affec tio n a n d resp ect of all of us a n d c o n trib u te d g reatly to our progress. In h o n o r of his m em o ry all m eetings w ere susp en d ed u n til T u e sd a y , A pril 2 3 . On A pril 2 0 th e R e p a ra tio n C om m ission u n an im o u sly passed a reso lu tio n ‘ ‘ deploring th e d e a th of L ord R evelstoke a n d in s tru c tin g th e general se c re ta ry to convey a n expres sion of sy m p a th y to th e co m m ittee of e x p erts on th e loss of th e ir d istin g u ish ed colleague.” In a se p a ra te co m m u n icatio n th e R e p a ra tio n C om m ission adv ised th e co m m ittee t h a t th e y h a d “ U n an im o u sly a p p o in te d , on th e n o m in a tio n of H is B ritan n ic M a je s ty ’s G o v ern m en t, Sir C harles A ddis, K . C . M . G ., to be a m em b er of th e e x p e rts’ co m m ittee in succession to th e la te L ord R e v e lsto k e .” On M ay 2 3 th e c o m m ittee w ere ad v ised t h a t th e G erm an G o v ern m en t h a d a p p o in te d H e rr L. K a stl to be a m em b er in th e place of D r. V oegler, of whose resig n atio n th e co m m ittee h a d learn ed w ith reg ret on th e previous d a y . PA RT 2 M e e t in g s of C o m m it t e e T h e ex p erts m e t for th e first tim e in fo rm ally a t th e B ank of F ra n c e on S a tu rd a y m o rn in g , F e b ru a ry 9, to fix th e d a te of th e first m eetin g of th e co m m ittee a n d to discuss m a tte r s of o rg an izatio n a n d p ro ced u re. T h e first reg u lar m eetin g of th e c o m m ittee w as held on M o n d ay , F e b ru a ry 11 , a t 2 o ’clock in th e afte rn o o n , in th e H o te l G eorge V. A t th is m eetin g M r. Owen D . Y oung w as u n an im o u sly chosen ch airm an T h e c o m m ittee h as been in c o n tin u o u s session over a p eriod of som e sev en teen w eeks. S u b co m m ittees w ere set up as re q u ired for th e stu d y of p a rtic u la r q u estio n s an d m e t fre q u e n tly in th e in te rv a ls b etw een th e p len ary sessions. (1) 2 PA RT 3 A t t it u d e of the C o m m it t e e T he re p o rt of th e D aw es C o m m itte e o p en ed w ith th e follow ing w ords: “ W e h a v e a p p ro a c h e d o u r ta s k as bu sin ess m en anxious to o b ta in effective re su lts. W e h a v e been concerned w ith th e te c h n ic a l, a n d n o t th e p o litical, asp ects of th e p ro b lem p re se n te d to u s. W e h a v e recog nized, in d eed , t h a t p o litic a l co n sid eratio n s necessarily set certa in lim its w ith in w hich a so lu tio n m u s t b e fo u n d if i t is to h a v e a n y ch an ce of a c c e p ta n c e . T o th is e x te n t, a n d to th is e x te n t o n ly , w e h a v e b o rn e th e m in m in d .” I t is in th is sp irit t h a t th e p re s e n t c o m m itte e h av e ad d ressed th em se lv e s to th e ta s k of ro u n d in g off th e w ork of th e ir p redecessors w hich w as ad v ise d ly left incom plete. B y d e te rm in in g th e n u m b e r a n d a m o u n t of th e a n n u itie s a n d b y p ro v id in g fo r th e conversion of th e re p a ra tio n d e b t fro m a p o litic a l to a co m m ercial o b lig atio n , th e y h a v e to th e b e st of th e ir a b ility trie d to perfo rm th e ta s k c o m m itte d to th e m of d evising a schem e w hich m ig h t fairly be a c c e p te d b y a ll p a rtie s concerned . T h ro u g h o u t o u r d e lib e ra tio n s a n d in o u r p re s e n t proposals we h a v e e n d e a v o re d to re a c h o u r conclusions on econom ic a n d fin an cial g ro u n d s. B u t w e h av e realized, like o u r p red ecesso rs, t h a t p o litical fa c to rs necessarily s e t c e rta in lim its w ith in w hich a so lu tio n h a d to be fo u n d if o u r p ro p o sals w ere to secure a c c e p t ance. W e h a d th e re fo re to base o u r decisions n o t only on econom ic b u t also to som e e x te n t on p o litical consideratio n s. M a n y im p o rta n t ju rid ic a l q u estio n s are also in v o lv ed , a n d w hile as fin an cial e x p erts we are n o t specially qualified for going in to d e ta ils on th e m , th e ir b ro a d e r a sp ects h a v e been alw ay s in o u r m in d s. In d eed , it h as been clear to us t h a t close a tte n tio n to th e m w ould h a v e m a d e o u r h a n d lin g of th e la rg e r q uestion s w ell-nigh im possible; b u t th e c o m m itte e is satisfied t h a t th e schem e it reco m m en d s is w ith in its term s of reference. T h e m eetin g of th e p re s e n t c o m m itte e of ex p erts m ark s th e first occasion on w hich re p re se n ta tiv e s of all th e six n a tio n s chiefly con cern ed (to g e th e r w ith A m erican e x p erts) h a v e s a t dow n to g e th e r to w ork o u t on a larg e scale th e com m on p ro b lem s of re p a ra tio n s a n d to co o p erate in ex p loring th e v ario u s m ean s by w hich G erm an y could be e n ab le d to disch arg e h e r obligations. T h e D aw es re p o rt m a d e no a tte m p t to e stab lish th e causes lead in g u p to th e s itu a tio n w hich its p ro v i sions so u g h t to a m e lio ra te . I n a d h e rin g to th is p re ced en t we h av e a tte m p te d to go fu r th e r a n d , th ro u g h th e prop o sed cre a tio n of th e m a c h in e ry w h ich we reco m m en d , to se t u p a n in s titu tio n w hose d irectio n from th e s t a r t shall be co o p e ra tiv e a n d in te rn a tio n a l in c h a ra c te r, w hose m em b ers shall engage th em selv es to 3 b an ish th e a tm o sp h e re of th e w ar, to o b lite ra te its an im o sities, its p a rtisa n sh ip s, its ten d en c io u s p h rases, a n d to w o rk to g e th e r fo r a com m on e n d in a sp irit of m u tu a l in te re s t a n d good will. PA RT 4 T h e Study of G e r m a n y ’s E c o n o m ic C o n d it io n s D u rin g th e course of its d elib e ra tio n s th e com m itte e h a v e giv en close co n sid eratio n to th e various asp ects of G e rm a n y ’s p re s e n t econom ic p o sitio n a n d fu tu re p o te n tia litie s, b ecause of th e ir m a te ria l rela tio n to h e r c a p a c ity to d ischarge o b lig atio n s to foreign cred ito rs. T h e co m m ittee h a d am o n g th e ir n u m b e r six m em bers of th e D aw es co m m itte e of 1 9 2 4 , w hose c o n ta c t w ith th is a sp e c t of th e su b je c t w as o b v iously a t t h a t tim e close a n d responsible. F u rth e r, th e co m m ittee includes sev eral w ho h a v e been asso ciate d w ith th e p ra c tic a l w orking of th e p la n . T h ese m em b ers h av e n a tu ra lly h a d a n u n u su a l a n d co n tin u o u s in te re s t in th e course of e v e n ts u n ro lled d u rin g th e p a s t five y ears. F u rth e rm o re , th e p erio d ical re p o rts m ad e b y th e a g e n t g en eral a n d tru ste e s a n d com m issioners u pon th e w orking of th e D aw es p la n a n d th e re p o rts of th e R eich sb an k itself h a v e given co m prehensive review s of G e rm a n y ’s p o sitio n a n d d ev elo p m en t. T h e b o d y of know ledge so a v ailab le a n d th e pu b lic in te re s t an d discussion it h as stim u la te d h a v e been of th e g re a te st assistan ce to th e c o m m ittee. M oreover, th e y h a v e been specially assisted by th e ab le a n d lucid d escrip tio n s of th e p re se n t econom ic con d itio n of G erm an y a n d th e p o ssibilities of G erm an d ev elo p m en t w hich h a v e been m ad e b y th e G erm an ex p erts, w ho w ere w ell fitte d b y th e ir re sp e c tiv e posi tio n s in G e rm an y to give, in c o m b in atio n , a n im pressive review of th e su b je c t. T h e co n sid eratio n s p u t for w ard by th e m in o u r n u m ero u s discussions an d in answ er to th e q u estio n s a d d ressed to th e m h a v e been a c o n sta n t a n d p o w erfu l influence in lead in g us to o u r conclusions. T h e G erm an ex p e rts h a v e given th e co m m ittee com plete in fo rm a tio n as to th e d e m a n d s fo r foreign c a p ita l m a d e b y G erm an econom y d u rin g re c e n t y ears, a n d as to th e item s w hich in th e ir op in io n c o u n te ra c te d th is: e x te rn a l a ssets of G e rm a n y , re c o n s titu tio n of th e sto ck s a n d of th e m a c h in e ry of th e c o u n try . T h e p ro d u c tiv ity of c a p ita l th u s in v e ste d h a s been d is cussed b y th e c o m m itte e , w ho h a v e also considered th e co m p ariso n b etw een th e fiscal b u rd e n s a n d th e b u r dens of p u b lic d e b t in G e rm an y a n d in o th e r c o u n tries. The German experts have also made statements be fore the committee as to the present state of German industry and agriculture, the general level of wages, th e b u d g e ta ry situ a tio n , th e b alan ce of p a y m e n ts, th e financial effect of co m p en satio n to h e r n a tio n a ls, th e influence u p o n h e r tr a d e of custom s b arriers a b ro a d , a n d th e special s itu a tio n of a n in d u s tria l co u n try such as G erm an y w hich h a s h a d to re c o n s titu te her w orking ca p ita l, a n d a t th e sam e tim e assum e th e b u r den of h e a v y in te rn a tio n a l o bligations. T h e G erm an ex p erts la id stress on th e q uestion of n a tu r a l resources a v ailab le to G erm an y , w h eth er w ith in h e r bord ers o r n o t, a n d on G e rm a n y ’s c a p a c ity to p a y as affected th e re b y . T hese sta te m e n ts h av e been p re s e n t in th e co n sid era tio n of th e ex p erts a n d in a larg e m easu re th e ir con clusions h a v e been influenced b y th e m . I t is u n n ecessary fo r us to s e t o u t th e v ario u s con sid eratio n s of a n econom ic c h a ra c te r w hich h a v e led to o u r conclusions on th e ca p a c ity of G erm an y to tra n sfe r. W e believe t h a t in th e scale of a n n u itie s an d th e co n d itio n s recom m ended we h a v e given p ro p e r reg ard to th e p o te n tia litie s of all th e econom ic condi tio n s a n d financial forces no rm ally a n d n a tu ra lly in v o lv ed . W e believe fu r th e r t h a t in arra n g in g fo r a p a r t of th e a n n u ity to ca rry rig h ts of p o stp o n e m e n t a n d for im p a rtia l in q u iry we h av e p ro v id ed fo r th e p o ssib ility of m eetin g a n y a b n o rm a l o r special difficulty arising w hich m ig h t seriously affect G e rm a n y ’s c a p a c ity for a tim e , d esp ite all t h a t m ig h t be done b y G e rm a n y ’s good-w ill a n d in g e n u ity to m e e t such difficulty w ith o u t h av in g recourse to a n a lto g e th e r ex cep tio n al b u t n ev er th eless v ery v a lu ab le ex p ed ie n t. As a s u b s titu te fo r th e p re s e n t sy stem of tra n sfe r p ro te c tio n w ith its sem ip o litical co n tro ls, its d ero g a tio n from G e rm a n y ’s in itia tiv e , a n d its possible reac tio n s u p o n c re d it, w e are recom m ending a schem e of a n n u itie s a p p reciab ly sm aller th a n th e D aw es obliga tio n s a n d s u b je c t to new a n d elastic co n d itio n s, w hich are described a t le n g th in th e succeeding c h a p te rs of th e p re s e n t re p o rt. A s a n in te rn a l b u rd e n to be b orne b y a n n u a l ta x a tio n th e schem e we propose is m a te ria lly less; i t is closely assim ilated to com m ercial a n d financial obligations; it carries w ith i t w elcom e freedom from in terfe ren ce a n d supervision a n d i t is p ro v id e d w ith a d e q u a te safe g u a rd s a g a in s t a n y p erio d so critical as to en d an g er G e rm a n y ’s econom ic life. PART 5 C ourse of the P r o c e e d in g s The committee addressed themselves, at the outset, to the essential task before them, namely, to determine the number and amount of the annuities to be paid by Germany; but they soon found the amounts were to a considerable extent contingent upon the machinery an d form of p a y m e n t a n d , th erefo re, t h a t th e y were n o t a t t h a t stag e re a d y to reach a conclusion e ith e r as to th e a m o u n t of th e a n n u itie s o r th e n u m b e r of years d u rin g w hich th e y sh ould co n tin u e. M oreover, if G er m an y w ere to be given a definite ta s k to p erfo rm on h e r ow n resp o n sib ility , a n d if th e co m m ittee w ere to s u b s titu te fo r m a n y of th e fea tu re s of th e D aw es plan m ach in ery of a n o n p o litical c h a ra c te r in th e realm of general finance, i t w as clearly necessary to e la b o ra te a sy stem for h an d lin g th e a n n u itie s in a w ay w hich so fa r as i t led to th e ir com m ercialization w ould rem ove th e m from th e sphere of in te rg o v e rn m e n ta l relatio n s. In th e first in stan ce, som e tim e w as occupied by th e co m m ittee in h earin g th e sta te m e n ts from th e G erm an ex p erts on G erm an econom ic co nditions a n d th e o u t look fo r th e fu tu re , so fa r as th e y affected G e rm a n y ’s cap a c ity to p a y o b ligations in foreign currencies. I t th e n becam e know n t h a t th e G erm an g ro u p fe lt t h a t th e a b ility of G erm an y to u n d e rta k e a definite a n n u ity ob lig atio n m ig h t v a ry according to th e o th e r provisions com prised in th e c o m m itte e ’s reco m m en d atio n s, a n d in p a rtic u la r according to w h eth er th e a n n u ity w as e n tirely u n c o n d itio n al o r w h e th e r som e p o rtio n of it w as p a y a b le u n d e r arra n g e m e n ts for p o stp o n e m e n t in th e e v e n t of financial a n d exchange difficulties. T h e id ea w as also p u t fo rw ard t h a t if such a situ a tio n arose i t w as desirable fo r i t to be im m ed iately con sidered by a n a p p ro p ria te non p o litical co m m ittee, actin g in a n a d v iso ry c a p a c ity to th e pow ers concern ed , a n d m eetin g u n o ste n ta tio u sly w ith o u t w aitin g to be con s titu te d b y th e le n g th y process of d ip lo m atic ac tio n . I t w as quick ly realized t h a t since th e a m o u n t of th e b u rd e n w hich G erm an y could agree to ac c e p t w as d i re c tly re la te d to such co n c o m ita n t co nditions, th ese co nditions m u s t be first explored. A t th e sam e tim e, th e p ossibility of a ccep tin g sm aller a n n u itie s th a n th o se fixed u n d e r th e D aw es p la n w as a d m itte d ly d e p e n d e n t u p o n th e c e rtitu d e a n d ease w ith w hich th e cred ito rs could com m ercialize th e o b lig atio n s u n d e r non p o litical co nditions. T h e a rra n g e m e n ts t h a t h av e been in force u n d e r th e D aw es schem e for liq u id a tin g a p a r t of th e a n n u ity by m ean s of deliveries in k in d req u ire d co n sid eratio n from tw o p o in ts of view: (o) T h e s u b s titu tio n fo r th e existing m e th o d s of a m ore elastic m ach in ery w hich, as th e D aw es co m m ittee reco m m en d ed , sh o u ld be nonpolitical; (6) T h e g ra d u a l te rm in a tio n of th e sy stem a t th e earliest m o m e n t c o n sisten t w ith existing re la tio n sh ip s a n d w ith th e in te re sts of G erm an y , w hose econom ic life h as been d u rin g th e p a s t few y e ars g ra d u a lly a d a p te d to th e m , a n d w ho w ould feel herself p re ju d ic e d in an econom ic sense by th e ir to o su d d en te rm in a tio n . T h e in q u iries u p o n th ese su b jects w ere fo u n d to be converging u pon one c e n tra l p o in t, viz, th e n a tu r e of th e a u th o r ity w hich sh o u ld a c t as th e chief m ed iu m for disch arg in g th e v ario u s fu n ctio n s u n d e r a new p la n . 4 I n th e ex p lo ra tio n of th e p ro b lem of s u b s titu tin g a u th o rity of an e x te rn a l, financial a n d n o n p o litical c h a r a c te r fo r th e p re s e n t m ac h in e ry a n d co n tro ls of th e D aw es p la n (viz, th e a d m in is tra tio n of th e a g e n t general a n d of th e v ario u s com m issioners in B erlin, a n d th o se fu n c tio n s of th e R e p a ra tio n C om m ission w hich w ere in v o lv e d ), th e y im m e d ia te ly m e t w ith th e neces sity fo r a tru s te e to w hom th e p a y m e n ts in foreign c u r rencies a n d reic h sm a rk s sh o u ld be m a d e b y G erm an y a n d b y w hom th e d is trib u tio n to th e a p p ro p ria te recip ien ts sh o u ld be m an a g e d . In th e second place, th e p ro b lem s of m o b ilizatio n a n d co m m ercializatio n d e m a n d e d a com m on c e n te r of actio n a n d a u th o r ity fo r th e p u rp o se of c o o rd in a tin g a n d co n tro llin g th e a rra n g e m e n ts, a n d th e re w ere o b v i ous a d v a n ta g e s in su ch an a u th o rity b eing of a c o n tin uous o r p e rm a n e n t c h a ra c te r. In th e th ir d p lace , th e c o n tin u e d ex isten ce of deliveries in k in d n e c e ssita te d special m a c h in e ry of d irectio n a n d co n tro l, a t a n y ra te fo r a p erio d of y ears. T h e y h a d a lre a d y co n sid ered th e d e sira b ility of an a d v iso ry c o m m itte e w hich could ta k e a n y n ecessary ac tio n in co n n ectio n w ith th e d e c la ra tio n of a p o s t p o n e m e n t on th e p o stp o n a b le p a r t of th e a n n u ity . A p e rm a n e n t c e n tra l a u th o r ity m ig h t in clu d e am o n g its fu n c tio n s th e co n v en in g of such a n ad v iso ry b o d y , in te rn a tio n a l in c h a ra c te r a n d ex istin g as a c o n stitu e n t p a r t of th is c e n tra l a u th o r ity , to co n sid er th e situ a tio n w hich h a d b ro u g h t a b o u t th e necessity for a p o s t p o n e m e n t, or th e s itu a tio n w hich a p o stp o n e m e n t itself c rea te d . A gain, th e p o ssib ility th a t , e ith e r ex cep tio n ally or reg u larly as p a r t of th e p la n , o b lig atio n s w ould be discharged in m a rk s w ith in G erm an y , n e c e ssita te d a financial a u th o r ity to a rra n g e fo r th e d isp o sitio n of such fu n d s or a ssets in th e in te re sts of th e c red ito rs, b y a rra n g e m e n t w ith th e R e ic h sb a n k or o th e r G erm an a u th o rity . M oreov er, in so fa r as th e ta s k of tra n sfe rrin g th e p a y m e n ts in to foreign cu rren cies in v o lv ed , besides a re s tric tio n of im p o rts, a n ex ten sio n of G e rm a n e x p o rt tra d e , we en v isag ed th e p o ssib ility of a financial in s ti tu tio n t h a t sh o u ld be p re p a re d to p ro m o te th e in crease of w orld tr a d e by financing p ro je c ts, p a rtic u la rly in u n develop e d c o u n tries, w hich m ig h t o th erw ise n o t be a tte m p te d th ro u g h th e o rd in a ry ex istin g ch an n els. T h ese sev eral c o n sid eratio n s led th e c o m m itte e to th e ela b o ra tio n of a p la n fo r a B a n k fo r In te rn a tio n a l S e ttle m e n ts w hich sh o u ld , in its v ario u s fu n c tio n s, m eet all th e se p o in ts. T h e o u tlin e of th is schem e is given in p a r t 6 a n d A nnex I. I t will be seen t h a t th e essen tial re p a ra tio n fu n c tio n s of th e b a n k w ere su ch as to fo rm a solid reaso n fo r its existence; b u t th e c o m m itte e w ere led in e v ita b ly to a d d to th o se reasons th e a u x ilia ry , b u t n one th e less m a te ria l, a d v a n ta g e s t h a t i t m ig h t h a v e in th e g en eral position of p re s e n t in te rn a tio n a l finance. 5 J u s t as i t h a d been difficult a t th e o u ts e t to ta b le a n d discuss a precise p ro g ra m of a n n u itie s u n d e r a new sy stem u n til su ch a sy ste m w ere agreed in o u tlin e, b ecause th e a m o u n ts w ere th em selv es d e p e n d e n t upon t h a t sy stem , so a t th is p o in t in th e discussions i t be cam e difficult fo r v ario u s m em b ers to form definite opinions a n d c o m m it th em selv es on all d etails as th e y w ere e la b o ra te d in th e new sy ste m u n til a clea rer id ea of th e o b lig atio n s t h a t w ould be u n d e rta k e n b y G er m a n y u n d e r t h a t schem e h a d been o b ta in e d . W ith o u t, th e re fo re , h a v in g resolved a ll p o in ts of d o u b t on th e new sy ste m o r d one m ore th a n sk e tc h it in b ro ad o u t line, th e y fo u n d t h a t th e m o m e n t h a d a rriv e d w hen th e discussion of figures becam e possible a n d necessary. A t th is sta g e th e follow ing b ro a d principles w ere u n d e rsto o d to be likely to find th e ir w ay in to a n y final se ttle m e n t: (1 ) A division of th e a n n u ity in to a n u n co n d itio n al a n d a p o stp o n a b le p a rt; (2 ) T h e n ecessity fo r c o n tin u in g deliveries in k in d fo r a few y ears; (3 ) T h e a rra n g e m e n t of su ita b le c o n d itio n s fo r th e p o stp o n a b le p a r t in tim e s of e x cep tio n al difficulty. In o rd e r to p u t th e q u e stio n in to co n crete te rm s, m e m o ra n d a w ere ta b le d b y th e c h a irm a n , b y th e ex p e rts of th e fo u r chief c re d ito r co u n trie s, a n d b y th e G erm an e x p e rts. A co n sid erab le tim e w as sp e n t in discussing th e se p ro p o sals w ith o u t a g re e m e n t being reach ed . F in a lly th e c h a irm a n p re p a re d a new a n d in d e p e n d e n t p la n in w hich th e se d iv e rg e n t view s w ere b ro u g h t closer to g e th e r. T h e m ain fe a tu re of his p lan w as an a v erag e a n n u ity of 2 ,0 5 0 ,6 0 0 ,0 0 0 reich sm a rk s; an d , su b je c t to c e rta in reserv es as to th e m a tte rs of d e ta il, th is figure w as a c cep ted b y th e e n tire co m m ittee as th e basis of fu r th e r discussion a n d led to th e u n a n i m o u s reco m m e n d a tio n s now p u t fo rw a rd . A m ong th o se reserves is th e q u e stio n of th e s e ttle m e n t of th e B elgian m a rk claim w hich th e co m m itte e h a d con tin u a lly in c o n te m p la tio n a n d th e u n an im o u s ag ree m e n t u p o n w hich is to be fo u n d in A nnex V I. PA RT 6 B ank for I n t e r n a t io n a l S e t t l e m e n t s (A) G eneral re a s o n s for th e c o n stitu tio n of an in s titu tio n w ith b a n k in g fu n c tio n s.— A g eneral p lan fo r a co m p lete a n d final se ttle m e n t of th e re p a ra tio n p ro b lem , being p rim a rily fin an cial in c h a ra c te r, involves th e p erfo rm a n c e of c e rta in b a n k in g fu n c tio n s a t one or m o re p o in ts in th e sequence b etw een th e in itia l p a y m e n t of th e a n n u itie s a n d th e final d is trib u tio n of th e fu n d s. A b a n k in g in s titu tio n [designed to ”m e e t th ese re q u ire m e n ts ju stifies a n d m ak es lo g ical^th e liq u id a tio n of all p o litical co n tro ls a n d p ro v id es, in ste a d , m ach in ery essen tially com m ercial a n d financial in c h a ra c te r, w hich carries w ith it all th e s u p p o rt a n d a t th e sam e tim e all th e responsibilities t h a t econom ic en g ag em en ts im p ly . T h e process of rem o v in g th e re p a ra tio n p roblem from th e p o litical to th e financial sp h ere, w hich w as beg u n in th e D aw es p la n , will th u s be carried a step fu rth e r. In g eneral te rm s, th e in s titu tio n will ta k e over such fu n ctio n s of th e existing agencies as i t m a y be neces sa ry to c o n tin u e a n d w ill p erfo rm th e w hole w ork of e x tern al a d m in is tra tio n such as th e re ceip t a n d dis trib u tio n of p a y m e n ts a n d th e com m ercialization of th o se p a rts of th e a n n u itie s w hich are su scep tib le of being com m ercialized. T h e o p eratio n s of th e in s titu tio n will be assim ilated to o rd in a ry com m ercial a n d financial p ra c tic e . Its o rg an izatio n will be o u tsid e th e field of p o litical influ ences, a n d its pow ers a n d facilities will be sufficiently b ro a d to en ab le it to d eal freely a n d p ro m p tly w ith th e p ro b lem s in v o lv ed in th e s e ttle m e n t of G e rm a n y ’s o b lig atio n s. T h e in s titu tio n will be eq u ip p ed w ith m ach in ery w hich will p ro v id e a n elastic elem en t be tw een th e p a y m e n ts to be m ad e by G erm an y a n d th e ir re a liz a tio n . In consequence, th e c red ito rs will h ave fu rth e r assu ran ce t h a t th e effects of econom ic changes on th e flow of p a y m e n ts will be m inim ized, an d G erm an y , for h e r p a r t, will h a v e th e p o ssib ility of assistan ce d u rin g te m p o ra rily u n fa v o ra b le co n d itio n s. I t is obviously d esirable, in th e in te re s t of o b tain in g re su lts w ith th e g re a te s t efficiency, n o t to lim it u n d u ly th e fu n ctio n s of th e in s titu tio n . T h e c h a ra c te r of th e an n u itie s a n d th e m a g n itu d e of th e p a y m e n ts to be tra n sfe rre d over th e exchanges p ro v id e a t once th e o p p o rtu n ity a n d th e need for su p p lem en tin g w ith a d d itio n a l facilities th e ex istin g m ach in ery for c a rry ing on in te rn a tio n a l se ttle m e n ts, a n d w ith in lim ita tio n s of th e sou n d use of c red it, to c o n trib u te to th e s ta b ility of in te rn a tio n a l finance a n d th e grow th of w orld tr a d e . W e consider t h a t b y judicious non co m p etitiv e financial d ev elo p m en t th e b a n k should p ro v e a useful in s tru m e n t for opening up new fields of com m erce, of su p p ly a n d of d e m an d , a n d will th u s help to solve G e rm a n y ’s special p roblem , w ith o u t en cro ach in g on th e a c tiv itie s of ex istin g in s titu tio n s. In designing th e p la n for th e B an k for In te rn a tio n a l S e ttle m e n ts , w hich is given in o u tlin e in A nnex I, we w ere, th e refo re, m in d fu l of th e fa c t t h a t th ese new facilities sh ould n o t s u p p la n t, b u t sh ould a u g m e n t a n d p e rfe c t existing a rra n g e m e n ts for c a rry in g th ro u g h in te rn a tio n a l se ttle m e n ts. T h e b a n k will h av e (a) as its essen tial or o b lig ato ry fu n ctio n s th o se w hich are in h e re n t in th e receip t, m a n a g e m e n t, an d d istrib u tio n of th e a n n u itie s, a n d (6) as its a u x ilia ry or perm issive fu n ctio n s th o se w hich evolve m ore in d ire c tly from the c h a ra c te r of th e an n u itie s. 64497— 29- ■2 T h ere is no h a rd a n d fa s t line b etw een th e tw o sets of fu n ctio n s, because th e first lead n a tu ra lly in to th e second. (B ) O rganization of th e b a n k .— In view of th e p a rt w hich th e b a n k will h av e to p la y in th e general in te re st, it is ad v isab le to place th e co n tro l of its m an a g e m e n t in th e h a n d s of th e c e n tra l b a n k s, since th ese are th e o rg an izatio n s responsible in each m a rk e t for th e co n v e rtib ility of th e n a tio n al currencies a n d th e co n tro l of cred it. A t th e tim e of th e b a n k 's c o n stitu tio n th e c a p ita l will be g eo graphically d is trib u te d in such a w ay as to associate in th e b a n k ’s w orking a n d in its d ev elo p m en t all th e c o u n tries in te re ste d in th e re p a ra tio n se ttle m e n t a n d all th e financial m a rk e ts w hich m a y su b scrib e to th e b a n k ’s issues. P rovision is m ad e for th e u tiliz a tio n of th e n e t p ro fits of th e b a n k , due allow ance being m ad e for th e p a y m e n t of cu m u la tiv e d iv id en d s on th e c a p ita l sto ck , to cre a te su ita b le reserv e funds. P rovision is also m ade, in case G o v ern m en ts or c e n tra l b a n k s m ak e lo n g -term d ep o sits w ith th e b a n k , w hereby th e y shall sh are p ro p o rtio n a te ly in th e re m a in d e r of th e profits, a fte r th e re q u ire m e n ts on a c c o u n t of d iv id en d s an d th e reserve fu n d s h av e been covered. In a sm u c h as its in te rn a tio n a l basis is a n essen tial fe a tu re w hich distin g u ish es th e in s titu tio n from all o th e rs, it h as no single fiscal allegiance a n d it is d esir able t h a t in its m o v em en ts in th e v ario u s n a tio n a l m a rk e ts it sh ould n o t be h am p ered or re s tric te d by co n sid eratio n s of re la tiv e fiscal b u rd en s. I t is th erefo re recom m ended t h a t th e G o v ern m en ts of th e co u n tries concerned e n te r in to a co n v en tio n for th e av o id an ce of double a n d trip le ta x a tio n of th e b a n k along th e follow ing lines: (а ) T h e fu n d s a n d in v e stm e n ts of th e b a n k to be freed from n a tio n a l ta x a tio n a t th e p o in t w here th e y derive in te re st, incom e, a n d profit; (б ) All in d iv id u als a n d c o rp o ratio n s receiving p ro fit, in te re s t, or incom e from th e b a n k to be fully liable th ereo n to such ta x a tio n as such in d iv id u als a n d cor p o ra tio n s w ould a tt r a c t if th e p ro fit, in te re s t, or incom e were deriv ed from a n y o th e r source. 1. C apital.— On th e fo rm atio n of th e b a n k its a u th o riz e d c a p ita l will be in th e e q u iv a le n t of $ 1 0 0 , 0 0 0 ,0 0 0 . T h e e n tire a m o u n t will be issued, b u t only 2 5 p e r c e n t of each sh are shall be called up, u n til th e b o a rd of d irecto rs decides on a fu rth e r call. T h e allo catio n of sh ares by co u n tries is p ro v id ed for in sectio n 2 of A nnex I . T h e sh ares will c a rry no v o tin g rig h ts; b u t v o tin g rig h ts corresp o n d in g to th e n u m b e r of sh ares first issued in each c o u n try will be exercised b y th e c e n tra l b a n k of t h a t c o u n try in th e g eneral m eetings a tte n d e d b y re p re se n ta tiv e s of th o se b a n k s, ta k in g th e place of general m eetin g s of sh a reh o ld ers. 6 2. A d m in istratio n .— T h e e n tire a d m in is tra tiv e con tro l of th e b a n k will be vested in th e b o a rd of d irecto rs. T he fu n ctio n s of a d ire c to r of th e b a n k are in c o m p a t ible w ith th o se inv o lv in g n a tio n a l p o litical resp o n si bilities, a n d th e s ta tu te s of th e b a n k will m ak e th e neces sary provision in o rd er to a v o id such conflict of fu n c tio n s. All th e d irecto rs a n d c a n d id a tes shall be o rd i n arily re sid e n t in E u ro p e , o r shall be in a p o sitio n to give reg u lar a tte n d a n c e a t m eetin g s of th e b o ard . T h e g o v ern o r of th e c e n tra l b a n k of each of th e seven co u n tries to w hich m em b ers of th e p re se n t ex p e rts ’ co m m itte e belong, or his nom inee, will be e n title d to be a d ire c to r of th e b a n k ex officio. E a c h of th ese gov ern o rs m a y also a p p o in t one d ire c to r, being a n a tio n a l of his c o u n try a n d re p re se n ta tiv e e ith e r of finance or of in d u s try or com m erce. D u rin g th e period of th e G erm an a n n u itie s th e g o v ern o r of th e B an k of F ran ce a n d th e p re sid e n t of th e R eich sb an k m ay each a p p o in t, if th e y so d esire, one a d d itio n a l d ire c to r of his ow n n a tio n a lity , bein g a re p re se n ta tiv e of in d u s try or com m erce. T hese 14 (o r, as th e case m a y b e, 16) d irecto rs will elect n o t m ore th a n 9 a d d itio n a l d irecto rs from lists fu rn ish ed b y , a n d w hich m a y inclu d e, th e gov ernors of c e n tra l b a n k s in o th e r p a rtic ip a tin g c o u n tries. If, in th e process of o rganizing th e b a n k or in th e perfo rm an ce of its fu n ctio n s a fte r e sta b lish m e n t, it is found t h a t th e c e n tra l b a n k of a n y c o u n try o r its gov ern o r is u n a b le to a c t officially o r unofficially in exer cising th e fu n c tio n s, a u th o ritie s o r privileges acco rd ed to c en tra l b a n k s u n d e r th e p la n , or refrain s from doing so, a lte rn a tiv e a rra n g e m e n ts n o t in c o n siste n t w ith th e law s of t h a t c o u n try will be m a d e . T hese a lte rn a tiv e a rran g e m e n ts are o u tlin ed in section 12 of A nnex I . 3. D istrib u tio n of p ro fits.— T h e p ro fits shall be d i vided in acco rd an ce w ith th e p ro v isio n s co n ta in e d in A nnex I . (C) G eneral o b se rv a tio n s on th e b a n k .— T h e fo re going o u tlin e of th e fu n c tio n s a n d o rg an iz a tio n of th e B ank fo r In te rn a tio n a l S e ttle m e n ts, to g e th e r w ith th e fuller p re s e n ta tio n of th e b a n k p la n in A nnex I, larg ely speaks fo r itself. I t rem ain s, how ever, to p o in t o u t ce rta in a d v a n ta g e s w hich th e b a n k offers as a g a in s t th e existing re p a ra tio n p ro ced u re, a d v a n ta g e s w hich ac crue b o th to G erm an y a n d to th e c re d ito r c o u n tries, because th e b a n k , in p u ttin g th e p a y m e n ts on a business basis, m ak es th e ir re c e ip t th e m ore c e rta in a n d facili ta te s th e ir m o v em en t. T he new facilities in tro d u c e d b y th e b a n k a re in ad d itio n to th e p ro v isio n s given elsew here in th e p la n , w hereby G e rm an y is e n title d to d eclare a p o stp o n e m en t of tra n sfe r. T h ey a re ra th e r in th e n a tu r e of forestallin g c ircu m stan ces w hich m ig h t of th em selv es lead to a tra n sfe r p o stp o n e m e n t. T hese m easu res of p re v e n tio n a re of tw o general so rts: F irst, th e b a n k m ay em p lo y its p o w er of giving c re d it to a rra n g e te m p o ra ry assista n c e in tra n sfe rrin g th e a n n u ities; second, th e b a n k will be in a p o sitio n , in a g re e m e n t w ith th e R eic h sb a n k , to in v e st in G erm an y re ich sm a rk s c u rre n tly a ccru in g to its a c c o u n t a t th e R e ich sb an k . T h is m easu re, to th e e x te n t to w hich it m ay b e u tilized , will re tu rn to th e G erm an econom y a p o rtio n of th e a n n u ity a n d , th ro u g h th e b a n k ’s c re d it m e c h a nism , p ro v id e th e foreign exchange w ith w hich to p ay th e c u rre n t a llo tm e n ts to th e cre d ito rs on a c c o u n t of th e a n n u ity . T h e a p p lic a tio n of e ith e r o r b o th of th e s e m easu res is p ro m p t a n d decisive, a n d th e y o p e ra te in ad v a n c e of th e tim e w hen difficulties p re se n t th em selv es ra th e r th a n a fte rw a rd s, a n d serv e to ease a n y stra in u n til such tim e as th e d isc o u n t ra te a n d o th e r c o rrectiv e m easu res h a v e h a d o p p o rtu n ity to ex ert th em selv es. I t is n o t to be a ssu m ed t h a t th e se tw o m easures should be rese rv e d fo r em ergency use. T h e use of th e b a n k ’s c re d it b y c e n tra l b a n k s w ith in m o d e ra te lim its a n d o v er sh o rt p erio d s m a y in tim e becom e a n o rm al fu n ctio n scarcely d ifferen t in its exercise fro m th e use of c e n tra l-b a n k c re d it b y b a n k s a n d b a n k e rs . All c e n tra l b a n k s, fo r o rd in a ry exchange o p e ra tio n s or for o th e r p u rp o ses, w ould fre q u e n tly find i t a d v a n ta g e o u s to m ak e use of th e fa c ility . T h e second m e a su re, t h a t of in v e stin g w ith in G e rm a n y som e p o rtio n of th e a n n u ity receip ts, sh o u ld also find its uses in n o rm al tim es. B o th m easu res are n ecessarily lim ite d b y th e fu n d s w hich th e b a n k will h av e a t its d isposal a n d b y th e re q u ire m e n t t h a t i t m a in ta in s its liq u id ity a t all tim es. T h ese are in sta n c e s of th e b a n k ’s u tility to G erm an y . T h ey also illu s tra te th e flexibility w hich th e b a n k ’s facilities give to th e h an d lin g of th e d isb u rse m en ts to th e cre d ito rs. F u rth e r in sta n c e s of jo in t b en efit m ay be briefly in d ic a te d . T h e b a n k will be a b le to give sh o rt-te rm a n d in te rm e d ia te c re d it to p u rc h a se rs of deliveries in k in d , n o ta b ly for th e c o n stru c tio n of p u b lic w orks on d eliv ery in -k in d a c c o u n t. In te rm e d ia te c re d it o p eratio n s need n o t be re s tric te d , how ever, to a n y one c o u n try or to th e p u rc h a se of a n y one c o u n try ’s goods. On th e c o n tra ry , it w ould be desirab le to b ro a d en such o p e ra tio n s in th e in te re s t of w orld tr a d e to th e e x te n t t h a t th e d ire c to rs of th e b a n k a p p ro v e . As a sta b il izing fa c to r in th e foreign exchanges its a d v a n ta g e s are o bvious; a n d if in d u e tim e th e a rra n g e m e n ts p ro vid ed for a n in te rn a tio n a l se ttle m e n t fu n d are p u t in to effective o p e ra tio n , th e b a n k sh o u ld go fa r to elim in ate th e costs a n d risk s now in c u rre d in th e sh ip p ing a n d re sh ip p in g of gold. T h e b a n k excludes from its p ro c e d u re all p o litical influences, a n d business p rin cip les a n d p ra c tic e in te r vene to fa c ilita te th e se ttle m e n t of G e rm a n y ’s obliga tio n s w ith o u t in a n y w ay q u alify in g h er in d e p e n d e n t a n d sole re sp o n sib ility . T h e office fo r re p a ra tio n p a y m e n ts a n d its asso ciate d o rg a n iz a tio n s in B erlin w ill be re tire d a n d th e R e p a ra tio n C om m ission’s rela tio n s w ith G e rm a n y will be te rm in a te d . G e rm an y will assum e th e resp o n sib ility for raisin g a n d tra n sfe rrin g T h e ran g e b etw een th e tw o figures (th e u n c o n d itio n a l th e an n u itie s, a n d th e b a n k ta k e s over th e w ork of th e ir p o rtio n a n d th e to ta l a n n u ity ) is n o t to be ta k e n as re c e ip t a n d d isb u rsem en t. evidence of d o u b t as to G e rm a n y ’s c a p a c ity of tra n sfe r As a lread y s ta te d , th e b a n k is so designed as n o t to (o r of p a y m e n t); it re p resen ts ra th e r th e concession in terfe re w ith th e fu n ctio n s p erfo rm ed b y existing in s ti t h a t h as been m ad e to th e h o n o rab le d e te rm in a tio n of tu tio n s , b u t it is to cre a te for itself su p p le m e n ta ry fu n c th e G erm an e x p erts n o t to m ak e th em selv es u n co n d i tio n s in a special field of its ow n. T o th is en d every tio n ally responsible for a n y o b lig atio n w hich th e y care sh ould be exercised in th e o rg an izatio n a n d a d are n o t c e rta in is w ith in th e ir pow er of p erfo rm an ce in m in is tra tio n of th e in s titu tio n . all circu m stan ces. I t is, how ever, to be em phasized In th e n a tu r a l course of d ev elo p m en t i t is to b e t h a t th e to ta l a m o u n t of th e a n n u ity p ro p o sed , w hile ex pected t h a t th e b a n k will in tim e becom e a n o rg a n being far from covering th e claim s s e t fo rth by th e izatio n , n o t sim ply, or even p re d o m in a n tly , concerned cred ito rs, is one w hich th e y h av e every reason to w ith th e h a n d lin g of re p a ra tio n s, b u t also w ith fu rn ish believe can in fa c t be b o th p aid a n d tra n sfe rre d by ing to th e w orld of in te rn a tio n a l com m erce a n d finance G e rm a n y . T h e fa c t t h a t p a r t of it is p o stp o n a b le im p o rta n t facilities h ith e rto lack in g . E specially i t is o b v ia te s th e d an g er of being abo v e G e rm a n y ’s cap ac to be h o p ed t h a t it will becom e a n increasingly close ity to tra n s fe r in a p eriod of difficulty, a n d it w as th e a n d v alu ab le lin k in th e coop eratio n of c e n tra l b an k in g recognition of th is prin cip le w hich w as one of th e facto rs in s titu tio n s generally— a co o p eratio n essen tial to th e en ab lin g th e G erm an ex p erts to ac c e p t th is schem e c o n tin u in g s ta b ility of th e w o rld ’s c re d it s tru c tu re . as an a lte rn a tiv e n o t in c o n sisten t w ith th e ir original ideas. In recom m ending t h a t th e sy stem of deliveries in k in d sh ould be c o n tin u ed for a lim ited period a n d in PA RT 7 decreasing a m o u n ts, we recognized, as is p o in te d o u t in p a r t S (f) of th is re p o rt, th e necessity fo r m a in ta in in g T h e I n f l u e n c e o f t h e F o rm o f t h e A n n u it y o n a tra n s itio n a l p eriod so t h a t all shock to existing th e A m ount econom ic co n d itio n s in G erm an y sh o u ld be av o id ed . G e rm a n y ’s pow er to tra n sfe r is th u s m a in ta in e d u n W e are p roposing a series of to ta l a n n u itie s w hich im p ed ed b y th e frictio n of su d d en changes in tra d e sh ould b e p a id w ith th e re g u la rity of th e coupons of co nditions. o rd in a ry m a rk e ta b le b o n d s. B u t it is w ell recognized t h a t to th e econom y of every c o u n try th e re m ay possibly com e a t som e tim e or o th e r a y e a r of stress PA RT 8 a n d difficulty. T o m ak e th e econom ic scope of such a p erio d th e d e te rm in a n t of th e m ax im u m ca p a c ity in A n n u it ie s th e o rd in a ry course w ould be to fix a sum q u ite u n a c ce p ta b le to th e cre d ito rs a n d a n u n reliab le te s t of T h e co m m itte e recom m ends t h a t — n o rm al c a p a c ity to p a y . I t w ould be like fixing th e (1 ) T h e G o v ern m en ts shall fix th e e x act d a te of te r s ta n d a rd of p h y sical effort ex pected from a w o rk m an m in a tio n of th e D aw es p lan an d th e s u b s titu tio n in his y ears of h e a lth a n d s tre n g th b y w h a t he is th e re fo r of th e new p la n . In fixing such d a te , th e cap ab le of doing in his occasional w eeks of illness. G o v ern m en ts sh ould b e a r in m ind t h a t th is c o m m itte e ’s W hile o u r p ro p o sals h av e m ad e full allow ance for calc u latio n s w ere m ad e on th e basis t h a t th e D aw es all n o rm al a n d long-run co n sid eratio n s, it is possible p la n w ould cease on A u g u st 3 1 , 1 9 2 9 , a n d th e new p lan t h a t o v er ex cep tio n al a n d sh o rt periods th e n a tu r a l com m ence on S ep tem b er 1, 19 29 . a d ju s tm e n t we c o n te m p la te m ig h t be insufficient. W e In case th e G o v ern m en ts should fix a d a te la te r th a n h av e acce p te d th e a rg u m e n t of th e G erm an ex p erts S ep tem b er 1, 1 9 2 9 , it is recom m ended t h a t financial th a t, in u n d e rta k in g a resp o n sib ility of th is c h a ra c te r, a d ju s tm e n ts shall be m ad e so t h a t th e basis of p a y m e n ts id e n tical in its n a tu r e w ith th e solem n co v e n a n ts of a p ro v id ed for u n d e r th e new p lan shall n ev erth eless com d e b to r on a com m ercial a n d financial basis, G erm an y m ence as of S ep tem b er 1, 1 9 2 9 , a n d th e basis of p a y is w ell ad v ised to consider carefully w h a t are th e lim its m e n ts p ro v id ed for u n d e r th e D aw es p la n sh o u ld cease of th e b u rd e n w hich a re possible for h er final a c c e p t as of A u g u st 3 1 , 1 9 2 9 . an ce. W e h av e th e re fo re fully resp ected th e ir scruples (2 ) P a y m e n ts u n d e r th e p lan of th e D aw es com a s to th e u n d e rta k in g s th e y are p re p a re d u n c o n d itio n m itte e sh ould co n tin u e u n til th e end of th e p re s e n t ally to sign a n d h av e in tro d u c e d a fe a tu re w hich can a c t scheduled y ear, t h a t is to say , A u g u st 3 1 , 1 9 2 9 . a s a sa fe ty valv e in tim e of difficulty, viz, a rig h t of (3 ) T h e new p lan should go in to effect S ep te m b e r 1, p o stp o n e m e n t on G e rm a n y ’s in itia tiv e of th e tra n s fe r 1 9 2 9 , w ith th e value of th e 3 7 an n u itie s of 1 ,9 8 8 ,8 0 0 ,0 0 0 (a n d , to a less degree, of p a y m e n t) of a p o rtio n of th e reich sm a rk s u n til M arch 3 1 , 1 9 6 6 , th e p a y m e n ts for th e a n n u ity . D aw es loan to be ad d ed . 8 9 (4) Payments to be made under the Dawes plan T h e re a fte r th e re rem ain s th e follow ing schedule of during the five months’ period preceding September 1, p a y m e n ts to be m a d e by G erm an y , su b je c t to th e special 1929, after allowing for the Dawes loan, should be p ro v isio n s dealing w ith th ese y ears: treated as payments necessary to cover the require 1 9 6 6 - 67------------------------------------------------ 1, 607, 700, 000 ments of the creditor nations during this transition 1 9 6 7 - 6 8 ------------------------------------------------ 1, 606, 900, 000 period, including outpayments for the year ending 1 9 6 8 - 6 9 ------------------------------------------------ 1, 616, 700, 000 March 31, 1930. 1 9 6 9 - 7 0 ------------------------------------------------ 1, 630, 000, 000 Should there remain any surplus after meeting the 1 9 7 0 - 7 1 ------------------------------------------------ 1, 643, 700, 000 foregoing requirements, the question of disposing of 1 9 7 1 - 7 2 ------------------------------------------------ 1, 653, 900, 000 such surplus, as well as all matters and expenses in 1 9 7 2 - 7 3 ------------------------------------------------ 1, 662, 300, 000 connection with the transition from the operation of 1 9 7 3 - 7 4 ---------------------------------- --------- 1, 665, 700, 000 the existing arrangements to the new plan, shall be 1 9 7 4 - 7 5 ------------------------------------------------ 1, 668, 400, 000 settled and adjusted between the Governments. 1 9 7 5 - 7 6 ------------------------------------------------ 1 ,6 7 5 ,0 0 0 ,0 0 0 (5) In order that the new annuities shall coincide 1 9 7 6 - 7 7 ------------------------------------------------ 1 ,6 7 8 ,7 0 0 ,0 0 0 with the German fiscal years, the schedule of pay 1 9 7 7 - 7 8 ------------------------------------------------ 1 ,6 8 5 ,4 0 0 ,0 0 0 ments to be made by Germany on and from September 1 9 7 8 - 7 9 ------------------------------------------------ 1 ,6 9 5 ,5 0 0 ,0 0 0 1, 1929, will be as follows (in reichsmarks): 1 9 7 9 - 8 0 ------------------------------------------------ 1, 700, 400, 000 1 9 8 0 - 8 1 ------------------------------------------------ 1, 711, 300, 000 Seven months, Sept. 1, 1929-Mar. 31, 1930----------------------------------742, 800, 000 1 9 8 1 - 8 2 ------------------------------------------------ 1, 687, 600, 000 1 9 8 2 - 8 3 ------------------------------------------------ 1, 691, 800, 000 36 German fiscal years:1 Apr. 1, 1930-Mar. 31, 1931_____ 1, 707, 900, 000 1 9 8 3 - 8 4 ------------------------------------------------ l, 703, 300, 000 Apr. 1, 1931-M ar. 31, 1932_____ 1, 685, 000, 000 1984^85---------------------------------------------------- 1 ,6 8 3 ,5 0 0 ,0 0 0 925, 100, 000 Apr. 1, 1932-M ar. 31, 1933_____ 1, 738, 200, 000 1 9 8 5 - 8 6 -----------------------------------------------931, 400, 000 Apr. 1, 1933-M ar. 31, 1934_____ 1, 804, 300, 000 1 9 8 6 - 8 7 -----------------------------------------------897, 800, 000 Apr. 1, 1934-M ar. 31, 1935_____ 1, 866, 900, 000 1 9 8 7 - 8 8 -----------------------------------------------Apr. 1, 1935-Mar. 31, 1936_____ 1, 892, 900, 000 O u t of th e ab o v e a n n u itie s th e follow ing a m o u n ts shall Apr. 1, 1936-M ar. 31, 1937_____ 1, 939, 700, 000 be u n c o n d itio n a l, n am ely , p a y a b le w ith o u t a n y rig h t of Apr. 1, 1937-M ar. 31, 1938_____ 1, 977, 000, 000 p o stp o n e m e n t of a n y k in d in foreign cu rren cies b y eq u al Apr. 1, 1938-Mar. 31, 1939_____ 1, 995, 300, 000 m o n th ly in s ta llm e n ts, viz, 6 6 0 ,0 0 0 ,0 0 0 reic h sm a rk s p e r Apr. 1, 1939-Mar. 31, 1940_____ 2, 042, 800, 000 a n n u m , to in clu d e w h a te v e r a m o u n ts are re q u ire d for Apr. 1, 1940-M ar. 31, 1941_____ 2, 155, 500, 000 th e service of th e G erm an e x te rn a l lo an of 1 9 2 4 . Apr. 1, 1941-Mar. 31, 1942_____ 2, 180, 700, 000 T h e re m a in d e r of th e a n n u ity sh all be p a y a b le in Apr. 1, 1942-Mar. 31, 1943_____ 2, 198, 000, 000 foreign cu rren cies b y e q u a l m o n th ly in s ta llm e n ts, b u t Apr. 1, 1943-Mar. 31, 1944_____ 2, 194, 300, 000 su b je c t to th e co n d itio n s as re g a rd s p o stp o n e m e n t of Apr. 1, 1944-Mar. 31, 1945_____ 2, 207, 500, 000 tra n s fe r a n d of p a y m e n t se t o u t in A nnex IV of th is p lan . Apr. 1, 1945-Mar. 31, 1946_____ 2, 203, 800, 000 T h e G erm an G o v e rn m e n t u n d e rta k e s fo r th e p u rp o se Apr. 1, 1946-M ar. 31, 1947_____ 2, 199, 500, 000 of th e p re s e n t pro v isio n s, as well as fo r th e general Apr. 1, 1947-M ar. 31, 1948_____ 2, 215, 200, 000 p u rp o ses of th e p la n , t h a t th e reic h sm a rk shall h av e Apr. 1, 1948-M ar. 31, 1949_____ 2, 210, 000, 000 a n d sh all re ta in its c o n v e rtib ility in to gold o r devisen Apr. 1, 1949-M ar. 31, 1950_____ 2, 316, 800, 000 as c o n te m p la te d in sectio n 3 1 of th e p re s e n t R eichsApr. 1, 1950-Mar. 31, 1951_____ 2, 359, 200, 000 b a n k law , a n d t h a t fo r th e se p u rp o ses th e re ich sm ark Apr. 1, 1951-Mar. 31, 1952_________ 2, 343,200,000 sh all h av e a n d sh all re ta in a m in t p a rity of 1 / 2 7 9 0 Apr. 1, 1952-M ar. 31, 1953_____ 2, 346, 200, 000 k ilo g ram of fine gold as defined in th e G erm an coinage Apr. 1, 1953-Mar. 31, 1954_____ 2, 353, 300, 000 law of A u g u st 3 0 , 1 9 2 4 .1 Apr. 1, 1954-Mar. 31, 1955_____ 2, 364, 600, 000 F o r th e p u rp o se of p a ra g ra p h (4 ), a b o v e, th e o u tp a y Apr. 1, 1955-M ar. 31, 1 9 5 6 ........... 2, 359, 800, 000 m e n ts fo r th e y e a r en d in g M a rc h 3 1 ,1 9 3 0 , a re as follows Apr. 1, 1956-M ar. 31, 1957_____ 2, 354, 200, 000 (in re ic h s m a rk s ): Apr. 1, 1957-Mar. 31, 1958_____ 2, 361, 800, 000 F ra n c e ______ _______ 3 3 8 , 10 0, 0 0 0 Apr. 1, 1958-Mar. 31, 1959_____ 2, 393, 800, 000 G re a t B rita in ---------------------------------------- 3 6 6 , 6 0 0 , 0 0 0 Apr. 1, 1959-M ar. 31, 1960_____ 2, 370, 600, 000 I ta ly — -------1 0 7 ,8 0 0 ,0 0 0 Apr. 1, 1980-M ar. 31, 1961_____ 2, 380, 500, 000 B elg iu m ---------------------------23, 400, 000 Apr. 1, 1961-Mar. 31, 1962_____ 2, 398, 300, 000 R u m a n ia ----------------------------------------------8, 8 0 0 , 0 0 0 Apr. 1, 1962-M ar. 31, 1963_____ 2, 390, 200, 000 S e r b i a ..------- ----------------------------------------5 ,9 0 0 ,0 0 0 Apr. 1, 1963-M ar. 31, 1964_____ 2, 402, 600, 000 G reece--------------------------------------------------5, 300, 0 0 0 Apr. 1, 1964-M ar. 31, 1965_____ 2, 402, 100, 000 P o rtu g a l----------------7 ,2 0 0 ,0 0 0 Apr. 1, 1965-M ar. 31, 1966_____ 2, 428, 800, 000 T o ta l............................ 863, 100, 00 0 ‘ Constant annuity 37 years corresponding to 1,988,800,000; Dawes loan to be added. 1 Attention is called to the letter from the president of the Reichsbank given in Annex II. P rovision is m ade in section 11 of A nnex I w hereby a p ercen tag e of th e special reserve fu n d accu m u lated in th e b a n k shall be placed a t G e rm a n y ’s disposal, if req u ire d , to w a rd m eetin g th e la s t 2 2 a n n u itie s p a y able u n d e r th e abo v e scale. In calc u latin g th e abo v e a n n u itie s we h av e ta k e n in to a c c o u n t th e e x p en d itu res d evolving upon G er m a n y d u rin g th e p eriod of th e new p lan such as were covered b y th e D aw es p la n . H ow ever, we h av e n o t included th e costs of com m issions a n d th e c u rre n t expenses of o ccu p atio n , as th e y are to co n tin u e only u n til a d a te to be fixed b y th e G o v ern m en ts. T he necessary a rra n g e m e n ts for th e ir p a y m e n t sh ould be m ade b y th e G o v ern m en ts in connection w ith th e a d o p tio n of th e new p lan . A p a rt from th e foregoing we reco m m en d th a t , as from th e d a te of th e p u ttin g in to force of th is plan, G e rm a n y ’s prev io u s o b lig atio n shall be e n tirely rep laced b y th e o b lig atio n laid dow n in th is plan , a n d t h a t th e p a y m e n t in full of th e proposed a n n u itie s in acco rd an ce w ith th is p la n should be a ccep ted b y th e c re d ito r pow ers as a final d ischarge of all th e liabilities of G erm an y , still rem ain in g u n d isch arg ed , referred to in section 11 of p a r t 1 of th e D aw es p lan , as in te rp re te d by th e decisions a lre a d y given b y th e in te rp re ta tio n tr i b u n a l se t u p u n d e r th e L ondon ag re e m e n t of A ugust 3 0 , 1 9 2 4 . T h a t trib u n a l should be re ta in e d in existence an d a n y d isp u te t h a t m ay arise betw een G erm an y on th e one side a n d th e c red ito r G o v ern m en ts, or a n y one of th e m , or th e b a n k , on th e o th e r side, as to th e ex te n t of th ese liabilities or as to an y o th e r q u estio n of th e in te rp re ta tio n o r ap p lic a tio n of th is p lan should be referred to it for final decision. In th e course of th e ir proceedings th e ex p erts of th e p rin cip al c red ito r pow ers h av e also d e a lt w ith ' th e q u estio n of th e d is trib u tio n of th ese a n n u itie s am ong th e cred ito r pow ers. T h e ir reco m m en d atio n s, draw n up a fte r careful e x a m in atio n of th e ex istin g d is trib u tio n a rra n g e m e n ts a n d of o th e r re le v a n t co n sid era tio n s laid before th e m a n d w ith due reg ard to th e rig h ts a n d eq u ities of th e o th e r co u n tries 1 h av in g a sh are in th e D aw es an n u itie s, are s e t o u t in A nnex V II, w hich th e y consider a n in sep arab le p a r t of th e p re se n t re p o rt. of th e opinion t h a t th e a n n u itie s recom m ended by th e m should n o t be d raw n w holly from th e G erm an b u d g et, b u t t h a t one source of p a y m e n t utilized by th e D aw es p lan , viz, th e railw ay co m p an y , should be m a in ta in e d . W e desire to m ak e it clear, how ever, t h a t th e re te n tio n of a c o n trib u tio n from th e railw ay co m p an y is recom m ended, n o t o nly from th e p o in t of view of se c u rity , b u t also as a su ita b le m e th o d of raisin g th e n ecessary revenue. W e h a v e also considered th e p o sitio n w ith reg ard to th e assigned rev en u es an d , h av in g reg ard to th e fa c t t h a t th ese rev en u es are pledged as co llateral se c u rity for th e service of th e G erm an e x tern al loan of 1 9 2 4 , we feel it is im possible to reco m m en d th e release th ereo f. N ev erth eless, we a re of opinion t h a t it w ould be su ita b le for th e G erm an G o v ern m en t to discuss w ith th e tru ste e s for th e b o n d h o ld ers of t h a t loan th e possi b ility of sim plifying, as fa r as possible, th e ex istin g m ach in ery , a n d t h a t th e cre d ito r G o v ern m en ts for th e ir p a r t should ac c e p t a sim ilar a rra n g e m e n t. T h e effec tiv e se cu rity of th e c re d ito r G o v ern m en ts sh o u ld be s u b s ta n tia lly t h a t in d ic a te d in A nnex I I I , sectio n 3. A p a rt fro m th e se special q u estio n s, th e c o m m ittee desires to reco rd its view t h a t th e basis of se c u rity for th e p a y m e n t of th e a n n u itie s is th e solem n u n d e r ta k in g of th e G erm an G o v ern m en t, to w hich no fu rth e r g u a ra n te e can a d d a n y th in g w h atso ev er. T h e co m m ittee acco rd in g ly recom m ends t h a t th e c re d ito r G o v ern m en ts sh ould ta k e ste p s to release all co n tro ls, special securities, pledges or charges w hich m ay rem ain in th e ir h a n d s o th e r th a n th o se specifically referred to ab o v e, a n d sh ould recognize t h a t th e ir a c c e p tan ce of th e solem n u n d e rta k in g of th e G erm an G o v ern m en t replaces a n y secu rities, pledges, charges o r co n tro ls as m ay now exist. 2. T he c o n trib u tio n from th e G erm an R ailw ay Co.— U nder th e ''G e rm a n railw ay law of A u g u st 3 0 , 1 9 2 4 , en a c te d in acco rd an ce w ith th e D aw es p lan , th e G erm an R ailw ay Co. is su b je c t to a m o rtg ag e for 1 1 ,0 0 0 ,0 0 0 ,0 0 0 gold m ark s, in fa v o r of th e tru s te e fo r th e G erm an railw ay bonds, a n d has issued to him a b ond for 1 1 , 0 0 0 ,0 0 0 ,0 0 0 gold m a rk s. T h is b o n d bears in te re st a t 5 p e r ce n t p e r a n n u m a n d carries a cu m u la tiv e sin k in g fu n d of 1 p e r c e n t p e r a n n u m , w hich first becam e o p e ra tiv e on S ep tem b er 1, 1 9 2 7 ; in te re st a n d sin k in g fu n d being g u a ra n te e d b y th e G o v ern m en t C o m p o s it io n o f t h e A n n u i t i e s of th e R eich. T h is p la n c o n tem p lates th e ab o litio n of th e railw ay P A R T 8 (a) b onds, to g e th e r w ith th e a tte n d a n t circu m stan ces of SOURCE AN D S E C U R ITIE S foreign p a rtic ip a tio n in th e m a n a g e m e n t of th e ra il w ay, a n d s u b s titu te s a c o n trib u tio n from th e railw ay 1. T h e a n n u itie s are to be deriv ed from tw o sources: co m p an y , as s e t o u t in th e follow ing p a ra g ra p h s: (1 ) T h e G erm an R ailw ay Co. T h e railw ay co m p an y shall be u u d er an o b ligation (2 ) T h e B u d g et of th e R eich. to p a y for 3 7 y ears a d ire c t ta x com prising, if neces T h e co m m ittee, a fte r a careful e x a m in atio n of th e sa ry , th e tr a n s p o rt ta x , to a n a n n u a l a m o u n t of 6 6 0 , p roposals p u t fo rw ard b y th e G erm an ex p erts, w ere 0 0 0 ,0 0 0 reich sm ark s, being e q u al to th e a n n u a l a m o u n t 1 Greece, Portugal, Poland, Rumania, Serbia, Japan, and the United of th e n o n p o stp o n a b le a n n u ity . T h is ta x shall be States of America. im posed b y G erm an legislation, a n d th e re c e ip ts 10 th erefro m g u a ra n te e d b y th e G erm an G o v e rn m e n t. T h e railw ay c o m p an y shall d ep o sit w ith th e B an k fo r In te rn a tio n a l S e ttle m e n ts a certificate acknow ledging its lia b ility in re sp e c t of th is ob lig atio n . T h e a m o u n t p a y a b le sh all be raised fro m th e gross revenues of th e c o m p an y , ra n k in g a fte r th e e x p e n d itu re on personnel, a n d on th e sam e fo o tin g w ith e x p en d itu re on m a te ria l a n d co n su m ab le sto re s. I t shall en jo y p iio rity o v er a n y o th e r ta x now levied on th e railw ay co m p an y , or w hich m a y be lev ied in th e fu tu re , a n d shall ra n k p rio r to a n y o th e r ch arg e, by w ay of m o rtg a g e or otherw ise, on th e c o m p an y . I t sh all be p a id d ire c t b y th e ra ilw a y c o m p an y to th e a c c o u n t of th e B a n k for In te rn a tio n a l S e ttle m e n ts a t th e R e ic h sb a n k in in s ta ll m e n ts as laid dow n in p a r t 8. T h e foregoing co n d itio n s shall be in c o rp o ra te d in th e law gov ern in g th e railw ay c o m p an y . I t shall be one of th e d u ties of th e o rg an izatio n c o m m itte e p ro p o sed in A nnex V of th is re p o rt to m ak e su ita b le pro v isio n w h ereb y th e p riv a te a n d in d e p e n d e n t c h a ra c te r of th e G erm an R ailw ay C o., in clu d in g its a u to n o m o u s a d m in is tra tio n in econom ic, financial, a n d p ersonn el m a tte rs , shall co n tin u e for th e p erio d of th e p la n w ith o u t in te rfe re n c e fro m th e G erm an G o v ern m e n t. 3. T he tra n s p o rt ta x .— In a d d itio n to th e 0 6 0 ,0 0 0 ,0 0 0 gold m a rk s now p a y a b le d ire c tly b y th e railw ay com p a n y , th e D aw es p la n re q u ires a c o n trib u tio n to th e s ta n d a rd a n n u ity of 2 9 0 ,0 0 0 ,0 0 0 gold m a rk s o u t of th e a c tu a l yield of th e tra n s p o rt ta x . T h is ta x is im posed b y th e G erm an G o v ern m en t, a n d th e G erm an R ailw ay C o m p a n y collects it fo r th e G o v e rn m e n t. T h e to ta l yield of th e tra n s p o rt ta x , now co n sid erab ly in excess of 2 9 0 ,0 0 0 ,0 0 0 gold m a rk s, a p p e a rs am o n g th e receip ts of th e b u d g e t of th e R eich, a n d th e c o n trib u tio n of 2 9 0 ,0 0 0 ,0 0 0 a p p e a rs am o n g its e x p en d itu res. U n d er th is p la n th e d ire c t ta x on th e railw ay c o m p an y com prises, if necessary , th e tra n s p o rt ta x w hich is o th e r wise reliev ed fro m a n y special ch arg e on a c c o u n t of re p a ra tio n s. 4. T he c h arg e on G erm an in d u s trie s .— U n d er th e in d u s tria l ch arg es law e n a c te d in acco rd an ce w ith th e D aw es p la n , bo n d s a g g re g a tin g 5 ,0 0 0 ,0 0 0 ,0 0 0 gold m a rk s h a v e been issued in re sp e c t of th e G erm an in d u strie s b y th e B a n k fo r G erm an In d u s tria l D e b e n tu re s to th e tru s te e fo r th e G erm an in d u stria l d eb en tu re s. T h ese bo n d s b e a r in te re s t a t 5 p e r c e n t p e r a n n u m a n d c a rry a c u m u la tiv e sin k in g fu n d of 1 p e r c e n t p e r a n n u m w hich first b ecam e o p e ra tiv e S e p te m b er 1, 1 9 2 7 , p rin c ip a l, in te re st, a n d sin k in g fu n d being g u a ra n te e d b y th e G o v e rn m e n t of th e R eich . T h e p re s e n t c o n trib u tio n to th e a n n u ity fro m th e in d u stria l d e b e n tu re s th u s a m o u n ts to 3 0 0 ,0 0 0 ,0 0 0 gold m a rk s. T his p a rtic u la r ch arg e in no w ay differs fro m o rd i n a ry ta x a tio n , sav e in th e com p licatio n s i t involves in legislatio n a n d th e m a c h in e ry of collection. W e reco m m en d t h a t i t be d isco n tin u e d a n d t h a t its d isap p ea ra n c e be ta k e n in to a c c o u n t in d is trib u tin g 11 th e relief from ta x a tio n w hich th is p la n will enable th e G erm an G o v e rn m e n t to b rin g in to effect. 5. The ch arg e on th e b u d g e t of th e R eich.— U nder th e D aw es p la n th e c o n trib u tio n fro m th e b u d g e t of th e R eich in th e fifth o r c u rre n t a n n u ity y e a r a m o u n ts to 1 ,2 5 0 ,0 0 0 ,0 0 0 gold m a rk s, o r on e-h alf of th e to ta l s ta n d a rd a n n u ity . T h is c o n trib u tio n is a charge on th e b u d g e t as a w hole specifically secured by th e a ssig n m en t of th e rev en u es from c u sto m s, beer to b acc o , su g ar, a n d alcohol to th e C om m issioner of C ontro lled R evenues. T hese rev en u es a re p aid by th e collecting offices d irectly in to th e a c c o u n t of th e com m issioner a t th e R e ich sb an k . As e a rly as p racticab le in each m o n th , o u t of th e fu n d s a c c u m u la te d in his acc o u n t, th e com m issioner p a y s in to th e a c c o u n t of th e A gent G eneral a t th e R eich sb an k o n e-tw elfth of th e a n n u a l c o n trib u tio n from th e b u d g e t, a n d th e re a fte r in each m o n th th e rev en u es a re a u to m a tic a lly tra n sfe rre d b y him to th e a c c o u n t of th e G erm an G o v e rn m en t a t th e R eich sb an k . U n d er th is p lan th e p ro ced u re to be follow ed will be w orked o u t in d e ta il by th e a p p ro p ria te o rg an izatio n co m m itte e pro p o sed in A nnex V, reg ard bein g h ad so fa r as necessary to th e a rra n g e m e n ts w hich m ay be a ccep ted by th e tru ste e s of th e 1 9 2 4 loan. As th e a m o u n t c o n trib u te d b y th e G erm an R ailw ay co n tin u es fo r 3 7 years a t th e fixed level of 6 6 0 ,0 0 0 ,0 0 0 reich sm a rk s a y e a r, th e charge on th e b u d g e t of th e R eich varies w ith th e to ta l a m o u n t of th e a n n u ity . In th e second y e a r it sta n d s a t th e figure of 1 ,1 3 6 ,4 0 0 ,0 0 0 reich sm a rk s a n d rises to a m ax im u m of 1 ,7 6 8 ,8 0 0 ,0 0 0 reich sm a rk s in th e th irty -se v e n th y e a r. T h e re a fte r th e c o n trib u tio n from th e railw ay co m p an y ceases, th e a n n u ity falls fh a rp ly a n d th e b u d g e t c o n trib u tio n covers th e w hole of th e G erm an lia b ility fo r th e re m a in d e r of th e p la n . T h e a v erag e in crease in th e b u d g e ta ry c o n trib u tio n d u rin g th e first 2 0 y e ars is a b o u t 2 4 ,0 0 0 ,0 0 0 reich sm ark s a n n u a lly , o r a b o u t 0 .2 4 of 1 p e r c e n t of th e to ta l revenues of th e b u d g e t of th e R eich, w hich a t p re se n t a re ju s t u n d e r 1 0 ,0 0 0 ,0 0 0 ,0 0 0 . T h is m o d e ra te a n d g ra d u a l in crease in th e b u d g e ta ry c o n trib u tio n u n d e r th e d efinitive s e ttle m e n t p la n o u g h t to be m e t in o rd in a ry y ea rs w ith o u t recourse to a d d itio n a l ta x a tio n . In d eed , th e su b s ta n tia l red u c tio n of th e b u d g e ta ry c o n trib u tio n as co m p ared w ith th e D aw es p la n m ak es possible an im m e d ia te re su m p tio n of th e ta x -re d u c tio n p ro g ram w hich has been in progress since 1 9 2 4 . T h e co m m ittee hope t h a t such fu rth e r ta x re d u c tio n s, coupled w ith a defin itiv e re p a ra tio n se ttle m e n t, will give a stro n g stim u lu s to sav in g a n d th e re b y m a te ria lly a ssist in th e in te rn a l fo rm a tio n of th e new c a p ita l w hich G erm any still req u ires. P A R T 8 (b ) PROGRESSION T h e a u th o rs of th e D aw es p la n b elieved t h a t th e y could c o u n t u p o n a c e rta in , s u b s ta n tia l a n d progressive in crease in th e p ro sp e rity of G erm an y , arising n o t only from th e em p lo y m en t of th e rap id ly increasing w ealth of t h a t c o u n try , b u t also from th e ste a d y progress of w orld p ro s p e rity , a n d th is belief fou n d expression in th e device of a n index of p ro s p e rity . T h e p la n con te m p la te s t h a t th e a m o u n ts w hich G erm an y p ay s u pon a fixed scale shall increase, g enerally speaking, y e a r b y y e a r u n til 1 9 6 6 , reflecting in som e sm all m easu re th is a n tic ip a te d increase in h e r p ro sp erity . H ow ever, th e a n n u itie s pro p o sed a re to s t a r t a t a level w hich n o t only gives im m e d ia te a n d im p o rta n t relief to th e G erm an b u d g e t, to h e r exchange p o sitio n an d to h e r need for ad d itio n a l in te rn a l fo rm a tio n of ca p ita l, as co m pared w ith th e s ta n d a rd D aw es a n n u ity of 2 ,5 0 0 ,0 0 0 ,0 0 0 gold m ark s, b u t also p ro v id es th e g re a te st possible assu ran ce t h a t th e new schem e will fu n ctio n from th e beginning w ith o u t a n y h itc h or d istu rb a n c e . P A R T 8 (c) T H E N O N P O S TP O N AB LE A N N U IT IE S N o t th e le a s t difficult p a r t of th e ta s k w as th e d e te rm in a tio n of th e figure w hich G erm an y could im m ed iately u n d e rta k e as a final a n d u n co n d itio n al o b lig atio n . T h e p o in t a t w hich difficulties m ig h t begin to arise in m ak in g tra n sfe rs in to foreign currencies is n o t ex actly definable in ad v an ce; b u t every care has been ta k e n to be so fa r w ith in th is lim it as to rem ove ev ery p o ssib ility of th e risk of e rro r. W e recognize t h a t in fixing th e figure p a y a b le b y G erm an y in foreign currencies, w ith o u t a n y rig h t of p o stp o n e m e n t w h atev er, a t 6 6 0 ,0 0 0 ,0 0 0 reich sm a rk s, w e h av e ta k e n a con se rv a tiv e a m o u n t. B u t w e are satisfied t h a t it is w iser d elib erately to u n d e re s tim a te th a n to ru n th e slig h te st risk of w eakening G erm an c re d it b y p ro posing a figure w hich m ig h t n o t co m m and in s ta n t accep tan ce b y w ell-inform ed p ublic opinion. P A R T 8 (d) T H E PO STPO N AB LE A N N U IT IE S In a d d itio n to th e u n co n d itio n al p a r t of th e a n n u ity we pro p o se a p o stp o n a b le p a r t, tra n s fe r of w hich m ay in c e rtain circu m stan ces, se t o u t below , be p o st pon ed for a period n o t exceeding tw o y ears. T his p o stp o n ab le p a r t of th e a n n u ity is designed to m eet th e situ a tio n w hich m ig h t arise in a perio d of special econom ic difficulty a n d d istress. T h ere will be o th e r w ays of m eetin g such a situ a tio n , a n d if th e y are ap p lied our view is t h a t recourse to th is a b n o rm al m easu re will n o t in fa c t p ro v e to be necessary. N e v e r th eless, as a n ad d itio n a l p re c a u tio n it is v alu ab le to G erm an y a n d pro v id es by its very existence a safe g u a rd a g a in s t th e dan g ers w hich too rigid a fram ew ork m ig h t h a v e called in to existence. P A R T 8 (e) M EASURES OF SAFEGUARD T h e essence of th e ad d itio n a l m arg in of sa fe ty given to a p a r t of th e a n n u itie s lies in th e pow er to p o stp o n e tra n sfe r. W e are recom m ending, in o rd er to p ro te c t G erm an y a g a in s t th e possible consequence of a com p a ra tiv e ly sh o rt perio d of depress on, w hich m ig h t, for in te rn a l or ex tern al reasons, p u t such a severe stra in on th e exchanges as w ould m ak e th e process of tra n sfe r a b ro a d dan g ero u s, t h a t th e G erm an G o v ern m en t should h av e th e rig h t, on giving 9 0 d a y s ’ notice, to p o stp o n e tra n sfe rs fo r a period n o t exceeding tw o y ears u n d e r co n d itio n s se t o u t in A nnex IV . D u rin g th e p eriod of p o stp o n e m e n t th e liab ility of th e G erm an G o v ern m en t w ith reg ard to th e sum s affected w ould in th e first in sta n c e be lim ited to p a y m e n t in reich s m ark s to th e a c c o u n t a t th e R eich sb an k of th e B ank for In te rn a tio n a ] S e ttlem en ts; u n d e r c e rtain conditions p a r t of th is p a y m e n t m ay also be w ith h eld . U pon th e d e cla ratio n of an y p o stp o n e m e n t th e B ank for In te rn a tio n a l S e ttlem en ts shall convene th e special ad v iso ry co m m itte e . A t a n y o th e r tim e w hen th e G erm an G o v ern m en t d eclare to th e c red ito r G overn m en ts, a n d to th e B an k for In te rn a tio n a l S e ttlem en ts t h a t th e y h av e com e to th e conclusion in good fa ith t h a t G e rm a n y ’s exchange a n d econom ic life m ay be seriously en d an g ered by th e tra n s fe r in p a r t or in full of th e p o stp o n ab le p o rtio n of th e an n u itie s, th e com m itte e shall also be convened. U pon being convened th e special ad v iso ry co m m ittee shall fo rth w ith consider th e circu m stan ces a n d con d itio n s w hich h av e led u p to th e necessity fo r p o stp o n e m en t, or h av e c re a te d a situ a tio n in w hich G erm an y considers t h a t h er exchange a n d econom ic life m ay be seriously endangered b y fu rth e r tra n sfe rs of th e p o s t po n ab le p o rtio n of th e a n n u ity , a n d m ak e a full in v e s ti g atio n of G e rm a n y ’s position in reg ard to h e r obliga tio n s u n d e r th is p la n . In th e ir re p o rt to th e G o v ern m e n ts a n d to th e b a n k , h av in g (in case of a p o stp o n e m e n t of tra n sfe r) satisfied th em selv es t h a t th e G erm an a u th o ritie s h av e used ev ery effort in th e ir pow er to fulfill th e ir oblig atio n s, th e y shall in d ic a te for co n sid era tio n b y th e G o v ern m en ts a n d th e b a n k w h a t in th e ir opinion a re th e m easures t h a t should be ta k e n in regard to th e ap p lic a tio n of th e p re s e n t p lan . I t shall fu rth e r be th e d u ty of th e b a n k d u rin g a p o stp o n e m e n t of tra n s fe r to d ire c t, in co n ju n ctio n w ith th e R eich sb an k , th e em p lo y m e n t of th e reich sm ark s p a id to its a c c o u n t a t th e R eich sb an k b y th e G erm an G o v e rn m e n t. (See sec. 6 of A nnex I to th is re p o rt.) T h e follow ing p a ra g ra p h s sk etch th e o rg an izatio n of th e special ad v iso ry co m m itte e of th e B ank for I n te r n a tio n a l S e ttle m e n ts, referred to in th e preceding p a r a grap h s: (I) T h e c o m m ittee shall a c t in a p u rely c o n su lta tiv e ca p a c ity . I t s findings shall h av e no effective force unless confirm ed a n d a ccep ted b y th e b a n k as tru s te e 13 12 of th e cred ito rs, a n d if necessary b y th e G o v ern m en ts concerned. (2 ) T h e co m m itte e sh all p lay no p a r t in conn ectio n w ith th e u n c o n d itio n a l a n n u ity a c c e p te d b y G e rm an y a n d referred to in th e p lan as th e “ u n co n d itio n al a n n u ity .” (3 ) T h e co m m itte e shall be convened b y th e b a n k according to th e rules of its ow n c o n stitu tio n w hen no tice sh all be receiv ed from th e G erm an G o v ern m en t. I t shall n o t be re q u ire d to m e e t a t a n y o th e r tim e . (4 ) T h e co m m itte e sh all co n sist of seven o rd in a ry a n d fo u r co o p ted m em b ers. T h e o rd in a ry m em b ers shall be n o m in a te d one b y each of th e follow ing: T h e governors of th e R eic h sb a n k , th e B a n q u e de F ra n c e , th e B an k of E n g la n d , th e B an q u e N a tio n a le d e B el gique, th e B an ca d ’lta lia , th e B a n k of J a p a n , a F ed eral reserve b a n k of th e U n ite d S ta te s, or som e o th e r agreed A m erican fin an cial in s titu tio n . In th e la s t tw o cases such no m inee being o rd in arily re sid e n t in E u ro p e or in a p o sitio n to give p ro m p t a tte n d a n c e on a m e e t ing of th e co m m itte e being called. T h ese nom inees of th e g o vernors of th e b a n k s shall n o t be officially co n n ected w ith th e b a n k in g in s titu tio n s in q u estio n nor w ith th e G o v e rn m e n t d e p a rtm e n ts of th e ir re sp ectiv e co u n trie s. A fte r being su m m o n ed th e y m a y , if th e y so desire, c o o p t n o t m o re th a n fo u r a d d itio n a l m em bers w ith th e in te n t t h a t special a sp ects, w h e th e r in finance, exchange, in d u s try , e tc ., of th e p a rtic u la r s itu a tio n in q u estio n shall be re p re se n te d . D u rin g th e course of th e p roceedings a n d u n til th e re p o rt is m ad e th e co o p ted m em b ers shall be eq u al in all o th e r resp ects to th e o rd in a ry m em b ers, b u t th e y shall th e re a fte r be d isch arg ed fro m office. (5 ) T h e co m m itte e m a y pro ceed b y w ay of h e arin g evidence o r ask in g fo r d o cu m en ts as it m a y desire, b u t th e p re sid e n t of th e R eich sb an k , an d /o r a n y o th e r person n o m in a te d b y th e G erm an G o v e rn m e n t, m a y a p p e a r before o r su b m it to th e co m m itte e th e reasons for w hich a p o stp o n e m e n t has been d ecla red or m eas ures are d esirab le as in d ic a te d ab o v e. T h e c o m m itte e shall n e ith e r g ra n t n o r refuse a p o st p o n em e n t. A fter m a k in g in q u iry , it shall re p o rt to th e G o v ern m e n ts a n d th e b a n k as in d ic a te d ab o v e. (6 ) U nless oth erw ise a rra n g e d b y co n sen t, th e ex penses of th e special a d v iso ry c o m m itte e shall be b o rn e by th e G erm an G o v e rn m e n t. P A R T 8 (f) DELIVERIES IN KIND T h e sy ste m of deliveries in k in d u n d e r th e D aw es p lan h as com e to p la y a n im p o rta n t role in th e econom ic life of G e rm a n y . W e w ould n o t su g g est th e u n lim ite d c o n tin u a tio n of th is sy stem , w hich is open to m a n y o bjectio n s of a p ra c tic a l as well as a th e o re tic a l n a tu re . W e h av e fe lt, how ever, t h a t its im m e d ia te cessatio n w ould n o t be in th e in te re sts of G erm a n y n o r of th e c re d ito r pow ers, a n d t h a t i t w ould im pose difficulties u p o n th e e x p o rt tr a d e of G e rm an y w hich m ig h t be in ju rio u s to h e r c a p a c ity to tra n sfe r. W e th erefo re reco m m en d t h a t th e p rin cip les of th e D aw es p lan w ith reference to deliveries in k in d sh o u ld co n tin u e in existence fo r a lim ite d p erio d , a n d t h a t th e cre d ito r n a tio n s sh o u ld agree fo r a p erio d of 1 0 y ears to ab so rb b y th is m eans, in re sp e c t of each y ea r, a lim ited a n d d ecreasing a m o u n t of th e p o stp o n a b le p o rtio n of th e a n n u ity , s u b s ta n tia lly in acco rd an ce w ith th e follow ing tab le: Reichsmarks F irs t y e a r ____________________________ Second y e a r_____ _____________________ T h ird y e a r____________________________ F o u rth y e a r____ ______________________ F ifth y e a r____________________________ S ix th y e a r.......................... S e v e n th y e a r__________________________ E ig h th y e a r___________________________ N in th y e a r____________________________ T e n th y e a r____________________________ 7 5 0 ,0 0 0 ,0 0 0 700, 000, 000 650, 000, 000 600, 000, 000 550, 000, 000 500, 000, 000 450, 000, 000 400, 000, 000 350, 000, 000 300, 000, 000 T h e foregoing ta b le to be a d a p te d to th e a c tu a l a n n u itie s of th e new p la n w ith o u t in creasin g th e to ta l. T h e c re d ito r pow ers, b y a rra n g e m e n ts effected am o n g th em selv es, w ill fix th e p ro p o rtio n s in th e to ta l of each y e a r’s volum e of deliveries in k in d (including deliveries u n d e r re p a ra tio n reco v ery a c ts o r an y e q u iv a le n t sy ste m s u b s titu te d th e re fo r by a g reem en t u p to 2 3 .0 5 p e r c e n t fo r G re a t B rita in a n d 4 .9 5 p e r ce n t fo r F ra n c e of th e to ta l a m o u n t p ro v id ed fo r each y ear) w hich each of th e m will receive. T h e B an k fo r In te rn a tio n a l S e ttle m e n ts sh all m an ag e th e d isb u rse m e n ts on deliv eries-in -k in d a c c o u n t, an d in m a k in g d is trib u tio n s of cash to th e c re d ito r c o u n tries shall h a v e d u e reg ard fo r th o se p o rtio n s of th e a n n u ity wdiich are re s tric te d to p a y m e n ts fo r d eliveries in k in d . T h e co m m itte e also reco m m en d s t h a t new re g u latio n s be a d o p te d b y th e G o v e rn m e n ts m o d ify in g th e W allen berg re g u la tio n s to conform to th e new p la n an d , so fa r as p ra c tic a b le , sim plifying a n d liberalizin g th e m . T h e co m m itte e reco m m en d s t h a t pro v isio n be m ad e in th e new reg u la tio n s p e rm ittin g th e sev eral pow ers to dispose of som e p a r t of th e ir resp ectiv e q u o ta s of deliveries o u tsid e of th e ir ow n te rrito rie s u n d e r su ita b le re stric tio n s. T h e p ro p o sed re p a rtitio n of th e d eliveries in k in d am o n g th e sev eral c re d ito r pow ers is c o n ta in e d in A nnex V II, dealing w ith re p a rtitio n of th e a n n u itie s. PA RT 9 L iq u id a t io n of the P a st In o rd e r to a rriv e as ra p id ly as possible a t a g en eral liq u id a tio n of th e fin an cial q u e stio n s raised b y th e w ar a n d th e su b se q u e n t tr e a ty of p eace, a liq u id a tio n w hich alone can insure th e definite re tu rn of E u ro p e to norm al financial a n d econom ic conditions, th e co m m ittee rec om m ends th e clearing up of th ese q u estio n s in a b ro ad sp irit of m u tu a l concession. W e u n d e rs ta n d t h a t a s e ttle m e n t on th ese lines will re n d e r obsolete th e acco u n ts betw een th e R e p a ra tio n C om m ission a n d G erm an y re la tin g to tra n sa c tio n s p rio r to th e period of th e D aw es p lan , to g e th e r w ith all acco u n ts involving cred its a g a in st th e original c a p ita l d e b t. W e are stro n g ly of th e opinion t h a t these acco u n ts should be closed a t th e earliest m o m en t. T h e c red ito r G o v ern m en ts, u n d e r th is p lan , will be red u cin g th e w hole b ody of th e ir claim s arising o u t of th e w ar or u n d e r th e tr e a ty of V ersailles to a con siderable e x te n t. T h e ex p erts of th e c red ito r countries are aw are t h a t p a s t tra n sa c tio n s h av e given or m ay give rise to claim s b y G erm an y , som e of w hich are still u n se ttle d , an d , w hile th e y a re n o t able to go in to th e m erits of th ese claim s, th e y consider t h a t th e c red ito r G o v ern m en ts are fully e n title d to ex p ect t h a t G erm any should w aive th e m in co n sid eratio n of th e consolidation of th e cre d ito rs’ claim s a t a red u ced figure. A ny o th e r course w ould be in c o n sisten t w ith th e ir in te n tio n th a t , ju s t as th e new a n n u itie s cover all th e claim s defined in P a r t X I of th e D aw es p lan , so th e y should be p aid free of d ed u ctio n in resp ect of a n y p a s t tran sa c tio n s. T h e co m m ittee recognizes, how ever, t h a t th is is en tirely a m a tte r for th e G o v ern m en ts to deal w ith . T o assure th e g eneral confidence indisp en sab le for th e successful w orking of th is p la n , th e co m m ittee recom m ends t h a t th e G o v ern m en ts m ak e no fu rth e r use, from th e d a te of th e a ccep tan ce of th is re p o rt, of th e ir rig h t to seize, re ta in a n d liq u id a te p ro p e rty , rig h ts a n d in te re sts of G erm an n a tio n a ls or com panies con tro lled b y th e m in so fa r as n o t a lre a d y liq u id or liq u i d a te d or finally disposed of, a n d t h a t th e o u ts ta n d in g q u estio n s concerning such p ro p e rty should be definitely cleared u p w ith in one y e a r a fte r th e com ing in to force of th is p la n b y a rra n g e m e n ts b etw een th e G o v ern m en ts concerned a n d G erm an y . T h is reco m m en d atio n n a t u ra lly h as no ap p lic a tio n in cases w here special s e t tle m e n ts h av e a lread y been m ad e. T h e accep tan ce of th is p la n necessarily involves th e dissolution of th e jo in t lia b ility of G erm an y on th e one side w ith A u stria, H u n g a ry a n d B u lg aria on th e o th e r side for re p a ra tio n a n d th erefo re finally abolishes ev ery o b lig atio n , p re s e n t or fu tu re , in e ith e r d irectio n w hich m ay re s u lt betw een th ese pow ers from th is jo in t lia b ility . T h e co m m ittee reco m m en d s in p a rtic u la r t h a t th e cre d ito r pow ers sh ould a b sta in from recovering th e cred its of G erm an y a g a in s t h er ex-allies referred to in a rtic le 2 6 1 of th e tr e a ty of V ersailles, G erm an y for h er p a r t ren o u n cin g a n y n e t balan ce w hich m ig h t be d ue to h e r as a re s u lt of th ese cred its. In th e ir u n an im o u s desire t h a t th e rem ain in g financial q u estio n s arisin g o u t of th e w ar sh o u ld be se ttle d as 64497— 29---- 3 soon as possible, in o rd er to p ro m o te th e sp irit of in te r n a tio n a l h arm o n y a n d co llab o ratio n , th e e x p erts u n a n i m ously reco m m en d to th e c re d ito r G o v ern m en ts th a t , w ith in th e first y e a r of o p e ra tio n of th e new p lan , th e y com plete th e w ork of th e e x p e rts’ c o m m ittee b y dealing w ith a n d disposing of th e claim s a n d d e b ts for ceded p ro p e rtie s a n d lib e ra tio n bo n d s, held in th e h a n d s of th e R e p a ra tio n C om m ission a g a in s t th e so-called succes sion S ta te s. T h is q u estio n is referred to in A nnex V II. PA RT 10 C o m m e r c ia l iz a t io n and M o b il iz a t io n H av in g recom m ended th e c reatio n of th e B a n k for In te rn a tio n a l S e ttle m e n ts in o rd er to p ro v id e m a chinery for th e rem oval of th e re p a ra tio n o b lig atio n from th e p o litical to th e financial sp h ere, we h av e fu r th e r con sidered w h a t p ro ced u re is n ecessary in o rd er to assim i la te th is o b lig atio n as closely as possible to a n o rd in a ry com m ercial o b lig atio n ( “ c o m m ercializatio n ” ) . F u rth e r, c e rta in G o v ern m en ts are know n to a tta c h p a rtic u la r im p o rta n c e to th e p o ssib ility of raisin g m oney b y th e issue to th e pu b lic of b onds rep re se n tin g th e cap ita liz a tio n of th e u n c o n d itio n al p o rtio n of th e a n n u ity ( “ m o b iliz a tio n ” ). I t is, of course, n o t w ith in o u r pow er to ad v ise as to th e tim e a t w hich such issues can be m ad e w ith a d v a n ta g e o r as to th e te rm s a n d co n d itio n s on w hich issues should be m ad e. T h e a rra n g e m e n ts to be m ad e w ould, no d o u b t, v a ry acco rd in g as, fo r exam ple, a n issue is to be m ad e for cash in th e general in te re s t of all th e cre d ito r G o v ern m en ts, or an in te rn a l issue is to be m ad e in one single c o u n try b y w ay of conversion of g o v ern m en t d e b t. I t w ill be th e p ro v in ce of th e b a n k itself to ad v ise u pon such m a tte rs ; b u t we h av e th o u g h t i t necessary to advise a fram ew o rk w ith in w hich th e se o p eratio n s m ay ta k e place. T h is fram ew ork is given in A nnex I I I . I t p ro v id es, first, t h a t th e a n n u itie s them selves shall be re p re se n te d by a G erm an G o v e rn m e n t certificate of in d e b te d n e ss d ep o sited w ith th e b a n k , sim ilar to th o se in use in o rd in a ry com m ercial p ra c tic e (a p ro p e r d is tin c tio n being m ade in th e coupons b etw een th e c o n d itio n al a n d u n c o n d itio n al p o rtio n s of th e a n n u ity ). T h e p ro visions reg ard in g se c u rity are given in th e an n ex , a n d th e co n d itio n s in w hich m obilizable b o n d s sh ould be c re a te d a n d issued are defined. O ne of th e m o st im p o rta n t provisions of th is schem e is t h a t a n n u ity m oneys sh o u ld be d is trib u te d b y th e b a n k in s tric t p ro p o rtio n to th e rig h ts of each p a r ty — w h eth er G o v e rn m e n t or b o n d h o ld er. As fa r as, acco rd in g to th e co n d itio n s of th e issue, re p a ra tio n lo an s (general or conversion loans) are su b je c t to an a n tic ip a te d re d e m p tio n , G e rm a n y sh ould be e n title d to red eem th ese loans; th e p a r t of th e a n n u ity d e stin ed for th e service of th e redeem ed lo an will th en accrue to her. T h e w ish has been expressed th a t , so 14 fa r as possible, re p a ra tio n lo an s w ill n o t be issued w ith o u t g ra n tin g th e d e b to r a n a p p ro p ria te rig h t of a n tic ip a te d re d e m p tio n . W e reco m m en d t h a t G e rm an y sh o u ld also h a v e th e rig h t to red eem all or a n y p a r t of n o t y e t m obilized a n n u itie s on a basis of p e r c e n t d isc o u n t. P A R T 11 T he N e w P l a n C o n t r a s t e d W it h the D a w e s P lan T h e D aw es p la n , a lth o u g h d raw n u p a t a tim e of in te n se crisis, h as b y a te s t la s tin g o v er n e a rly five y ears ju stified b y fac ts th e p o stu la te s on w hich i t w as b ased as re g a rd s b o th th e re s to ra tio n of th e p ublic finances of G erm an y a n d h e r econom ic reco v ery . I t m a y be well to su m m arize briefly th e p o in ts of a d v a n ta g e — w h e th e r to G erm a n y o r h e r cre d ito rs— claim ed fo r th e new p ro p o sal, w hich ju s tify a d e p a rtu re from a schem e t h a t has in th e p a s t ren d e re d signal service. T h e p la n d raw n u p b y th e c o m m itte e to afford a definite so lu tio n of th e re p a ra tio n q u e stio n accom p an ies a re d u c tio n in th e existing o b lig atio n s of G er m a n y b y a n essen tial m odification in th e ir financial a n d p o litic a l s ta tu s . In so fa r as th e c red ito rs a re relin q u ish in g su b s ta n tia l a d v a n ta g e s in th e face v alu e of p a y m e n ts d u e u n d e r th e D aw es p la n , th e y are doing so o nly b y reaso n of th o se im p ro v e m e n ts in in trin sic a n d av a ila b le v alu es w hich arise from th e p ra c tic a b ility a n d c e rta in ty of co m m ercializatio n a n d m obilizatio n w ith in a reaso n ab le p erio d a n d in its a tte n d a n t financial a n d econom ic psychology. A m ong th e m odifications w hich a re considered specially im p o rta n t are th e follow ing: 1. Fix atio n of th e p erio d a n d th e d e b t.— T h e D aw es p la n im poses, in v irtu e of th e index of p ro sp e rity , in creasing a n n u itie s, of w hich th e n u m b e r is n o t fixed. T h e new p ro g ra m in d icates a definite n u m b e r of fixed a n n u itie s. 2 . D isa p p e a ra n c e of th e in d e x of p ro sp e rity .— O nly estim a te s, w hich v a ry v e ry w idely, of th e u ltim a te effect of th e in d ex of p ro sp e rity can a t th is d a te be m ade. B u t in no circu m stan ces could G erm a n y b en efit th e re from , a n d th e d isap p e a ra n c e of th is e lem en t of u n c e r ta in ty is w holly to h er benefit. 3. A tta in m e n t of financial a u to n o m y .— U n d e r th e D aw es p la n G e rm an y can o nly o b ta in th e d isch arg e of h e r o b lig atio n s in m a rk s b y th e existence of a sy stem of tra n s fe r p ro te c tio n w hich involves a m easu re of e x te rn a l c o n tro l. T h is b rin g s a tte n d a n t lim itin g effects on G erm an c re d it a n d fin an cial in d ep en d e n ce w hich re n d e r difficult, if n o t im possible, a n y m o b ilizatio n of th e G erm an d e b t. T h e new p la n w ould be a b a n d o n in g th e fu n d a m e n ta l p u rp o ses fo r w hich i t w as in te n d e d if it d id n o t cancel th is clause a n d leav e to G erm a n y th e o b lig atio n of facin g h e r en g ag em en ts on h e r ow n u n tra m m e le d resp o n sib ility . 4 . P o stp o n e m e n t s a fe g u a rd s .— N ev erth eless, if an ex cep tio n al em ergency in te rru p ts th e n o rm a l course of econom ic life to w hich th e schem e is a d a p te d , G erm any can , on h e r ow n in itia tiv e , re s o rt to c e rta in m easures of te m p o ra ry relief. T h e a n n u ity is d ivided in to tw o p a rts , of w hich one is su b je c t to p o stp o n e m e n t of tra n sfe r a n d p a y m e n t. G e rm an y will th u s be en ab le d , u n d e r c e rta in circu m stan ces, te m p o ra rily to relieve h e r b a lan c e of p a y m e n ts a n d will, in fa c t, e n jo y th e a d v a n ta g e s of a form of tra n s fe r p ro te c tio n w ith o u t its a tte n d a n t lim itatio n s. 5. D e liv eries.— W hile th e D aw es p la n re lu c ta n tly acc e p te d th e ex p ed ie n t of deliveries in k in d , th e new p lan , in sp ite of th e desire of th e c re d ito r pow ers to dis pose freely of th e ir sh ares of th e a n n u itie s, recognizes th e u n d e sira b ility of a su d d en cessatio n of th e sy stem a t p re s e n t in force. T h e c red ito rs are , th e refo re, to ta k e deliveries in k in d fo r 1 0 y ears, b u t in d ecreasing a m o u n ts, beg in n in g w ith 7 5 0 ,0 0 0 ,0 0 0 . 6. M obilization.— F ro m th e p o in t of view of th e c re d ito r pow ers a n essen tial fe a tu re of th e new p la n , w hich in d u ces th e m to ag ree to re d u c tio n on th e ir claim s t h a t leav e th e m b u rd e n e d w ith a considerable p a r t of th e ir e x p e n d itu re fo r th e d am ag e s caused by th e w ar, is th e fa c t t h a t th e a n n u ity is p a id in a form len d in g itself to m o b ilizatio n . 7 . F in an cial o rg an izatio n .— T h e o rg a n iz a tio n an d m ac h in e ry of th e D aw es p la n w ere b ased on th e con v ictio n t h a t it m u s t find its p ro p e r g u a ra n te e in th e in te re st of all p a rtie s to c a rry it o u t in good fa ith . In aim ing, as it d id , a t th e tra n sfe re n c e of th e re p a ra tio n p a y m e n ts fro m th e p o litical to th e econom ic a n d b u si ness sp h ere, i t p resu m ed c o n s ta n t co o p eratio n of d e b to r a n d c red ito rs alike. T h e new sy ste m goes fu rth e r alo n g th e sam e ro ad , rep lacin g th e c o llab o ratio n of s e p a ra te a d m in is tra tiv e a n d g o v ern m e n ta l o rg an izatio n s b y com m on w ork in a p u re ly financial in s titu tio n , in th e m a n a g e m e n t of w hich G erm a n y is to h a v e a n a p p ro p ria te p a r t. T h e p re se n t a d m in is tra tiv e o rg an izatio n s can n o t h a v e all th e elas tic ity n ecessary fo r b a n k in g tra n sa c tio n s of th e m ag n i tu d e of th e p a y m e n t a n d tra n sfe r of th e a n n u ities; b u t th e new b a n k , in close asso ciatio n w ith th e b a n k s of issue a n d w ith th e b a n k in g facilities a t its com m and, will h a v e all th e n ecessary m ean s of effecting these o p e ra tio n s w ith o u t d is tu rb a n c e to th e G erm an econ om y or to th e econom y of o th e r c o u n trie s. In a d d i tio n , i t will be in a p o sitio n to open u p to tra d e new po ssib ilities of d ev elo p m e n t. T h e o p e ra tio n s w hich it is to u n d e rta k e can n o t be d is tu rb e d o r h am p e red with-r o u t irre p a ra b le d a m ag e to th e c re d it of th e co u n tries co n cern ed . T h is a ssu ra n c e sh o u ld m ak e it p ossible to lim it th e g u a ra n te e s e sta b lish e d u n d e r th e p re s e n t sys te m fo r th e p ro te c tio n of th e rig h ts of th e c red ito rs, to th e m in im u m re q u ire d fo r th e p ro m p t a n d facile co m m ercializatio n of th§ m o b ilizab le p a r t of th e a n n u ity . 15 8. S um m ary.— T h e p ro p o sed p lan co n tin u es a n dindivisible w hole. I t is n o t possible, in o u r opinion, com pletes th e w ork begun by th e D aw es p la n , w hich to ach iev e a n y success b y selecting c e rta in of our th e po sitio n alike of G erm an y a n d of th e o th e r coun reco m m en d atio n s for ad o p tio n a n d reje c tin g th e o th ers, trie s m ad e it im possible to do m ore th a n in d ic a te in a n d w'e w ould desire to ac c e p t no resp o n sib ility for th e o u tlin e in 1 9 2 4 . B y th e final re d u c tio n a n d fixation resu lts of such a p ro ced u re n o r for u n d u e delay in giving of th e G erm an d e b t, b y th e esta b lish m e n t of a p ro g res execution to o u r p la n .” sive scale of an n u itie s, a n d b y th e facilities w hich th e F r a n c q t ji . A . P ir e l l i. new b a n k offers fo r lessening d istu rb a n c e in th e p a y G utt. S u v ic h . m e n t of th e an n u itie s, it sets th e seal on th e inclusion E. M oreau. K en g o M o r i. of th e G erm an d e b t in th e list of in te rn a tio n a l se ttle J . P a r m e n t ie r . T a k a s h i A o k i. m e n ts. If it involves a p p reciab le re d u c tio n of p a y m e n ts D r. H ja l m a r S c h a c h t . O w e n D . Y o u n g . to th e cre d ito r co u n tries on w h a t m ig h t h a v e been a n K a stl. . J. P . M organ. tic ip a te d u n d e r th e c o n tin u e d o p e ra tio n of th e D aw es J . C . Sta m p. T hom as N . P e r k in s . p lan , it a t th e sam e tim e elim in ates th e u n c e rta in tie s C . A d d is . T . W . L am ont. w hich w ere in h e re n t in t h a t p lan a n d w ere equally P a r is , June 7 , 1929. inim ical to th e in te re s t of th e d e b to r a n d to th e credi tors, b y s u b s titu tin g a definite se ttle m e n t u n d e r w hich th e d e b to r know s th e e x act e x te n t of his o bligations. ANNEX I P A R T 12 C o n c l u s io n s I t h as been o u r o b je c t to m ak e proposals for financial o b ligations w hich, w ith th e co nditions a n d safeguards t h a t acco m p an y th e m , shall be w ith in G e rm a n y ’s c a p a c ity to p a y , a n d w e believe t h a t we h a v e achieved th is p u rp o se. W e realize th e resp o n sib ility of th is d ecla ratio n , a n d we recognize how m uch d epends on th e fu tu re a ttitu d e to w ard one a n o th e r of th e peoples w hich, by ra tific a tio n of th e ir resp ectiv e G o v ern m en ts, are to becom e p a rtie s to th is ag reem en t. F o r th e so lu tio n of th e re p a ra tio n p roblem is n o t only a G erm an ta s k b u t in th e com m on in te re s t of all th e co u n tries concerned; a n d it req u ires th e coop eratio n of all p a rtie s. If th e ir a ttitu d e sh ould be tin g ed w ith an tag o n ism , even w ith suspicion, or a desire to create or co n tin u e one-sided econom ic d iscrim in atio n s, a se ttle m e n t p erfectly feasible w ith goodw ill w ould sooner o r la te r e n c o u n te r difficulties, so t h a t th e long, slow, p a tie n t ta s k of re c o n stru c tio n in E u ro p e w ould be definitely re ta rd e d . F o r w ith o u t good fa ith a n d m u tu a l confidence, all ag reem en ts, all g u a ra n te e s, are u n av ailin g . If, on th e o th e r h a n d , o u r p roposals are a d o p te d w ith good will by all concerned, an d th e rest of th e w orld has confidence in th e c o n stru c tiv e valu e of th is m u tu a l accord, th e n , in d eed , th e re can be no reaso n ab le d o u b t t h a t th e a g reem en t will be ca p a b le of co m plete fulfillm ent, a n d th e n a tio n s it con cerns will be b ro u g h t to a hig h er level of econom ic s ta b ility a n d of m u tu a l u n d e rs ta n d in g th a n ever before. F in ally , we w ould p o in t o u t, like o u r predecessors on th e D aw es co m m ittee, t h a t “ we reg ard our re p o rt as an S u g g e s t e d O u t l i n e f o r t h e O r g a n iz a t io n o f B a n k f o r I n t e r n a t io n a l S e t t l e m e n t s the In section 3 of th e follow ing o u tlin e p ro v isio n is-m ad e for a n o rg an izatio n co m m itte e w hich will h a v e th e d u ty of p u ttin g th e b a n k p ro je c t in to effect. T h is o u t line has been d raw n u p for th e benefit of th e o rg a n iz a tio n co m m itte e w hich will h a v e pow er g enerally to m odify its provisions or to m ak e su b s titu tio n s for a n y or all of th e m , p ro v id e d alw ays t h a t such m odifications or s u b s titu tio n s shall n o t be in c o n siste n t w ith th e essential fu n ctio n s of th e b a n k w ith resp ect to th e ex p e rts’ p lan as a w hole. 1. P u rp o se , n a m e , an d lo catio n .— T h e b a n k o rg a n ized u n d e r th is p lan shall be know n as th e B a n k for In te rn a tio n a l S e ttle m e n ts. T h e p u rp o se of th e b a n k is to p ro v id e ad d itio n a l facilities for th e in te rn a tio n a l m o v e m e n t of fu n d s an d to afford a re a d y in s tru m e n t for p ro m o tin g in te rn a tio n a l financial re la tio n s. In connection w ith th e G erm an re p a ra tio n a n n u itie s it shall p erfo rm , as tru s te e for th e cre d ito r co u n tries, th e e n tire w ork of e x tern al a d m in is tra tio n of th is p la n , shall a c t as th e agency for th e re c e ip t a n d d is trib u tio n of fu n d s, a n d shall su p erv ise a n d a ssist in th e co m m ercialization a n d m o b ilizatio n of c e rta in p o rtio n s of th e an n u itie s. I t shall be lo cated in a financial c e n te r h e re a fte r to be d esig n ated . In selecting th e c o u n try of in c o rp o ra tio n d u e co n sid eratio n shall be given to o b ta in in g pow ers sufficiently b ro a d to en ab le it to p erfo rm its fu n ctio n s w ith req u isite freedom a n d w ith su ita b le im m u n ities from ta x a tio n . 2. S h are c a p ita l.— T h e a u th o riz e d c a p ita l of th e b a n k m a y be expressed in th e c u rre n c y of th e c o u n try of dom icile, a n d shall a m o u n t to th e ro u n d e q u iv a le n t of $ 1 0 0 ,0 0 0 ,0 0 0 . U pon th e fo rm a tio n of th e b a n k th e 16 w hole a u th o riz e d c a p ita l shall be issued, b u t only in to effect a te m p o ra ry co m m itte e shall be created 2 5 p e r c en t of each sh a re sh all be th e n p a id in . T h e w hich will be know n as th e “ o rg an iz a tio n c o m m itte e .” b o ard of d irecto rs of th e b a n k shall h a v e pow er to call T h is co m m itte e shall be a p p o in te d b y th e g o vernors of for th e p a y m e n t of fu rth e r in sta llm e n ts; i t shall also th e c e n tra l b a n k s of th e seven c o u n tries to w hich m em h av e th e p ow er to a u th o riz e a n in crease or a re d u c tio n b ers of th e p re s e n t co m m itte e belong. T h e g o v ern o r of each of th e se seven c e n tra l b a n k s sh all be e n title d to in th e to ta l c a p ita l sto c k of th e b a n k . In each c o u n try in w hich th e sh ares of th e b a n k m ay d e sig n ate tw o m em b ers of th e o rg a n iz a tio n co m m ittee be offered fo r sale, th e sh ares shall be issued th ro u g h th e w ith d u e re g a rd fo r th e n ecessity of in clu d in g in its c e n tra l b a n k of t h a t c o u n try or o th e r agency to w hich m em b ersh ip p erso n s v ersed in b a n k in g , th e issue of th e c e n tra l b a n k offers no o b jectio n . In th e seven c o u n bo n d s a n d th e w ork of th e p re s e n t c o m m itte e of e x p erts. If fo r a n y reaso n , th e g o v ern o r of a n y of th e se c e n tra l trie s to w hich m em b ers of th e p re s e n t c o m m itte e belong, issues or a llo catio n s of sh ares sh all alw ay s be m a d e in b a n k s sh all be u n a b le officially or unofficially to desig e q u al a m o u n ts. T h e c e n tra l b a n k s of th e se c o u n tries, n a te m em b ers of th e o rg an iz a tio n c o m m itte e , o r re or b a n k in g g ro u p s n o t o b jected to b y th e m , shall frain s from do in g so, th e g o vernors of th e rem ain in g g u a ra n te e th e su b sc rip tio n of th e w hole of th e first c e n tra l b a n k s shall in v ite tw o fellow n a tio n a ls of th e issue in th e ro u n d e q u iv a le n t of $ 1 0 0 ,0 0 0 ,0 0 0 ; b u t th e y g o v ern o r n o t p a rtic ip a tin g , to a c t as m em b ers of th e m ay agree w ith c e n tra l b a n k s o r g ro u p s in o th e r coun co m m itte e . T h e m em b ers th u s selected shall h av e in trie s (p a rtic u la rly th o se in te re ste d in re p a ra tio n s) t h a t all resp ects a n e q u al v ote in th e w ork of th e co m m ittee a n a m o u n t of th e first issue n o t exceeding th e ro u n d w ith th e m em b ers otherw ise chosen. T h e decisions of e q u iv a le n t of $ -1 ,0 0 0 ,0 0 0 fo r each , a n d n o t exceeding th e o rg an izatio n c o m m ittee shall be ta k e n by a th re e th e ro u n d e q u iv a le n t of $ 4 4 ,0 0 0 ,0 0 0 in all, m a y be q u a rte rs v o te . As an essen tial p a rt of its w ork, th e o rg an izatio n com issued in o th e r c o u n tries. In th e e v e n t of an in crease in th e a u th o riz e d c a p ita l m itte e shall pro ceed w ith d raw in g up a c h a rte r fo r th e a n d a fu rth e r issue of sh a re s, th e d is trib u tio n am o n g b a n k , w hich sh all be co n siste n t w ith th e p ro v isions of • co u n tries shall be d ecided b y a tw o -th ird s m a jo rity of th e p la n , a n d shall ta k e such step s as m ay be necessary th e d irecto rs of th e b a n k on th e a b o v e p rin cip les. In to in su re its tim e ly g ra n tin g o r e n a c tm e n t b y a p p ro p ri p a rtic u la r, th e p e rc e n ta g e of th e to ta l sh ares issued in a te pub lic a u th o ritie s. T h e o rg a n iz a tio n co m m ittee sh all, u n til such tim e th e seven co u n tries first m en tio n e d a b o v e sh all n o t fall as th e b o a rd of d irecto rs of th e b a n k is a p p o in te d a n d below 5 5 . A p a rt from co u n trie s in te re ste d in re p a ra tio n s, only ta k e s office, pro ceed w ith th e p h y sical o rg a n iz a tio n of co u n tries w hich h av e, a t th e tim e a n offering of sh ares th e b a n k . I t shall a rran g e, in acco rd an ce w ith th e p ro is m a d e , a c u rren cy sta b iliz e d on a gold or gold ex ced u re p rescrib ed in section 2, fo r th e su b sc rip tio n of th e change basis m a y p a rtic ip a te . c a p ita l sto ck , a n d , in a c c o rd an ce w ith th e p ro ced u re T h e shares m a y be expressed in th e c u rren cy of th e p rescrib ed in section 4, fo r th e a p p o in tm e n t of th e c o u n try in w hich th e b a n k is dom iciled a n d sh all s ta te b o a rd of d irecto rs. I t sh all call th e first m eetin g of th e a m o u n t of th e sh a re a t th e gold m in t p a rity of th e th e b o ard of d irecto rs a n d d esig n a te th e te m p o ra ry cu rren cy of th e c o u n try in w hich th e y a re issued; c h airm an to presid e a t t h a t m eetin g , p e n d in g th e elec th e y shall be reg istered a n d co n tin u e to be re sig tered , tio n of th e re g u la r c h a irm a n . I t sh all d ra w u p th e b u t m a y be freely n e g o tia te d . T ra n sfe rs of th e sh ares s ta tu te s for re g u la tin g th e a d m in is tra tio n of th e b an k a fte r issue shall n o t affect th e v o tin g pow er reserv ed to a n d su b m it th e m to th e b o a rd of d ire c to rs fo r consid th e c en tral b a n k s as d escribed below . P a y m e n ts to e ra tio n . T h ese s ta tu te s shall m ak e p ro v isio n fo r such th e shareh o ld ers on a c c o u n t of d iv id en d s or a t th e liq u i m a tte rs as are usu al in b a n k in g o rg a n iz a tio n a n d in d a tio n of th e b a n k sh all be m a d e in th e cu rren cy of th e p a rtic u la r p ro v id e for th e follow ing: (1 ) T h e qualificatio n s fo r m em b ersh ip on th e board c o u n try of dom icile. T h e sh ares sh all c a rry no v o tin g rig h ts; b u t v o tin g of d irecto rs; rig h ts corresp o n d in g to th e n u m b e r of sh ares o riginally (2 ) T h e n a tu r e a n d d u tie s of th e p e rm a n e n t com issued in each c o u n try shall be exercised by th e c e n tra l m itte e s of th e b o a rd of d irecto rs, in c lu d in g th e execu b a n k of t h a t c o u n try in th e g en eral m eetin g s of th e tiv e c o m m ittee; b a n k (ta k in g th e p lace of th e g eneral m eetin g s of sh a re (3 ) T h e a d m in is tra tiv e d e p a rtm e n ts to be c re a te d holders) , w hich th e re p re se n ta tiv e s of th e p a rtic ip a tin g w ith in th e b an k ; c e n tra l b an k s will a tte n d . (4 ) T h e tim e a n d place of th e m eetin g s of th e b o ard T h e shares shall be e n title d to p a rtic ip a te in th e of d ire c to rs a n d of th e ex ecu tiv e co m m ittee; p ro fits of th e b a n k as in d ic a te d in th e section “ D is tri (5 ) T h e form to be used fo r th e co n v o catio n of th e b u tio n of P ro fits .” g eneral m eetin g , as well as th e co n d itio n s a n d th e 3. O rganization c o m m itte e .— F o r th e p u rp o se of ta k m e th o d s fo r exercising v o tin g rig h ts on th e p a r t of ing th e p relim in a ry ste p s for p u ttin g th e b a n k p ro je c t re p re se n ta tiv e s of c e n tra l b an k s; 17 (6 ) T h e form of tr u s t certificates w hich th e b a n k one a d d itio n al d irecto r of his ow n n a tio n a lity , being a shall issue to th e c red ito r G o v ern m en ts u n d e r th e plan; rep re se n ta tiv e of in d u s try or com m erce. (7 ) Provisions w ith reg ard to liq u id a tio n of th e (3 ) T h e g overnor of th e c en tral b a n k of each of th e b an k . o th e r co u n tries p a rtic ip a tin g in th e sh are ow nership of T h e o rg an izatio n c o m m itte e shall co o p erate w ith th e b a n k , as p ro v id ed in section 2 of th is o u tlin e, shall th e o rg an izatio n co m m ittees p ro v id e d for in th is fu rn ish a lis t of four c a n d id a te s of his ow n n a tio n a lity p lan . for directorships. 4. D irecto rate a n d m a n a g e m e n t.— T h e e n tire a d m in T w o of th e can d id a te s on each list shall be re p re is tra tiv e co n tro l of th e b a n k shall be v ested in th e b o ard se n ta tiv e of finance an d th e o th e r tw o of in d u s try or of d irecto rs, w hose d u tj’' i t shall be to su p erv ise an d com m erce. T h e governors in qu estio n m ay th e m d irect th e o p eratio n s of th e b a n k a n d in g eneral so selves be in clu d ed in th is list. F ro m th ese lists th e 14 to a c t as to c a rry o u t th o se p u rp o ses of th e p lan com or 16 d irecto rs m en tio n e d in p a ra g ra p h s 1 a n d 2 above m itte d to th e a d m in is tra tio n of th e b a n k . In p a rtic shall elect n o t m ore th a n 9 o th e r directors. ular, th e b o ard of d ire c to rs— (4) F ro m those first a p p o in te d , fo u r groups of five (1) S hall h a v e th e rig h t to a d o p t, m odify, lim it, or d irecto rs shall be chosen by lo t. T h e ir te rm s respec ex ten d th e s ta tu te s of th e b a n k in such a m a n n e r as tiv ely shall end a t th e close of each of th e first, second, shall n o t be in c o n siste n t w ith th e provisions of th e plan ; th ird , a n d fo u rth y ears from th e e sta b lish m e n t of th e (2 ) S hall h a v e th e pow er generally to m odify th e b an k . S u b ject to th is th e te rm of office of th e d irec provisions co n tain ed in th e o u tlin e of th e b a n k ’s o rg an i tors shall be five years, b u t th e y m a y be re a p p o in te d . zatio n or to m ak e su b s titu tio n s for a n y or all of th e m , (5 ) In case of v acan cy in a p o sitio n on th e b o a rd of p ro v id ed alw ays t h a t such m odifications o r s u b s titu d irecto rs arising from d e a th , resig n atio n o r o th e r tions shall n o t be in c o n siste n t w ith th e essen tial fu n c causes, th e vacan cy shall be filled in th e sam e m a n n e r tio n s of th e b a n k w ith resp ect to th e e x p e rts’ p lan as a as prescribed fo r th e original a p p o in tm e n ts. If a w hole a n d w ith its existing engagem ents; v acan cy occurs before th e ex p iratio n of a te rm , it shall (3 ) S hall a p p o in t th e chief ex ecutive officer of th e be filled fo r th e re m a in d e r of th e te rm only. b a n k a n d fix his re m u n e ra tio n ; T h e d irecto rs shall elect a c h airm an a n n u a lly from (4 ) M ay a p p o in t a n ex ecu tiv e c o m m ittee a n d dele am ong th e ir ow n n u m b er. T h e c h a irm a n ’s d u ties shall g a te such pow ers to it as m a y be p ro v id ed for in th e be to presid e a t m eetings of th e b o a rd of d irecto rs. A t s ta tu te s of th e b an k ; th e first m eeting, u n til th e c h airm an shall h av e been (5 ) M ay a p p o in t a d v iso ry co m m ittees to deal w ith elected, a m em b er of th e b o ard selected for th e p u rp o se a n y q u estio n s u pon w hich in fo rm a tio n or ad v ice is by th e o rg an izatio n c o m m ittee shall a c t as c h a irm a n . desired. T h e o rd in a ry decisions of th e b o a rd , in cluding those T h e fu n ctio n s of a d ire c to r a re in co m p atib le w ith in volving elections, shall be m ad e b y a sim ple m a jo rity th o se in v o lv in g n a tio n a l p o litical responsibilities. T h e v o te. In case of a n even division th e ch a irm a n shall s ta tu te s of th e b a n k shall m a k e th e n ecessary provision h av e a deciding v o te. F o r decisions in v o lv in g th e in o rd er to av o id such conflict of fu n c tio n s. All th e a d o p tio n or a m e n d m e n t of s ta tu te s of th e b a n k , m o d i d ire c to is shall be o rd in arily re sid e n t in E u ro p e o r shall fications o r su b s titu tio n s in th e p re s e n t p ro je c t for th e be in a position to give re g u la r a tte n d a n c e a t m eetings o rg an izatio n of th e b a n k , th e d is trib u tio n am o n g of th e b o ard . co u n tries of a d d itio n a l issues of sto ck in th e b a n k , or T h e b o ard of d irecto rs shall be m ad e u p in th e fol o th e r m a tte rs for w hich th e s ta tu te s of th e b a n k m ake low ing m an n er: a p p ro p ria te provision, a tw o -th ird s m a jo rity shall be (1) T h e g o v ern o r (o r, as th e case m a y be, th e chief re q u ired . Should a m em b er n o t be ab le to a tte n d a executive officer) of th e c e n tra l b a n k of each of th e m eetin g of th e b o a rd , i t will alw ay s be open to h im to seven co u n tries to w hich m em bers of th e p re s e n t com em pow er one of his colleagues, b y reg istered le tte r or m itte e belong, o r his nom inee, shall be a d ire c to r of b y te le g ra m , to v o te fo r him a n d on his b eh alf. th e b a n k ex officio. E a c h of th ese governors shall also If decisions of th e b o a rd are d is p u te d on th e g ro u n d ap p o in t one d irecto r, being a n a tio n a l of his c o u n try t h a t th e y are in c o n siste n t w ith th e provisions o r in te n t a n d re p re se n ta tiv e eith e r of finance o r of in d u s try or of th e p la n , recourse m a y be h a d to a rb itra tio n u n d e r com m erce. In case th e g o v ern o r of a n y c e n tra l b an k th e procedures laid dow n in p a r t 8 of th e p lan . shall be u n ab le to a c t e ith e r officially or unofficially T h e chief ex ecutive officer of th e b a n k shall select according to th e provisions of th is p a ra g ra p h , or th e officers an d h ead s of th e d e p a rtm e n ts of th e b a n k . refrain s from doing so, ac tio n shall th e n be ta k e n in F o r th e la tte r th e a p p o in tm e n ts shall be s u b je c t to th e accordance w ith th e a lte rn a tiv e pro ced u re given in a p p ro v a l of th e b o a rd of d irecto rs. section 12 of th is o u tlin e. 5. D ep o sits.— T h e b a n k , in ca rry in g o u t its fu n ctio n s (2) D u rin g th e p eriod of th e G erm an a n n u itie s th e w ith resp ect to th e fa c ilita tio n of in te rn a tio n a l se ttle governor of th e B an k of F ra n c e a n d th e p re s id e n t of m e n ts o r in co n n ectio n w ith th e G erm an a n n u itie s , th e R eich sb an k m a y each a p p o in t, if th e y so desire, shall h av e th e rig h t to receive d ep o sits of a n a tu re 18 consistent therewith. The board of directors or, as it may decide, the executive committee, shall consider applications to open deposit accounts, with authority to determine whether such applications come within the scope of the bank’s functions. Deposits shall be received in only those currencies which satisfy, in the opinion of the board of directors, the practical require ments of the gold or gold-exchange standard. Any classification of deposits which the board of directors may set up shall include: CO Deposits on annuity account.—These deposits the bank receives in its capacity as trustee for the creditor Governments. They shall be managed accord ing to the procedure given in section 8 of this outline. (O Deposits from central banks.—These may be either current account deposits or investment account deposits. (3) Deposits on clearing account.—The bank shall have the right, subject to such terms and conditions as the board of directors may set down, to accept deposits from central banks for the purpose of estab lishing and maintaining a fund for settling accounts among them. Such deposits may take the form of gold deliveries at the counters of the bank or of gold held for its account under earmark by any central bank participating in the fund for clearing accounts. The terms under which central banks may enter the clearing system, the rules and regulations for its operation, and the rates of exchange at which gold is to be accepted as deposits in the clearing fund or to be withdrawn from it, shall be determined by the board of directors of the bank. (4) Deposits originating in the exercise of the bank’s functions in connection with the German annuities and tending to facilitate such functions. —No such account shall be opened without the assent of the central bank of the country of which the prospective depositor is a national. If the governor of the central bank in question (or his nominee) is present and voting at the time the board of directors (or the executive committee) of the bank authorizes the opening of the account, his favorable vote shall be taken as giving the required assent. (5) Deposits constituting guarantee funds as provided in Annex V I I I and relative to the mobilization of the un conditional annuity. —The interest and the share in the profits which will apply to these deposits are provided for in Annex VIII and in the section on profits (11) in this outline. (6 ) Special deposit o) the German Government.— During the first 37 years the German Government shall maintain at the bank a noninterest-bearing deposit equivalent to 50 per cent of the average deposit re maining in the annuity trust account, as described in section 8 of this outline. This German Government deposit will not exceed 100,000,000 reichsmarks. The bank shall have the right to pay interest on deposits, but only on deposits not susceptible of with drawal until at least one month from the time of deposit. The rate of interest to be paid will be deter mined by the board of directors or, as the case may be, by the executive committee. In allowing interest on deposits, the board of directors shall give due consid eration to the value of the services performed for the depositor and the size of the depositor’s balance. 6. loans, discounts, and investments.—The board of directors shall determine the nature of the operations to be undertaken by the bank. Such operations shall be consistent with the policies of the central banks of the countries concerned. The bank may in particular have the right (a) to deal directly with central banks, or (6) to deal through central banks which have agreed to act as its agent and correspondent, or (c) to deal with banks, bankers, corporations and individuals of any country in performing any authorized function, provided the central bank of that country does not enter objection. Whenever any proposed credit operation affecting any particular market comes up for decision, the favorable vote of the governor of the central bank concerned (or his nominee if the governor is not present), sitting as a member of the board of directors or the executive committee, shall be taken as giving the assent of his central bank. If he declines to give his assent, the proposed credit operation shall not be undertaken in his market. Thus, the bank may perform such functions as the following: (1) To buy and to sell gold coin and bullion, to earmark gold for the account of central banks, and to make advances to central banks on gold as security. (2) To buy and to sell for its owrn account, either with or without its indorsement, bills of exchange and other short-term obligations of prime liquidity, includ ing checks drawn or indorsed by central banks or in respect of which three obligees are responsible. (3) To open and maintain deposit accounts with central banks. (4) To rediscount for central banks bills taken from their portfolios, to make loans to them on the security of such bills, or to make advances to them against the pledge of other securities up to such amounts and for such periods as may be approved by the board of directors. (5) To buy and to sell for its own account intermedi ate or long-term securities (other than shares) of a character approved by the board of directors. Its hold ings of such securities at any one time shall not exceed the total of its paid-in capital and reserve funds. (6) To invest in Germany, with the assent of the Reichsbank, reichsmark funds standing to the credit of the bank, at the Reichsbank, which are not transferable owing to a declaration of transfer postponement. 19 The bank may realize upon any such investments, shall hold these certificates and obligations in safe at its discretion, unless at the time the investment wras keeping and shall issue to the creditors its trust re agreed to by the Reichsbank some stipulation or ar ceipts for such certificates and obligations. Upon the rangement affecting the possible sale wras made a con completion of the payments called for under these dition of such agreement. The income from any such certificates and obligations for any one year, the investments and the proceeds of such investments, if respective creditor Governments shall give their quit sold, shall be deposited to the credit of the bank at the tance to the bank, which in turn shall give its quittance Reichsbank. Such funds may be held as deposits to the German Government, canceling and returning under the conditions set out in Annex IV of the plan any coupons representing the payments made. or be reinvested consistently with the provisions of (3) Receiving and distributing the service of the that annex. German annuities. The specifications of this function If, in the opinion of the board of directors of the bank, are given in section 8 of this outline below. counterobligations issued against its investments in (4) Performing as regards deliveries in kind such Germany as collateral can be advantageously sold on functions as may be entrusted to it by the Governments non-German markets, their net proceeds shall be dis in connection with the acceptance of the new plan. tributed to the creditor countries in such proportions (5) Dealing with the measures of safeguard provided and under the same conditions as would have applied in the plan. Upon receiving notification from the in the case of normal transfer. The accounts of the German Government, consistently with the provisions creditor powers shall be charged with the reichsmark of the plan, the bank shall convene the special advisory cost of the securities alienated or pledged in the committee whose composition, procedure and action course of any such transaction. If the board of direc are provided for in part 8 (e) of the plan. tors of the bank decides that counterobligations can (6) Acting as trustee under trust agreements. The not be sold advantageously, the income and net pro bank shall have the power to act as trustee under any ceeds of the investment, when finally disposed of, shall trust agreement entered into by it with the approval or be distributed to the creditors. on the initiative of its board of directors, which has as its The foregoing power is in addition to the general purpose the issue by the bank of trust certificates or powers of the bank to make and realize upon invest other obligations against investments in securities ments for its own account at any time, subject to the pledged as collateral therefor. This power may be provision that such investments are to be made with exercised in addition to the powers with respect to the assent of the central bank concerned. investments provided for in section 6 above. (7) To issue its own obligations at long or short (7) Acting as trustee under special agreements. term, secured or unsecured, for the purpose of relending The bank shall be authorized to act as trustee under to any central bank, in each case upon the specific any special agreements among the creditor countries decision of the board of directors by a two-thirds vote. covering the repartition of the annuities or the guar The investment powers of the bank shall never be antee of any parts of them. In particular the bank used in such a way as to exercise a predominant in shall have power to act as trustee under the agree fluence over business interests in any country. The ment specified in Annex VIII of the plan. The bank board oi directors shall guide the investment under shall be authorized to pay interest on any guarantee takings of the bank accordingly, and shall be entitled fund deposited with the bank in connection with any if necessary to make special regulations in this respect. such trust, and to arrange the terms on which the 7. Trustee functions: General provisions.—The bank deposit is to be received and the fund managed, all in shall be trustee of the creditor Governments in dealing accordance with the plan. with the German annuities and shall have such general (8) Acting as trustee at the request of a creditor powers of administration consistent with the plan as Government, the German Government or the central are necessary to the prompt and complete exercise of bank of any one of those countries. The bank shall its duties in that respect. The organization committee have the right, upon the approval of the board of direc shall draw up appropriate forms of trust agreement tors, to undertake any trust functions which any between the creditor Governments and the bank. creditor Government or the German Government or The trust functions of the bank shall include the any of their respective central banks proposes that it following: shall undertake, provided such functions are generally (1) Receiving and disbursing to the paying agents consistent with the purposes of the plan. the service on the German external loan 1924. If (8) Trustee functions: The bank as depositary arrangements can legally be made, the bank shall also for the service of the German annuities.—The bank, act in the capacity of one of the trustees for that loan. in its capacity as trustee for the creditor Govern (2) Receiving from Germany the various certificates ments, shall receive and distribute the funds repre and obligations provided for in_the plan. The bank sented in the service of the German annuities. In 20 fulfilling these functions the bank shall work in co paragraph 14 below, and it may open other accounts operation with the centra] banks of the countries at the Reichsbank for use in connection therewith. concerned; the relations thus established shall be Such additional accounts shall be operated according the ordinary relationships obtaining between a bank to ordinary business principles. The bank shall have and its correspondent banks. available at all times sufficient funds in reichsmarks to The procedure for conducting these operations, cover current requirements on account of payments for subject to the right of the board of directors of the deliveries in kind. (5) The bank shall give its receipt bank to make modifications, provided the general to the German Government for all sums which it purposes of the plan are observed, shall be as follows: pays or causes to be paid into the annuity trust (1) The bank shall maintain on its books a general account in the course of carrying out its obligations deposit account to be known as the annuity trust under the plan. account. The receipt of the bank shall make note of the cur (2) The German Government shall be responsible rencies received, but credit shall be given in the reichs for the payment to the bank, in installments as provided mark equivalent of those currencies. The German in the plan, of all sums applicable to the service of the Government undertakes for the purpose of the present annuity. These payments shall be credited to the provisions, as well as for the general purposes of the annuity trust account. plan, that the reichsmark shall have and shall retain The organization committee shall make the neces its convertibility into gold or devisen as contemplated sary provision whereby the reichsmark payments to in section 31 of the present Reichsbank law, and that the account of the bank at the Reichsbank in respect for these purposes the reichsmark shall have and shall of the railway contribution shall be immediately re retain a mint parity of 1/2790 kilogram of fine gold as leased to the German Government against equivalent defined in the German coinage law of August 30, 1924.1 payment in foreign currencies to the annuity trust Sums paid in foreign currencies into the annuity account. trust account shall be calculated in terms of reichs (3) Subject to the operation of the clauses of the marks at the average of the middle rates (mittelkurs) plan relating to transfer postponement, and except as prevailing on the Berlin bourse during the half the bank may request that payments be made in reichs monthly period preceding the date of payment. marks to the credit of its account at the Reichsbank (6) The bank’s receipt giving credit in reichsmarks described in paragraph 4 below, the German Gov for payments made into the annuity trust account by ernment shall make all payments on account of the the German Government or on its behalf shall, under annuity in foreign currencies. Payments in foreign normal operation of the plan, constitute a complete currencies not on a gold or a gold exchange standard and sufficient discharge of the obligations of the Ger shall be made only with the consent of the bank. man Government with respect to such payments. As a matter of business practice, the bank, acting in If, however, transfer postponement should be in whole advance of the payment dates, may notify to the or partial effect, the bank’s receipt giving credit in German Government or its agent the bank’s prefer reichsmarks shall constitute a complete and sufficient ences with respect to the currencies in which pay discharge of the obligations of the German Govern ment may be made. In case the bank’s preferences ment with respect to all payments into the annuity are not complied with, payment shall be made to the trust account made in foreign exchange, and with re bank in the currencies of the seven countries whose spect to such portion of the payments made in reichs nationals are members of the present experts’ committee, marks as in the opinion of the bank provide current divided as nearly as may be in proportion to their funds for deliveries in kind or services. As to the re respective shares in that portion of the annuity accru mainder, the receipt of the bank shall be in the nature ing to them. of a temporary acknowledgment only. (4) All reichsmark payments for credit to the an (7) Withdrawals from the annuity trust account nuity trust account shall be paid into an account of shall be made in accordance with provisions to be the bank at the Reichsbank. made by the organization committee. The bank shall The bank shall be entitled to draw upon it in making pay no interest on funds deposited in the annuity trust all reichsmark payments necessary for the operation account. of the plan, including payments for administrative (8) All disbursements for reparation purposes shall expenses incurred in Germany, payments for deliveries be charged against the annuity trust account. A first in kind and any other disbursements on annuity charge against that account shall be the service cur account. rently due on the German external loan 1924. The The bank shall also be entitled to withdraw reichs board of directors shall be entitled also to charge marks from this account or to deposit reichsmarks in against the account such sums as they deem to be fair it in the course of conducting operations referred to in 1 See the letter from the president of the Reichsbank given in Annex II. 21 compensation for the services performed by the bank and such out-of-pocket expenses as it incurs in admin istering the plan. If, in the opinion of the directors, such service charges or costs can not be equitably charged to the account as a whole, they shall be entitled to allocate them in such proportions as they see fit to the individual shares of any of the creditor countries. (9) After charging against the annuity trust account the items referred to in the preceding paragraph and such other items as may be properly chargeable to the annuity as a whole, the bank shall proceed in the fol lowing manner with the distribution of the remainder of the available funds to the accounts of the several creditors in accordance with the provisions of the plan. (10) During such period of time as payments for deliveries in kind and payments under reparation re covery act and similar procedures continue to be made, the bank shall make available to the several creditor countries reichsmark credits, which shall be utilized subject to the applicable provisions of the plan. (11) The bank, out of each installment paid into the annuity trust account, shall set aside and accumulate funds for the payment of service on any bonds issued and outstanding which represent commercialized and mobilized shares in the annuity. Funds required for this purpose shall be charged against the accounts of the creditor countries in proportion to their respec tive interests in the bonds for which service is being accumulated. At a suitable time in advance of the dates fixed for the payment of interest to the bond holders, the bank shall pay to the paying agents the amounts due in interest and shall make disposition according to the terms of the bond of funds required for purposes of amortization. (12) Out of the sums remaining in currencies other than reichsmarks, and after providing for any other charges called for under the plan, the directors of the bank shall distribute such aggregate amounts as they may determine to the creditor countries, divided accord ing to the propositions agreed upon among the respec tive Governments. In withholding any sums from dis tribution and in fixing the dates at which distribution is effected, the directors of the bank shall be guided on the one hand by the need for prompt action in the interests of the creditor countries and on the other by the interest of the plan as a whole, including due consideration to the bank by way of compensation for its services in managing the annuity. (13) The bank shall make distribution of cash by crediting the accounts which the central banks of the several creditor countries maintain with it, notifying them simultaneously that such credits are for the accounts of their respective Governments. The bank shall notify the proper financial authorities of the creditor countries when such credits have been made, and shall obtain receipts from them accordingly. (14) The bank shall have the right to buy for its own account or for other trust accounts any reichsmarks held in the annuity trust account, giving foreign cur rencies in return. The foreign currencies thus acquired by the annuity trust account shall be available for distribution to the creditor countries under the condi tions specified in the preceding paragraphs. The reichsmarks which the bank acquires shall be used only as the plan provides. (15) The bank, at the close of each business year, or more frequently if requested, shall give to the financial authorities of each creditor country a full accounting showing the disposition of its share in the annuity. As soon as any country has received its full share in the annuity for any one year, its proper financial authority shall give to the bank his acknowledgment and shall enter the same upon the trust receipt provided for in paragraph 2 of section 7 of this outline. Such acknowledgment shall constitute a full and sufficient discharge to the bank with respect to the annuity covered by it. 9. Agency functions.—The bank shall be qualified, on terms to be mutually agreed upon, to act as agent and correspondent of any central bank and to appoint any central bank to act as its agent and correspondent. The services to be performed by either or both parties under such agreements shall be subject, so far as the bank’s interest is concerned, to the approval of its board of directors, and may include the purchase and sale of gold, of bills of exchange and other securities, the earmarking of gold, the exchange of information and advice, and the transaction of any business con sistent with the functions of the bank under the plan on the one hand and within the lawful functions of the central bank on the other. The bank shall act as agent of any creditor Govern ment in mobilizing any parts of the annuities and in managing the service of bonds issued in connection with any such mobilization. The procedure for con ducting the bank’s share in such operations, subject to the right of the organization committee or the board of directors of the bank to make modifications, pro vided the general purposes of the plan are observed, shall be as follows: (1) Upon the request of the creditor Governments or any of them, the bank shall initiate operations for marketing bonds if, after examination, it considers market conditions warrant such operations. Such operations may take place in the international markets, or may be restricted to the domestic market or markets of the countries concerned in the proposed mobiliza tion, as the board of directors may decide. In de termining the markets where offerings are to be made, the bank shall make inquiries from the central banks concerned, and if any central bank offers explicit objec tion to an offering being made in its own market, the directors shall decide accordingly. 22 (2) The bank shall proceed to carry out requests from any creditor Government for the creation of bonds to be issued on its domestic market in connection with conversion operations up to an amount represented in its share in the annuities. Each State shall be free to offer such bonds on its own market on whatever con ditions it can obtain. (3) If in the opinion of the bank, the time is op portune for an issue of bonds, even if no request for mobilization has been received, the bank may inform the creditor Governments accordingly. (4) If the creditor Governments so request, the bank shall arrange with issuing bankers the conditions upon which bonds are to be issued on the open markets either of one or of several countries, as the case may be. The bank shall fix the minimum price at which such issues shall be made and it shall supervise the execution of the loan contracts. (5) If bonds are issued against the annuity shares of more than one country, the proceeds shall be de posited with the bank, which shall then distribute the proceeds to the creditors according to their participa tion. The handling of the service of issued bonds shall be carried out as provided in the preceding sec tion of this outline, and in Annex III. (6) Apart from the operations described above, the bank may conduct any other operations (such, for instance, as contango operations on bonds issued against the annuities, advances on coupons, etc.) as are involved in the supervision of transactions relating to these bonds and their service. 10. Reserve requirements.—The bank, since its de posits in part will be derived from central banks, shall be administered with particular regard to maintaining its liquidity. For this purpose the bank shall observe the following reserve requirements: (f) Deposits on clearing account.—All funds held by the bank on clearing account, whether gold in vault or gold under earmark for the bank’s account in central banks, shall be reserved for exclusive use in effecting settlements among the depositaries in the account. (2) Deposits payable on demand.—Against such de posits the bank shall hold a minimum of 40 per cent in gold or in devisea at their gold value. Devisen eligible as reserve against demand deposits shall consist of bank notes; prime bills of exchange having not more than 90 days to run, of a character which central banks ordi narily buy for their own account; and checks payable on demand, drawn or indorsed by central banks or in respect of which three obligees, including a bank of known solvency, are responsible. All devisen included in the foregoing classifications shall be denominated in currencies which satisfy, in the opinion of the board of directors, all the practical requirements of the gold or gold exchange standard. Gold in transit, or devisen satisfying the foregoing requirements which are in process of collection, may be counted as reserve. (3) Deposits on investment account (time deposits ).— Deposits payable in 15 days or less shall be classified as demand deposits and be subject to the reserve require ments specified in the preceding paragraph. Against investment account deposits of longer maturity the bank shall hold a minimum of 25 per cent in gold or in devisen at their gold value. Devisen eligible as re serve against investment account deposits shall meet the same requirements as those eligible as reserve against demand deposits. If the board of directors is of opinion that these re serve requirements should be altered, they shall have the right by a two-thirds vote to increase, diminish, or otherwise modify them consistently with sound bank ing principles. 11. Distribution of profits.—The yearly net profits of the bank shall be applied as follows: (1) Five per cent of the yearly net profits shall be paid to the legal reserve fund of the bank until that fund reaches an amount equal to 10 per cent of the paid-in capital stock of the bank as it may stand from time to time. The legal reserve fund on the liquidation of the bank shall be merged with the general reserve fund. (2) After making the foregoing provision for the legal reserve fund the yearly net profits shall be applied to the payment of an annual dividend up to 6 per cent on the paid-in share capital. This dividend shall be cumulative. (3) Twenty per cent of the remainder shall be paid to the shareholders until a total maximum dividend of 12 per cent is reached. The board of directors of the bank shall have the right in any year to withhold all or any part of this addition to the regular dividend, and to place it to the credit of a special dividend reserve fund for use in maintaining the cumulative dividend provided for in the preceding paragraph or for subsequent distribution to the shareholders. (4) After making provision for the foregoing, onehalf of the yearly net profits then remaining shall be paid into the general reserve fund of the bank until it equals the paid-in capital. Thereafter 40 per cent shall be so applied until the general reserve fund equals twice the paid-in capital; 30 per cent until it equals three times the paid-in capital; 20 per cent until it equals four times the paid-in capital; 10 per cent until it equals five times the paid-in capital; and from that point onward 5 per cent. The general reserve fund shall be available for meeting any losses incurred by the bank. In case it is not adequate for this purpose, recourse may be had to the legal reserve fund provided for under paragraph 1. In case the general reserve fund, by reason of losses or by reason of an increase in the paid-in capital, falls below the amounts provided for above, after having once attained them, the appropriate proportion of the yearly net profits shall again be applied until the posi 23 tion is restored. Upon the liquidation of the bank, shall be interpreted to mean the bank of issue situated the balance in the general reserve fund shall be divided and operating in the principal financial market of that country. • among the shareholders. (5) The remainder of the yearly net profits after If, in the process of organizing the bank or in the per meeting the foregoing requirements shall be paid in formance of its functions after establishment, it is found that the central bank of any country or its governor is to special funds as follows: (a) Seventy-five per cent to the Governments orunable to act officially or unofficially in any or all central banks of the creditor countries or of Germany of the capacities provided for in this outline, or refrains which maintain time deposits at the bank, withdraw from so acting, alternative arrangements not inconsist able in not less than five years from the time of deposit, ent with the laws of that country shall be made. In and, after four years, on not less than one year’s particular, the governors of the central banks of the notice. The fund shall be disbursed annually in countries whose nationals are members of the pres amounts proportionate to the size of the deposits ent committee, or as many of them as are qualified to maintained by the respective Governments or central act, may invite to become members of the board of banks aforesaid. The directors of the bank shall have directors of the bank two nationals of any country the power to determine the volume of each of these deposits central bank of which is eligible under this outline to take part in forming the board of the bank but does not which would justify the distribution provided for. (5) Twenty-five per cent to be used to aid Germany do so. The two nationals of that country upon accept in paying the last 22 annuities, provided the German ance of the invitation shall be qualified to act in the Government elects to make a long-term deposit with full capacity of directors of the bank as provided in the bank, withdrawable only on the terms specified this outline. Further, the directors of the bank shall under subparagraph (a) above and amounting to be authorized to appoint, in lieu of any central bank the minimum sum of 400,000,000 reichsmarks. If not exercising any or all of the functions, authori the German Government elects to make such long ties, or privileges which this outline provides that term deposit amounting to a sum below 400,000,000 central banks make or shall exercise, any bank or reichsmarks, the participation of the German Govern banking house of widely recognized standing and of ment shall be reduced in proportion and the balance the same nationality. Such bank or banking house, shall be added to the 75 per cent in subparagraph (a ). upon appointment and acceptance, shall be entitled The fund shall carry compound interest at the maxi to act in the place of the central bank in any or all mum current rate paid by the bank on time deposits. capacities appropriate to central banks under this If the fund should exceed the amount required to pay outline, provided only that such action is not incon the twenty-two last annuities, the balance shall be sistent with the laws of the country in question. The balance sheet and accounts of the bank shall be distributed among the creditor Governments in pro portion to their outpayments during that period. audited each year by independent auditors of recog In case the German Government elects not to make nized standing, who shall be appointed by and report any such long-term deposit the fund shall be distrib to the board of directors. In case the measures proposed in the plan with uted as provided in subparagraph (a) above. 12. General provisions.—Any balances remaining in respect to the avoidance of-double and triple taxation the hands of the Agent General for Reparation Pay of the bank are not fully in effect when the bank ments on the winding up of his accounts shall be trans begins operations, the board of directors shall deal ferred to the bank for credit to the annuity trust with the matter within its discretion. If any administrative act of the bank or any decision account, subject, of course, to the respective interests of the creditor countries therein and to any claims and of the board of directors is disputed on the ground commitments which may be outstanding at the time. that it is inconsistent with the provisions or intent of The relations of the Reparation Commission with the plan, recourse may be had to arbitration under Germany will be terminated. The bank shall take the general provisions for arbitration. over as promptly as possible such functions of the Reparation Commission with respect to Germany as are required under the provisions of the plan, and also such functions of the Agent General for Reparation ANNEX II Payments, the trustees and commissioners holding P a r is , J u n e 6 , 1 9 2 9 . office under the experts' plan of 1924, or any of them, D e a r M r . C h a ir m a n : I understand that certain of as may be required under the provisions of the plan, all according to the general scheme given in part 6 of the creditor groups have raised the question as to the interpretation to be given to the word “ reichsmarks,” the plan and Annex V. If in any country there is more than one bank of in which the obligations of Germany under the new issue, the term “ central bank” as used in this outline plan are expressed. In my opinion the question is a 24 purely formal one, as the reichsmark is de facto on a gold basis and has proved itself since its creation as stable a currency as any other in the world. Nevertheless, in order that there should be no possi bility of question as to the exact definition of Ger many’s liability, I am of opinion that the provisions of section 31 of the bank law of August 30, 1924, should be put into effect, and I am therefore prepared to introduce the necessary resolutions with the man aging board and the general council of the Reichsbank at the latest in connection with the putting into force of the present plan by the Governments. Believe me, dear Mr. Chairman, Yours sincerely, H ja l m a r S c h a c h t . Ow en D. Y oung, Esq., Chairm an of the Committee of Experts, Hotel George V, P aris. ANNEX III M o b il iz a t io n 1. Form of indebtedness.—Germany’s debt shall be fixed in the form of annuities. A certificate of in debtedness representative of these annuities shall be delivered by Germany to the bank as trustee of the creditor powers. To this certificate of indebtedness shall be attached coupons representative of each annuity payable by Germany. Each annuity coupon shall be divided into two parts: The first, representative of that portion of the annuity not subject to postponement and corres ponding to the portion of Germany’s indebtedness which is mobilizable; the second, representative of that portion of the annuity which is subject to postponement and corresponding to the portion of Germany’s indebtedness which is not mobilizable. Each part of the annuity- coupon enjoys equal rights throughout, except with respect to the agreed privilege of postponement. 2. Bond issues.—Upon the request of all or of any one of the creditor Governments the bank, as trustee, if it considers such a course opportune, has the right to require the creation of, and the German Government is obligated to create, issuable bonds representing the capitalization of any part of the portion of the annuity coupons not subject to postponement. The bank, however, is obliged under the provisions set forth in paragraph 7 (d) to accede to requests for the creation of bonds made to it by Governments which are desirous of undertaking internal issues of German bonds in connection with conversion operations. The certificates of indebtedness, the coupons attached thereto, and such bonds as shall be issued in capitaliza tion of any parts of the annuities not subject to post ponement, shall be made out in the name of the Ger man Reich and shall represent the obligation of the Reich guaranteed by its general revenues. 3. Collateral guarantees.— (A) The railway com pany shall deposit with the Bank for International Settlements a certificate acknowledging its liability in respect of the obligations laid down in part 8 (a) of this plan. (B) The Reich, furthermore, shall undertake to assign certain revenues (customs and certain taxes on consumption) for the service of the certificates and, as far as they may be exchanged into negotiable bonds, for the service of such bonds. This assignment will constitute a negative pledge and will be ruled by the following conditions: (а ) The assigned revenues as estimated for the budget 1929 must have a total yield of not less than 150 per cent of the highest budgetary contribution payable by Germany under this plan. (б ) The Reich will not pledge the assigned revenues for any other loan or credit, except with the consent of the bank. If the assigned revenues should be pledged, with the consent of the bank, for any other loan or credit, the charge for reparation payment will rank ahead of the charge for such other loan or credit. (c) If at any time the total yield of the assigned revenues should fall below 150 per cent of the highest budgetary contribution payable by Germany under this plan, the bank may require that additional reve nues, sufficient to assure the immediate restoration of the yield to the above percentage, be assigned. 4. General form of the bonds.—The value of the issuable bonds may, according to circumstances, be expressed in dollars equivalent to so many pounds, reichsmarks, francs, etc., or inversely in pounds, in reichsmarks, in francs, etc., always provided that the principal of any bond issued in a particular market shall be payable only in the currency of that market at the equivalent of its gold value. The coupons shall be expressed in dollars, pounds, francs, etc., and shall be payable at the rate of the day on all the markets on which the bonds are quoted. In the event of an issue, the amount and form of bonds to be created, as well as the specification of the currency in which they shall be issued, shall be fixed by the bank in accordance with the requests which it receives from the creditor Governments, taking into account the desiderata of the issuing bankers. After a period of 10 years the bank, in agreement with the issuing bankers and the creditor Govern ments, may consider the issue of bonds, the service of which may be paid in different currencies at par at the bearer’s option. 5. Status of mobilizable portions of annuity cou pons.—The service of interest and amortization of the mobilizable or mobilized portions of the annuity coupons shall be paid to the bank in foreign currencies by the German Reich without any reservation, that is, on its own responsibility; the financial service of these mobilizable or mobilized portions of the annuities shall constitute a final, absolute, and unconditional inter 25 national obligation in the ordinary financial sense of These bonds shall constitute national tranches which each Government shall be free to offer on its own the word. 6. Status of nonmobilizable portions of the annuity market on whatever conditions it can obtain. These coupons.—The payment of the nonmobilizable portion bonds shall be quoted only on their market of issue. of the annuity coupons shall be made to the bank by The service of these bonds shall, however, be effected the German Government in the same conditions as pari passu with that of the other bonds. The coupons that of the mobilized or mobilizable portion of the of these bonds shall be expressed in pounds, dollars, French francs, etc., and shall be payable at the rate of annuity coupons. Nevertheless— (1) Bonds representing the nonmobilizable portion the day on all the markets on which the mobilizable of the annuity coupons can not be created except with bonds are quoted. the consent of the German Government. (2) It is in respect of the nonmobilizable portion of ANNEX IV the annuity coupons that the German Government may avail itself of the right of postponing transfer or C o n d it io n s o f P o s t p o n e m e n t o f T r a n s f e r a n d o f payment granted elsewhere in this plan. P aym ent 7. Functions of the bank.—(o) Supervision of agree 1. Postponement of transfer.—The German Govern ments.—It shall supervise, both on behalf of the creditor Governments and the bondholders and on behalf of ment by giving at least 90 days’ previous notice shall the debtor Governments, the strict execution of the have the right to suspend for a maximum period of agreements concluded between them on the established two years from its due date all or part of the transfer of that part of the annuity described as postponable. bases. (6) Distribution without priority. —The bank shallTransfer postponement thus declared shall affect the distribute moneys in payment of the mobilized or postponable annuity as and from that date only on mobilizable portions of the annuity coupon among the which transfer postponement becomes effective. If, during any annuity year, the German Government whole of the bondholders and the creditor Governments in proportion to the rights of each to share in the por shall avail itself of this power, the transfers falling due tion of the annuity coupons not subject to postpone during any second year can not be postponed for more ment, without allowing a priority of any kind to any than one year from their respective due dates, unless tranche or to any claim. It will distribute the moneys and until the transfers due during the first year shall relating to the nonmobilizable portions of the annuity have been effected in full, in which case the transfers coupons among the creditor Governments, the trans due during such second year may be postponed two fer of these moneys taking place only after the transfer years from their respective due dates; and the transfers of the moneys relating to the mobilized or mobilizable due during any third year can not be postponed at all until the transfers due during the first year have been portion of the annuity coupon. (c) Issue of bonds on the markeis.—The bank shall effected in full. 2. liability.—The liability of the German Govern inform the creditor Governments whenever the issue of bonds representing the capitalization of some part of ment with regard to the annuities contemplated in the mobilizable portion of the annuity coupon is prac this plan is not fulfilled until all sums, the transfer or payment of which may be from time to time postponed, ticable in its opinion. It will be the function of the bank to fix the mini have actually been transferred in full to the Bank for International Settlements in approved foreign cur mum price of issue. Each of the creditor Governments shall be entitled, rencies, or utilized for deliveries in kind. 3. Postponement of payment.—At any time when but not obliged, to issue its share of the bonds in its own country. It may come to an understanding with postponement of transfer is in effect, but not until one the bankers of another country to cede to them all or year after it has become effective, the German Govern part of this share, but these bankers shall be obliged ment shall have the right to postpone payment for one to proceed to this issue only on the minimum conditions year of 50 per cent of any sum the transfer of which fixed by the bank. Any of these Governments may shall then be susceptible of postponement under para also refuse to allow its quota to be created; in that graph 1 of this annex. This percentage may be in event the portion of the annuity corresponding to this creased upon the recommendation of the advisory quota shall continue to be paid to the Governments in committee provided for in part 8 (e) of this report. 4. Utilization of reichsmarks.—Any sum in reichs question as before. (d) Issue of conversion bonds.—Creditor Govern marks, the transfer of which is postponed, shall (save ments desiring to proceed to internal issues of German as provided for in paragraph 3 above) be deposited to bonds, in connection with operations for the conversion the account of the Bank for International Settlements of national debt, shall have the option of asking the at the Reichsbank for eventual release of balances, not bank to create bonds representing all or part of their absorbed by deliveries in kind, against payment in quota of the mobilizable portion of the annuity coupons. foreign currencies by the German Government. At 27 26 all times the employment, whether for investment or as indicated below, of reichsmarks so deposited shall be subject to agreement between the Reichsbank and the Bank for International Settlements. In determining the manner in which these sums shall be employed, regard shall be had to the possibilities that special programs of deliveries in kind can be arranged with the German Government: (а ) During the first 10 years, by restricting or extending the program of deliveries in kind laid down for those years; (б ) After the first 10 years, by arranging a special program of deliveries in kind, where the interests of particular industries in Germany and of particular creditor countries which would otherwise suffer, may be met without prejudice to the general situation; Provided, however, that any special arrangement which may be made between any creditor country and Germany, with a view to reserving to the said creditor the right to receive certain deliveries in kind in case of moratorium, shall be carried through, subject to a copy of the agreement therefor being communi cated to the Bank for International Settlements. 5. Interest.—Interest at the rate of 1 per cent per annum above the prevailing Reichsbank discount rate, or at 5J4 per cent, whichever is lower, shall be paid half yearly by the German Government on the daily amount of the sums the transfer or payment of which has been postponed and which have not been invested or utilized for deliveries in kind. This interest shall be treated in all respects similarly to the principal sum upon which it accrues, and the return upon that por tion of the funds actually invested shall be for the account of the creditor powers. We recommend such organization committees for the following questions: (1) Organization committee for the new bank as provided for in Annex I of the report. (2) Organization committee for the adaptation of the German laws set up under the Dawes plan, com posed of members of the subcommittees next mentioned, with one neutral chairman. This committee should have three subcommittees, to be composed each of two creditor members nominated by the Reparation Commission and two German members nominated by the German Government: (а ) For the adaptation, in agreement with the trus tees, of the system under which the securities assigned to the Dawes loan are managed and of the machinery of the assigned revenues, referred to in Annex III; (б ) For the adaptation of the bank law (independ ence of the Reichsbank). (c) For the adaptation of the German railway law (independence of the German Railway Company). 2. After the Governments have concluded a com prehensive arrangement for putting into force the new plan, it will be necessary to provide some special or ganization which will undertake the administrative work of setting up the organizations provided for by the new plan and of handing over to them the functions of the existing organizations. As there is only one new organization which is going to centralize all the various functions concerning the execution of the new plan, viz. the Bank for Inter national Settlements, it is necessary to provide one special body only for the setting up of this organization, this body to be the organization committee for the new bank referred to above, as provided for in Annex I. The task of transferring the functions of the existing organizations to the Bank for International Settlements ANNEX V should be conferred upon a small special committee composed of two members of the organization commit A n n e x o n O r g a n iz a t io n C o m m it t e e s tee for the Bank for International Settlements, as well 1. Just as the Dawes plan was put into force by the as of representatives of the German Government, the agreement of the Governments concerned laid down in Agent General, and the Reparation Commission, and the London protocol, the new plan will have to be put equitable representation being assured to the powers into force by agreement of the Governments. represented upon the present committee. Once the Governments have accepted in principle the new plan, it seems advisable that, in addition to any ANNEX VI preparatory measures necessary for the conference of the Governments, steps should be taken for the elabo T h e B e l g ia n M a r k C l a im ration of detailed schemes about certain technical questions. The experts recognize that though the settlement of Generally speaking, it seems advisable to have these the so-called Belgian mark claim is not within the schemes elaborated by special organization committees, terms of reference of this committee, their Belgian col which should be composed substantially in the same leagues can not reasonably be expected, in view of the way as the organization committees of the Dawes plan; discussions which preceded the call of the committee, that is, by the same number of representatives of the to join in the report except on the understanding that creditors as of the debtor, with a neutral chairman to an agreement for the settlement of the mark claim be called in case of disagreement. The organization will be reached by direct negotiations between the committee for the new bank would, however, be Belgian and German Governments. The experts un differently composed. derstand that negotiations for the purpose are about to open as between the two Governments and they recog nize that the new plan can not become operative until the Belgian and German Governments have come to an internationally binding agreement on the mark claim; and in view of the German Government’s un dertakings as stated in the correspondence annexed [letters from Dr. Schacht of June 3 (see Annex VI (a), and from Herr Kastl of June 4 (see Annex VI (b)], they recommend to their respective Governments accordingly. If the settlement of the marks claim takes the form of an annuity, and if the Belgian and German Govern ments so request, the experts are ready to recommend to their Governments to offer no objection to the annuity taking the identical form of the annuities covered in this report and to its being administered in the same way by the Bank for International Settlements. ANNEX VI (a) J une Mr. O w en D. 3, 1929. Y oung, Hotel George V, P aris. Supplementing my talk with you of last Saturday on the Belgian mark matter, I have the honor to inform you that the German Govern ment is prepared to proceed along the following lines: (1) Immediately to enter into a pactum de contrahendo with the Belgian Government (either by ex change of notes or by signed protocol) whereby the two Governments will agree to enter into negotiations on a new basis looking to a definite settlement of the mark controversy. (2) To commence such negotiations promptly and to agree that these negotiations should be concluded before the new reparation plan has been put into force by the Governments. (3) The German Government has appointed Herr Ministerial Direktor Ritter as its special representative to handle the above matters and he is prepared to open discussions promptly. The substance of the foregoing has been communi cated to the Belgian Minister in Berlin, whose reply the German Government now awaits. The foregoing proposal has been made by the German Government in a conciliatory spirit and in an effort in good faith to remove this impediment to the normal development of friendly relations between the two countries concerned. I hope that the foregoing statements may remove any misunderstandings which exist as to the position of the German Government with respect to the Belgian mark matter; and in view of such misunderstandings heretofore, I would appreciate your advising the other members of the committee of the position of the German Government as stated herein. With assurances of my personal esteem, I am, Sincerely yours, Dr. H ja l m a r S c h a c h t . D e a r M r . C h a ir m a n : ANNEX VI (b) P a r is , Ju n e 4, 1929. Mr. T homas W. L am ont, Hotel Ritz, P aris. Confirming my conversation of this morning with you and Mr. Perkins, I desire to make clear the following: (1) The position of the German Government as stated in Dr. Schacht’s letter to the chairman of June 3, 1929, is in no way changed. (2) Dr. Ritter, of the German Foreign Office, rep resentative for the settlement of the mark question, has again declared to us on behalf of the German Gov ernment that: (a) He is prepared to start negotiations immediately. He suggests that such negotiations should take place in Brussels or Berlin. (b) No territorial questions will be raised in these negotiations. Sincerely yours, (Signed) K a stl. D ear M r . L am ont: ANNEX VI (c) P a r is , Ju n e 4 , 192 9. have been so good as to communicate to me the letters which were sent to you by Dr. Schacht and Dr. Kastl in the name of their Government on June 3 and 4, respectively. In the first of these letters Dr. Schacht stated that his Government is ready to accept an engagement to negotiate with the Belgian Government, upon a new basis, in order to arrive at a definitive settlement of the mark question. He adds that the German Government is willing to begin these negotiations rapidly and to agree that they should be terminated before the new reparation plan has been put into force by the Governments. In the second, Dr. Kastl declares that no territorial question will be raised in these negotiations. You are aware of the reasons because of which the Belgian delegation up to the present has refused to sign the report before a settlement of the mark ques tion had been realized, not desiring to find itself later in a position which it knew to be without issue, and on the other hand standing out for reparation of the serious damage which Belgium has suffered. Considering the engagement of the German Govern ment and considering also the recommendation which the experts unanimously decided to-day to address to their respective Governments and which will be incor porated in the report, the Belgian experts agree to sign the report before the mark negotiations have been terminated. I reserve the right to communicate to the German Government the different memoranda which have been exchanged during the course of the work of the experts Believe me, etc., (Signed) E. F r a n c q u i . M y D e a r P r e s i d e n t : Y ou 28 29 ANNEX VII D is t r ib u t io n op the A n n u it ie s P r o po se d by th e on t h e E x perts of C o m m it t e e the C r e d it o r C o u n t r ie s R epresen ted 1. We recommend that the annuities set out in part S of this report should be distributed among the creditor powers as follows: So far as concerns the balance of the unconditional annuity, and the amounts by which it is increased as the requirements for the service of the Dawes loan become less and cease, Italy will have no claim until so much of the balance as may be required for an equi table apportionment shall have been allotted, by agree In millions of reichsmarks German financial year 1929- 30 i............................ 1930- 31............................. 1931- 32...................................... 1932- 33.............................. 1933- 34............................. 1934- 35....................... 1935- 36........................... 1936- 37.............................. 1937- 38........................... 1938- 3 9 . . . ..................... 1939- 40........................... 1940- 41................ 1941- 42................ 1942-43 ................................. . 1943- 44........................... 1944- 45........................... 1945- 46........................... 1946- 47........................... 1947- 48........................... 1948- 49............ 1949- 50................... 1950- 51........................... 1951- 52....................................... 1952- 53........................... 1953- 54.................................... 1954- 55....................... 1955- 56......................... 1956- 57................... 1957-58............................. . i 1958- 59........................... 1959- 6 0 ....... .......... 1960- 6 1 ...................... ............ 1961-62..................................... ‘ 1962-6 3 ..................... ' 1963-64.............................' I ........... 1964-6 5 .............................. ' ' 1965- 66................................ Average, 1929 to 1965___ 1966- 67................................ 1967- 6 8 .............................. 1968- 69............................. 1969- 7 0 ................................... 1970- 71.................................... 1971- 72............................. 1972-73.......................................” ■ 1973- 74................................. 1974- 75.................................... . 1975- 76...................................... 1976- 77........................... 1977- 78............................. " 1978- 79............................. 1979- 80....................... 1980- 81................................ ' ' 1981- 8 2 .................. 1982- 83........................... ........ 1983- 84......................... ........ 1984- 85......................... 1985- 86.............. .......... 1986- 87.................... .......... 1987- 88...................... ■" . . France British Empire Italy 418.8 900.7 53.1 366.8 362.0 364.5 454.8 450.1 444.9 438.1 452.6 447.1 442.5 457.1 456.3 446.0 439.8 450.5 439.1 432.4 446.6 439.1 439.6 440.5 441.1 441.4 445.6 453.6 444.2 434.7 407.3 410.2 408.3 406.1 412.0 400.5 410.1 406.3 410.6 42.5 156.0 190.8 196.3 192.4 193.6 195.2 197. 2 198. 6 - 879.1 . . . . . . . . . . . . . . . . . 1,052.4 1,087.3 1,179.9 1,171. 2 1,191.4 1,190.8 1,190.7 1,190.8 1,188.1 1,185. 2 1,185.1 1, 248.6 1,277.9 1, 248. 5 1,248.3 1,248.2 1,248.1 1,248.2 1,248.1 1,278.6 - 1,278.4 . 1,278.2 . 1,278.2 1,278.1 1,278.0 1,277.9 1, 297. 5 Bel gium 70.7 98.2 102.6 105. 3 100.3 102.8 110.0 204.1 211.5 223.1 225.5 227.8 230.5 233.3 235.6 237. 1 239.4 248.1 260.1 272.8 275.6 278.5 281.3 285.4 289.0 292.6 296.7 299.8 310.8 321. 5 324.8 327.8 331.0 334.0 116.9 114. 7 114.8 117.0 117. 1 123.9 124.1 124.2 123.9 124.0 124. 1 124.1 124.2 134.6 134.7 134.7 134.7 134.7 134. 7 134.7 134.9 134.9 134.8 134.8 134.7 134.5 134.8 134.6 134.9 134.5 200.2 Ru mania 10.0 12.0 13.0 13.9 14.7 16.1 17.2 18.3 19.1 23.7 20. 1 20.0 20.6 21.1 21. 1 25.7 28.4 31.2 31. 2 31. 1 31. 1 31.1 31. 1 31.1 31. 1 31.1 31.1 31.1 31.1 31.1 31.1 31.1 31.1 31.1 31.1 31.1 [Amounts In millions of reichsmarks] Serbia Greece Portu Japan gal 72.1 79.4 79.3 79.4 72.4 72.5 72.6 73.8 71.5 71.8 74.5 76. 1 83.9 88.2 88.3 88.5 88.7 88.7 8S.8 88.8 99.8 99.9 100.0 100.0 100.1 100.7 101.2 101.2 102.2 103.1 103.2 104.5 105.9 105.9 106.0 106.0 106.0 6n 13.2 13.2 13.2 Po land 8.1 8.1 8.1 8.1 8.1 8.1 8.1 8.1 8.1 8.1 8.1 8.1 8.1 8.1 8.1 8.1 12.4 12.4 13.6 13.6 14.2 14.2 14.2 14.2 14.2 14.2 14.2 14.2 15.1 15.1 15. 1 15.1 15.1 15.1 15.1 15.1 15.1 15.1 15.1 15.1 15.1 15.1 15.1 15.1 15.1 13 9 13.2 13.2 13.2 11.9 11.9 11.9 11.9 11.4 11.4 11.9 11.9 13.2 13.2 13.2 13.2 13.2 13.2 13.2 13.2 15. 2 15.2 15.2 15.2 15.2 15.2 15.2 15.2 15.2 15.2 15.2 15.2 15.2 15. 2 15.2 15. 2 15.2 0.5 0.5 0.5 0. 4 0.4 0. 4 0.4 0.4 0. 4 0.4 0.4 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0. 6 0. 6 0. 6 0. 6 0.6 0.6 0.6 0.6 0.6 0. 6 0.6 0.6 0.6 0. 6 0. 6 0.6 0.6 13.2 0.5 3.6 6.7 6.9 7.2 7.2 7.2 8.2 8.3 8.5 8.4 8.4 8.3 8.3 8.3 8.3 8.3 8.3 8.3 8.3 8.1 12.6 12.6 12.6 12.6 1,046.5 409.0 213.7 115/5 20.1 84.0 7.0 13.2 794. 2 794.1 790.9 787.7 787. 5 787.3 787.1 786.9 786.8 786.6 786.3 786.1 785.9 785.7 785.5 785.2 785.0 784. 7 784.4 784.1 /S3. 9 753.3 357.2 346.7 349.4 355.7 290.1 295.1 302.3 309.3 53.1 52.8 53.0 53.1 31.7 36.8 39.8 42.9 22.7 22.7 22.7 22.7 9.7 9.7 9.7 9.7 8.2 8.2 8.2 8.2 36li8 366.1 365.4 364.1 366.4 363.8 364.8 365.1 364.7 363.5 365.7 362.9 372.0 346.2 *—414.1 *-414.1 J—372.1 327.7 332.0 336.3 340.5 344.6 350.8 356.9 367.1 372.9 385.1 400.1 407.2 409.8 416.5 418.8 425.0 382.6 52.8 52.8 52.8 52.8 53.2 53.5 53.3 53.2 52.9 53.1 53.3 53.4 53.4 53.0 53.0 53.3 50.6 42.9 42.9 42.9 42.9 42.9 42.9 42.9 42.9 42.9 42.9 42.9 42.9 42.9 42.9 42.9 42.9 42.9 22.7 22.7 22.6 22.6 22.6 22.6 22.6 22.6 22.6 22.6 22.6 22.6 22.6 22.6 22.6 22.6 22.6 9.7 9.7 9.7 9.7 9.7 9.7 9.7 9.7 9.7 9.7 9.7 9.7 9.7 9.7 9.7 9.7 9.7 8.2 8.2 8.2 8.2 8.2 8.2 8.2 8.2 8.2 8.2 8.2 8.2 8.2 8.2 8.2 8.2 8.2 9 United States 66.3 Total 742.8 1, 707. 9 66.1 1, 685. 0 66.1 1, 738. 2 59. 4 1. 804. 3 59.4 1, 866. 9 59.4 1,892. 9 59. 4 1, 939. 7 57. 2 1, 977. 0 57. 2 1, 995. 3 59.4 2, 042. 8 59.4 2,155. 5 66. 1 2,180. 7 66.1 2.198. 0 66. 1 2,194. 3 66. 1 2. 207. 5 66. 1 2, 203.8 66.1 2.199. 5 66. 1 2, 215. 2 66.1 2,210.0 76. 1 76.1 76.1 76.1 76.1 76.1 76.1 76.1 76.1 76.1 76.1 76.1 76.1 76.1 76.1 76.1 76.1 2,316. 8 2, 359. 2 2, 343. 2 2,346. 2 2,353. 3 2, 364. 6 2, 359.8 2, 354. 2 2, 361.8 2, 370. 6 2, 393.8 2, 380. 5 2, 398.3 2, 390. 2 2,402. 6 2, 402.1 2,428.8 66.1 1,988.8 40.8 40.8 40.8 40.8 40.8 40.8 40.8 40.8 40.8 40 8 40!8 40.8 40.8 40.8 40.8 1, 607. 7 1, 606.9 1.616.7 1,630.0 1, 643. 7 1,653.9 1,662. 3 1.665.7 1,668.4 1, 675.0 1, 678. 7 1, 685.4 1. 695. 5 1,700.4 1,711.3 1, 687.6 1.691.8 1, 703. 3 1, 683. 5 925.1 931.4 897.8 l mu6 year 1929-30 comprises only the 7 months September, 1929, to March, 1930. These sums correspond to the excess war-debt receipts of Great Britain over the war-debt payments during these three years. 2. We recommend that out of the unconditional annu ity of 660,000,000 reichsmarks the amount of 500 000,000 reichsmarks should be allocated to France, subject to the provision of a guaranty fund by the French Government ment of all the Governments, to the remaining powers entitled to share in the annuities provided for by this plan. 3. The schedule of deliveries in kind set out in part 8 (f) shall be allocated among the creditor Governments as follows: in accordance with the arrangements set out in Annex VIII. Out of the remainder of the unconditional an nuity, after allowing for the service of the Dawes loan 42,000,000 reichsmarks will be apportioned to Italy. Per cent............................................................ YEAR First.................................................................. Second.................................... ..................... Third................................................................ Fourth.............................. ............... ............. Fifth.................................................................. Sixth.................................................................. Seventh............................................................ Eighth.............................................................. Ninth.............................................................. Tenth.............................................................. France Great Britain 54.45 23.05 408.4 381.2 353.9 326.7 299.5 272.3 245.0 217.8 190. 6 163.3 172.9 161.4 149.8 138.3 126.8 115.3 103.7 92.2 80.7 69.1 Italy Belgium Japan Serbia Portugal Rumania Greece 10.0 4.5 0.75 5.0 0.75 1.10 0.40 75.0 70.0 65.0 60.0 55.0 50.0 45.0 40.0 35.0 30.0 33.7 31.5 29.2 27.0 24.7 22.5 20.2 18.0 15.7 13.5 5.6 5.2 4.9 4.5 4.1 3.7 3.4 3.0 2.6 2.3 37.5 35.0 32.5 30.0 27.5 25.0 22.5 20.0 17.5 15.0 5.6 5.2 4.9 4.5 4.1 3.7 3.4 3.0 2.6 2.3 8.3 7.7 7.2 6.6 6.1 5.5 5.0 4.4 3.9 3.3 3.0 2.8 2.6 2.4 2.2 2.0 1.8 1.6 1.4 1.2 Proceeds of reparation recovery acts already in force or of systems substituted therefor by agreement with the German Government shall be reckoned as deliveries in kind for this purpose. 4. The sums received under the Dawes plan in respect of the period April 1 to August 31, 1929, shall, after allowing for expenses in respect of administration of the Dawes plan and armies of occupation, be redis tributed to the extent necessary to provide each of the creditor powers with cover for its net debt outgoings during the year ending March 31, 1930. (These out goings are as stated in part 8 of the report). The necessary adjustments for this purpose could be made against the payments during the last seven months of that year. 5. It is suggested that the division between the creditor Governments proposed in the present annex should be accepted as a definitive settlement of all questions relating to the distribution of German payments and should not be affected by any existing arrangements or by the result of accounts relating to past transactions. On the other hand, it is not suggested that the present plan should affect or disturb in any way any existing inter-Allied agreements relating to payments, cessions, or deliveries on the part of the powers formerly allied with Germany. It may, however, prove neces sary to examine any provisions of these agreements under which receipts by the creditor powers could be accounted for as between themselves in terms of Ger man C bonds in order that they may be given an application consistent with their original practical purpose. 6. The approval of the report by the experts of the principle creditor countries is made formally contin gent on this distribution. Total 750 700 650 600 550 500 450 400 350 300 ANNEX VIII G uarantee F und R espect A n n u it ie s in op U n c o n d it io n a l 1. The experts of the principal creditor Govern ments have agreed that there shall be assigned to France out of the unconditional annuity 500,000,000 reichsmarks, in order to allow her to mobilize a substan tial part of her share in the total annuity. The aforesaid experts consider that this assignment should be final, and in no case subject to diminution, but should continue to be included in the total assigned to France, subject only to the alteration contemplated in the special memorandum signed concurrently with the report of this committee. 2. In order to equalize the short payments to other creditors which would arise from a postponement of the postponable portion of the annuity, it was agreed that France should deposit a special guarantee fund with the Bank for International Settlements. 3. On the coming into force of this plan, France will give to the Bank for International Settlements an under taking to deposit in a trust fund, on the demand of the Bank for International Settlements, foreign currencies to a total value of 500,000,000 reichsmarks. It is understood that this demand will not be made until action has been taken leading to the calling of the advisory committee referred to in part 8 (e) of the report. The amount of 500,000,000 reichsmarks will be reduced by the amount of any payments made by France under paragraph 4 below. The Bank for International Settlements may retain this deposit as long as it deems necessary, but shall pay interest on it at its maximum current rate for long term deposits. This deposit, if it is agreed that it shall remain for more than five years, shall be entitled 30 to participate in the profits of the bank divisible under part 11 (5) of Annex I. 4. As soon as mobilization of any part of the French annuity has been effected, France will deduct from the proceeds 10 per cent thereof, or 500,000,000 reichs marks, whichever is the less, and will deposit it to the credit of the trust account of the Bank for International Settlements referred to in the preceding paragraph. 5. Upon postponement of transfer of any payment due from Germany, the Bank for International Settle ments shall take the following steps: (a) Offer to the creditors, other than France, devisen up to the amount necessary (but not exceeding 500, 000.000 reichsmarks divided, if necessary, proportion ately) to insure to each of them receipts in devisen 31 equal to the amounts they would have received had the nonpostponable annuity been distributed in the same proportions as the total annuity. ( b) Debit the trust fund set up under paragraph 2 above with the amount of devisen actually utilized under paragraph (a). (c) Receive from each creditor, in exchange for devisen accepted under paragraph (a), an assignment in favor of the trust fund of an equivalent amount of the annuity, transfer of which has been postponed. 6. As and when Germany effectively transfers the postponed amounts, the bank will credit to the trust fund its share thereof in accordance with the assignment in paragraph 5 (c) above. E x perts and of of th e G erm a ny (Signed concurrently with the report of the committee of experts) 1. In the annuities provided in the report, the fol lowing amounts are required to cover outpayments: [In millions of reichsmarks] Annuity Amount Annuity Amount Annuity Amount Annuity Amount 2 3 4 5 6 7 8 9 10. 11 12 13 14 15 16............ 965.1 942.3 995.4 1,136.4 1,199.0 1,224.9 fi271.8 334.0 1.352.5 1.375.0 1.487.6 1,437.9 1.455.1 1,451.5 1.464.7 17.......... 18.......... 19.......... 20.......... 21.......... 22.......... 23.......... 24.......... 25.......... 26.......... 27.......... 28.......... 29.......... 30.......... 31.......... 1.460.9 1.456.9 1,472.3 1,467.1 1,461.5 1.503.9 1.487.9 1.491.1 1.498.1 1,509.4 504.5 fi 499.1 1,506.7 1,538.6 1,515.4 32.......... 33.......... 34.......... 35.......... 36.......... 37.......... 38.......... 39.......... 40.......... 41......... 42.......... 43.......... 44.......... 45.......... 1,525.4 1,543.2 1,535.0 1,547.4 1,546.8 1,573. 7 1,566.9 1, 566.1 1.575. 9 1,589.2 1,602.9 1,613.1 1,621.5 1,624.9 46........ 47........ 48........ 49........ 50........ 51........ 52........ 53........ 54........ 55........ 56........ 57........ 58........ 59........ 1,627.6 1,634.2 1,637.9 1,644.6 1,654.7 1,659.6 1,670.5 1,687.6 1,691.8 1,703.3 1,683.5 925.1 931.4 897.8 It is represented that in the event of modifications of those obligations for outpayments, by which the creditors benefit, there should be some corresponding mitigation of the German annuities. The experts of the four chief creditor countries and of Germany therefore recommend that Germany and all the creditor Governments having obligations for outpay ments should undertake between themselves an arrangement on the following basis: 2. Any relief which any creditor power may effec tively receive in respect of its net outward payments on account of war debts, after making due allowance for any material or financial counterconsiderations, and after taking into account any remissions on account of war debt receipts which it may itself make, shall be dealt with as follows: As regards the first 37 years: (a) Germany shall benefit to the extent of two-thirds of the net relief available by way of a reduction in her annuity obligations thereafter. (b) One-third of the net relief shall be retained by the creditor concerned, in addition to the amounts otherwise receivable from Germany. (c) Nevertheless, so long as any liability of Germany persists in respect of the period after March 31, 1966, the creditor concerned will retain annually only onefourth part of the net relief, the balance being paid to the Bank for International Settlements. (d) These payments to the Bank for International Settlements shall accumulate to assist Germany toward meeting her liabilities in respect of the period after March 31, 1966; any sums found after application of the funds provided in Annex I not to be required for this purpose (together with the accumulations thereon) shall be returned to the creditor by whom they were provided. As regards the last 22 years: The whole of such relief shall be applied to the reduc tion of Germany’s liabilities. 3. We recommend that the creditor Governments should agree that, if the operation of the relief to Ger many envisaged in respect of a possible reduction of net outpayments is such as to change materially the proportions in which the total annuities provided for in the present plan are divided among them, they meet to consider a revision tending toward the restoration of the present proportions, but having regard to the following conditions set out below and any other relevant factors then existing: (a) The service of any bonds mobilized by the creditor country, and the balance of its net outward payments in respect of war debts remaining to be covered must continue to be met out of the share falling to it in the annuities thereafter to be paid by Germany. E . M oreau. J. P a r m e n t i e r . D r . H ja l m a r S c h a c h t . K a stl. J. C. S t a m p . C. S. A d d is . A. P ir e l l i. S u v ic h . SETTLEMENT OF BELGIAN MARK CLAIM CONCURRENT MEMORANDUM BUT NOT A PART OF THE REPORT S p e c ia l M e m o r a n d u m o f t h e P r in c ip a l C r e d it o r P o w e r s R e g a r d in g O u t p a y m e n t s creditor powers. The unconditional part of the an nuity has, therefore, been fixed, while guarantees have been provided for the remainder. P a r i s , June 7, 1929. F r a n c q u i. of G utt. ( b) Due allowance shall be made for any material or financial counterconsiderations accepted by the creditor country in connection with the relief accorded to it in respect of war-debts payments. 4. It was originally suggested that the amounts the postponable annuities should be regulated by refer ence to the net amounts which the various creditors were themselves able to postpone in respect of inter Allied war debts, the general conditions therein gov erning postponements to be applied. For various rea sons, this method of calculation could not be adopted, but endeavor was made to adapt the moratorium provisions in such a way that the rights granted to Germany should not be greater than those of the The Belgian mark claim, referred toinAnnex VI of the report, was settled on July 13, 1929. The official statement of the Belgian Ministry ofForeign Affairs outlining the settlement isas follows: The negotiations between Mr. Gutt and Mr. Ritter, respective plenipotentiaries of the Belgian and German Governments, were brought to a close on July 13 when the following agreement was signed: Germany engages herself to pay to Belgium the fol lowing 37 annuities with maturities as indicated below: • Sept. 1, Apr. 1, Apr. 1, Apr. 1, Apr. 1, Apr. 1, Apr. 1, Apr. 1, Apr. 1, Apr. 1, Apr. 1, Apr. 1, Apr. 1, Apr. 1, Apr. 1, Apr. 1, Apr. 1, 1929 1930, 1931, 1932, 1933, 1934, 1935, 1936, 1937, 1938, 1939, 1940, 1941, 1942, 1943, 1944, 1945, toMar. toMar. to Mar. toMar. to Mar. toMar. toMar. toMar. to Mar. toMar. toMar. to Mar. to Mar. to Mar. toMar. toMar. toMar. 31, 31, 31, 31, 31, 31, 31, 31, 31, 31, 31, 31, 31, 31, 31, 31, 31, 1930________ 1931________ 1932________ 1933________ 1934_______ 1935________ 1936________ 1937________ 1938________ 1939________ 1940________ 1941________ 1942________ 1943________ 1944________ 1945________ 1946________ Belgian francs 138, 769, 200 184, 169, 000 184, 169, 000 184, 169, 000 222, 716, 000 222, 716, 000 222, 716, 000 222, 716, 000 222, 716, 000 222, 716, 000 222, 716, 000 222, 716, 000 172, 176, 600 172, 176, 600 172, 176, 600 172, 176, 600 172, 176, 600 o Belgian francs Apr. 1, 1946, to Mar. 31, 1947________ 172, 176, 600 Apr. 1, 1947, to Mar. 31, 1948________ 172, 176, 600 Apr. 1, 1948, to Mar. 31, 1949________ 172, 176, 600 Apr. 1, 1949, to Mar. 31, 1950________ 79, 663, 800 Apr. 1, 1950, to Mar. 31, 1951________ 79, 663, 800 Apr. 1, 1951, to Mar. 31, 1952________ 79, 663, 800 Apr. 1, 1952, to Mar. 31, 1953________ 79, 663, 800 Apr. 1, 1953, to Mar. 31, 1954________ 79, 663, 800 Apr. 1, 1954, to Mar. 31, 1955________ 79, 663, 800 Apr. 1, 1955, to Mar. 31, 1956________ 79, 663, 800 Apr. 1, 1956, to Mar. 31, 1957________ 79, 663, 800 Apr. 1, 1957, to Mar. 31, 1958________ 79, 663, 800 Apr. 1, 1958, to Mar. 31, 1959________ 79, 663, 800 Apr. 1, 1959, to Mar. 31, 1960________ 79, 663, 800 Apr. 1, 1960, to Mar. 31, 1961________ 79, 663, 800 Apr. 1, 1961, to Mar. 31, 1962________ 79, 663, 800 Apr. 1, 1962, to Mar. 31, 1963________ 79, 663, 800 Apr. 1, 1963, to Mar. 31, 1964.................. 79, 663, 800 Apr. 1, 1964, to Mar. 31, 1965________ 79, 663, 800 Apr. 1, 1965, to Mar. 31, 1966________ 79, 663, 800 These annuities will have the same form as those pro vided for in the Young plan. Germany’s engagement is unconditional; that is to say, she will continue to pay the annuities fixed by the agreement even should a moratorium of transfers or of payments become effective with respect to the annuities fixed by the Young plan; but in this latter case she reserves the right to fulfill the obligation in the form of payments in kind. FEDERAL RESERVE BULLETIN APRIL, 1930 ISSUED BY THE FEDERAL RESERVE BOARD AT WASHINGTON L o w e r M o n e y R a te s a n d t h e B a n k in g S i t u a t i o n C o n d it io n o f A l l B a n k s in t h e U n it e d S ta te s B r a n c h , C h a in , a n d G r o u p B a n k in g G o ld H o ld in g s o f P r in c ip a l C o u n t r ie s F in a l A c t o f T h e H a g u e C o n fe re n c e UNITED STATES GOVERNMENT PRINTING OFFICE WASHINGTON: 1930 O F F IC E R S O F F E D E R A L R E S E R V E B A N K S Federal Reserve Bank of— FEDERAL RESERVE BOARD Ex officio members: A. W. M e l l o n , Secretary of the Treasury, Chairm an. J. W. P o le, Comptroller of the Currency. W a l t e r L. E d d y , Secretary. E . M . M c C l e l l a n d , Assistant Secretary. J. C. N o e l l , Assistant Secretary. W. M. I m la y , Fiscal Agent. Chief, Division of Exam ination, and Chief Federal Reserve Examiner. R o t A . Y o u n g , Governor. E d m u n d P l a t t , Vice Governor. A d o l ph C . M il l e r . C h a r l e s S. H a m l in . G eo r g e R . J a m es. E d w a r d H . C u n n in g h a m . W a l t e r W y a t t , General Counsel. E. A. G o l d e n w e is e r , Director, Division of Research Chairman Governor W W ParirinpV f, F Sailor E. R. Kenzel.................... A. W. Gilbart........................ L. R. Rounds.................... . J. E. Crane............................. Walter S. Logan................ Philadelphia.................... . R. L. Austin......................... Wm TT TTntt. C leveland........................ George DeCamp................ Richmond____ _______ Wm. W. Hoxton________ Atlanta........................... Oscar Newton__________ Chicago.............................. Wm. A. H e ath .................... St. Louis........................... Rolla Wells....................... Minneapolis..................... John R. Mitchell.............. Kansas City__ M. L. McClure..................... Dallas................................ E. P a r r y , Assistant Director, Division of Research and Statistics. San Francisco.................... Isaac B. N ew ton........... . E. L. Cashier Boston................................. Frederic H. Curtiss______ New Y o rk ...................... J. H. Case___ ____ and Statistics. C arl Deputy governor C. C. Walsh........................... E. R. Fancher.............. ......... Allan SprouU C. A. Mcllhenny. W. G. McCreedy.* H. F. Strater. Frank J. Zurlinden............... Geo. II. Keesee. R. H. Broaddus.................... John S. Walden, jr.s M. W. Bell. Creed T aylor...................... f! n MpTTfiy W. C. Bachman.* John H. Blair____ ____ K. C. Childs.* J. H. Dillard.2 D. A. Jones.* 0 . J. Netterstrom.* A. II. Ilaill.* S. F. Gilmore.* F. N. Hall.* G. 0 . Hollocher* C. A. Schacht.* W. B. Geery___ Gray Warren. H. I. Z iem er........................ Frank C. Dunlop.* W. J. Bailey........................... J. W. Helm. j'.'w! Helm.'.”!” ”" " ! " " R R Gilbert Fred Harris. R. B. Coleman.................... . W. O. Ford.1 Jno. U. Calkins................. Wm. M. Hale. Ira Clerk.............................. i Assistant deputy governor. S m e a d , Chief, Division of Bank Operations. W. Willett. J. W. Jones.1 Ray M. Gidney.1 W. B. Matteson.i C. II. Coe.1 j Controller. MANAGING DIRECTORS OF BRANCHES OF FEDERAL RESERVE BANKS FEDERAL ADVISORY COUNCIL District District District District District District District District District District District District No. 1 ( B o s t o n ) _________________________________________ N o . 2 ( N e w Y o r k ) _____________________________________ No. 3 ( P h il a d e l p h ia ) __________________________________ No. 4 ( C l e v e l a n d ) _____________________________________ No. 5 ( R ic h m o n d ) ______________________________________ No. 6 (A t l a n t a ) _______________________________________ No. 7 (C h ic a g o ) ________________________________________ No. 8 (S t . L o u is ) _______________________________________ No. 9 ( M in n e a p o l is ) ___________________________________ No. 10 ( K a n s a s C it y ) __________________________________ No. 11 ( D a l l a s ) _______________________________________ No. 12 (S a n F r a n c is c o ) _______________________________ H erbert K . H allett. Wtm . C . P o t t e r . L. L. R u e . H a r r is C r e e c h . J ohn P oole. J. P. B u t l e r , Jr. F r a n k 0 . W e t m o r e , President. W . W . S m it h . G e o . H . P r in c e . W . S . M cL u c a s . B . A . M c K i n n e y , Vice Presideni. F . L . L ip m a n . Federal Reserve Bank of— New York: Buffalo branch......................... Cleveland: Cincinnati branch................... Pittsburgh branch................... Richmond: Baltimore branch..................... Charlotte branch..................... Atlanta: New Orleans branch............... Jacksonville branch................. Birmingham branch............... Nashville branch..................... Chicago: Detroit branch......................... St. Louis: Louisville branch..................... Memphis branch..................... Little Rock branch...... ........... Managing director R. M. O’Hara. C. F. McCombs. J. C. Nevin. A. II. Dudley. Hugh Leach. Marcus Walker. W. S. McLarin, jr. A. E. Walker. J. B. Fort, jr. W. R. Cation. W. P. Kincheloe. W. H. Glasgow. A. F. Bailey. Federal Reserve Bank of— Minneapolis: Helena branch............................. Kansas City: Omaha branch........................... Denver branch...................... Oklahoma City branch............. Dallas: El Paso branch..... ...................... Houston branch.......................... San Antonio branch............... . San Francisco: Los Angeles branch.................... Portland branch......................... Salt Lake City branch.............. Seattle branch............................. Spokane branch.......................... Managing director R. E. Towle. L. H. Earhart. J. E. Olson. C. E. Daniel. J. L. Hermann. W. D. Gentry. M. Crump. W. N. Ambrose. R. B. West. W. L. Partner. C. It. Shaw. D. L. Davis. W a l t e r L i c h t e n s t e i n , Secretary ii SUBSCRIPTION PRICE OF BULLETIN The F e d e r a l R e s e r v e B u l l e t in is the board’s medium of communication with member banks of the Federal reserve system and is the only official organ or periodical publication of the board. The B u l l e t in will be sent to all member banks without charge. To others the subscription price, which covers the cost of paper and printing, is $2. Single copies will be sold at 20 cents. Outside of the United States, Canada, Mexico, and the insular possessions, $2.60; single copies, 25 cents. hi FED ER A L R ESER VE TABLE OF CONTENTS Page R eview of th e m o n th — L ow er m oney ra te s a n d th e b a n k in g s itu a tio n _________________________________ D ecline in m oney ra te s — R a te s ch arg ed to c u sto m ers— C auses of r a te decline— D e c reased d e m a n d for re se rv e-b an k c re d it— D ecline in m e m b e r-b a n k d isc o u n ts— M e m b er-b an k c re d it. A P R IL , 19 30 REVIEW OF THE MONTH N a tio n a l su m m a ry of business c o n d itio n s_______________________________________________________________ 158 F in an cial, in d u stria l, a n d com m ercial sta tistic s: R eserv e b a n k c re d it a n d fa c to rs in c h a n g e s______________________________________________________ 1 5 9 , A nalysis of ch an g es in m o n e ta ry gold s to c k ________________________________________________________ G old m o v em en ts to a n d fro m U n ite d S ta te s _______________________________________________________ M em ber b a n k borrow ings a t F e d e ra l reserv e b a n k s ________________________________________________ D isco u n t ra te s a n d m oney r a te s _________________________________________________________________ 1 6 1 , M em b er b a n k c re d it____ __________________________________________________________________________ B an k ers’ accep tan ces a n d com m ercial p a p e r o u ts ta n d in g __________________________________________ B rokers’ lo a n s _____________________________________________________________________________________ S ecu rity prices, se c u rity issues, a n d b u ild in g c o n tr a c ts ____________ ______ __________________________ P ro d u c tio n , em p lo y m e n t, c a r loadings, a n d co m m o d ity p ric e s______________________________________ In d u s tria l p ro d u c tio n a n d b u ild in g ________________________________________________________________ F a c to ry e m p lo y m e n t a n d p a y ro lls_____ ___________________________________________________________ 160 160 160 161 162 163 163 163 164 165 166 167 B anking a n d business co n d itio n s in F ed eral reserve d istricts: R eserves, d ep o sits, n o te circu latio n , a n d reserv e p ercen tag es of F ed eral reserv e b a n k s ------- ----------D iscou n ts of F e d e ra l reserv e b a n k s ________________________________________________________________ B ank d e b its ________ B u ild in g ___________________________________________________________________________________________ D e p a rtm e n t sto res— In d ex es of sales a n d s to c k s ___________________________________________________ C om m ercial fa ilu re s . _______ B ank su sp e n sio n s__________________________________________________________________________________ 168 168 168 169 169 169 169 F in an cial sta tis tic s fo r foreign co u n tries: G old holdings of c e n tra l b a n k s a n d G o v e rn m e n ts______________ _____ _____________________________ 250 G old e x p o rts a n d im p o rts _________________________________________________________________________ 250 C o n d itio n of c e n tra l b a n k s ________________________________ _____ _______ ______ _________________ 2 5 1 , 2 5 2 C o n d itio n of com m ercial b a n k s ____________________________________________________________________ 253 D iscount ra te s of c e n tra l b a n k s ____________________________________________________________________ 254 M oney r a te s _______________________________________________________________________________________ 254 F oreign exchange r a te s ________________________________________ 255 P rice m o v e m e n ts________________________________________________________________________________ 2 5 6 , 2 5 7 L aw d e p a rtm e n t: D igest of S ta te law s re la tin g to b ra n c h b a n k in g _________________________________________________ 2 5 8 - 2 6 6 C hanges in n a tio n a l a n d S ta te b a n k m e m b e rsh ip ______________________________________________ 2 6 7 ,2 6 8 F id u ciary pow ers g ra n te d to n a tio n a l b a n k s____________________________________________________________ 268 R esources a n d liab ilities of F e d e ra l reserv e b a n k s in d e ta il a n d F ed eral reserve n o te s ta te m e n t-------------269 16 N o. 139 B ran ch , ch ain , a n d g ro u p b a n k i n g _________________________________________________________ 1 4 4 - 1 5 7 , 2 5 8 - 2 6 6 G old holdings of p rin c ip a l c o u n tries a t th e en d of 1 9 2 9 ______________ : _________________________________ 170 F in al a c t of th e H ag u e C o n fe re n c e ___________________________________________________________________ 1 7 2 - 2 4 9 C o n d itio n of all b a n k s in th e U n ite d S ta te s on D ecem b er 3 1 , 1 9 2 9 _______________________________ 1 4 3 , 2 7 0 - 2 7 3 IV VOL. B U L L E T IN Conditions in the money market eased fur ther in March, both in the United States and . . abroad, continuing the moveratesine m money ment that began last October. At the end of March the decline in open-market rates from the highest levels of last year had amounted to more than 2 per cent in New York, London, and Berlin, and there was also a marked decline in average rates charged on loans made directly to regular customers by banks in the leading cities of all sections of this country. New York rates on loans of the most liquid types, including call loans on securities and credit extended on bankers’ acceptances, reached in March the lowest levels since 1924, with both acceptance rates and renewal rates on call money at one time below 3 per cent. The official discount rate at the Federal Reserve Bank of New York was reduced on March 14 from 4 to 3 % per cent, and in the following week rates at the Cleve land, Philadelphia, and San Francisco reserve banks were reduced from 4% to 4 per cent. Discount rates of central banks in important foreign countries also were reduced in March, the Bank of England rate being reduced from 4% to 4 and later to 3% per cent, and the rate at the German Reichsbank from 6 to 5% and later to 5 per cent. Reports covering rates charged customers on commercial and security loans by banks in Fed eral reserve bank and branch cifstTmerT^ (° c^ i es indicate that the average of these rates declined further in March to the lowest levels in more than a year. This is brought out by the chart, which covers the period since January, 1926, with separate curves for banks in New York City, banks in other northern and eastern cities, and banks in southern and western cities. Customers’ rates advanced continuously from 4 early in 1928 until the third quarter of 1929, but began to decline in November. The chart also brings out the fact that this decline, like the preceding advance, began in New York City and other -cities of the North and East, and was followed somewhat later by declines of rates in the southern and western group of cities; since last December the rates charged customers have been declining in leading cities of all sections of thei country. From last au tumn to the middle of March average rates in Weighted averages of prevailing rates on commercial loans and security loans. (For explanation see p. 162) New York City declined by more than 1 per cent to a level under 5K per cent with some commercial loans made at 4% per cent, while in the other cities of the North and East the rates declined by three-quarters of 1 per cent to a level under 5% per cent, and in the group of southern and western cities by about onethird of 1 per cent to a level under 6 per cent. The sequence of these movements has been in accord with previous experience. The most sensitive rates are the rates in the open market, especially the rates on call loans, bankers’ ac ceptances, and commercial paper. At the time of a turn in the course of rates these rates are the first to register either an advance or a de139 140 FEDERAL RESERVE BULLETIN cline. Continued ease in the open market spreads in course of time over the other and less sensitive markets, affecting at first the rates charged by banks in the principal finan cial centers to borrowers who are in position to choose between banks from which to bor row or obtain funds in the open market, and later spreads to other borrowers and other centers, first in the North and East and later in the South and West. Easier conditions in the money markets of the United States in recent months have been caused in part by Federal re d e clin es °f Fate serve policy as expressed in rate reductions and in open-market purchases of securities and in part by a de crease in the demand for funds since the BILLIONS OF DOLLARS BILLIONS OF DOLLARS April, 1930 course of these loans since 1927 and brings out the fact that the decline in their volume in February and March carried them below the levels of 1929 and 1928, and only slightly above the level of 1927. Decreased demand for commercial credit at the member banks has been accompanied by ~ lJprrp<mpn, H,p. a continuous reduction in the m an d for re demand for reserve-bank credit. credit ba"k The Pr^nc^Pa^ factor in this reduction has been the decrease in the demand for currency. Currency began to return from circulation in large volume this year, as in other years, immediately after the cessation of the Christmas holiday demand, but this year the return flow did not stop in Janu ary, as it usually does. In February and March a certain amount of money usually flows out into circulation again, but this year, in conse quence of inactive trade and a smaller than usual increase in pay-roll requirements of in dustry, the volume of money in circulation continued to decline, by about $50,000,000, and was at the end of March less than at any other time since 1922. A chart showing the volume of money in circulation for several years past is inserted at this point. MILLIONS OF DOLLARS MILLIONS OF DOLLARS 5200 5100 5000 WOO October-November break in the stock market. There has been a large decrease since that WOO time in the demand for loans to finance trans actions in securities, and the reduced volume WOO of business activity has resulted also in a de crease in the demand for commercial loans. WOO So-called “ all other” loans of reporting mem ber ranks, changes in which are due chiefly to WOO changes in the commercial demand for credit, began to decline in November and continued WOO to decline rapidly for more than four months— Weekly averages of daily figures not only through December and January, when Another factor in the decrease in the demand the seasonal trend is downward, but also in February and March, when it is usual for this for reserve-bank credit and consequently in the class of loans to increase. The chart shows the easing tendency in the money market, has been April, 1930 FEDERAL RESERVE BULLETIN an inflow of gold from abroad. The movement of gold, which was outward in November and December and small in January, was inward in February and March, and there was an in crease of $130,000,000 in the country’s gold stock during the two months. The return flow of currency from circulation and the imports of gold, together with some open-market purchases by the D ecline in m em - reserve banks, resulted in a reber bank dis. ’ co u n ts duction of member bank bor rowings at the reserve banks to the lowest level since 1917, with the exception of a few weeks in 1924 and 1925. Through out the month of March member banks in New York City were practically out of debt at the reserve bank, for the only period of any con siderable length since 1924, and the member banks in Chicago and several other important cities were also out of debt. For a few days at the middle of the month the credit situation was exceptionally easy, especially at New York, because of a temporary accession of funds to the market that accompanied Treasury financing. A slightly firmer situation de veloped thereafter, but the indebtedness of member banks at the reserve banks on March 26 continued to be low throughout the country— below $40,000,000 in the New York and Phila delphia reserve districts, below $30,000,000 in the Cleveland and Chicago districts, below $20,000,000 at Boston, Richmond, Atlanta, St. Louis, and Kansas City districts, $8,400,000 in the San Francisco district, $5,600,000 in the Dallas district, and $2,200,000 in the Minne apolis district. A chart showing member bank indebtedness by districts appears at the end of this review. As has already been mentioned, the com mercial demand for credit at member banks, as well as the demand for reserverr/dit^er bank bank credit, has been decreas ing since last autumn. The total volume of loans and investments of mem ber banks in leading cities declined almost continuously from the peak on October 30 to the low point of February 26. Beginning with the last week in February, however, the total 141 volume of credit of these banks began to in crease rapidly and at the end of March was about $560,000,000 larger than a month earlier. This increase consisted in part of a growth of investments, particularly at the time of the March 15 Treasury financing. The principal growth of member bank credit, however, was in loans on securities, which increased by $540,000,000 between the end of February and the end of March. This growth in security loans represented an increase in loans to brokers and dealers by the member banks. Brokers’ loans by reporting member banks in New York City for their own account and for out-of-town banks were at their low point on January 22, when their total was $1,688,000,000. Between that date and April 2, these loans to brokers by domestic banks increased by approximately $1,000,000,000. During the same period brok ers’ loans for account of corporations and indi viduals, as well as foreign banks, declined by $340,000,000, so that the total increase in brokers’ loans was $625,000,000. The con siderable growth in brokers’ loans during the past two or three months, which has accompa nied an advance in security prices, has therefore been financed entirely by the banks, and par ticularly by the New York banks for their own account. Brokers’ loans by the New York banks on April 2 were, in fact, at the highest figure on record, with the exception of the few days immediately following upon the stockmarket break last October. Nonbanking lend ers, on the other hand, have continuously with drawn funds from the market since the last week in October, and the volume of their brokers’ loans placed through New York report ing banks is now lower than at any other time in nearly two years. The banking system, therefore, entered upon the second quarter of 1930 with a volume of member-bank credit that had shown an upward movement during the last month, but was still at approximately the same level as a year earlier. As compared with a year ago, member-bank loarfs on securities showed a considerable increase, while all other loans were much lower and investments also showed a substantial reduction. The volume of re serve-bank credit early in April was at the lowest point since the middle of 1927. The system’s holdings of acceptances were some what higher than a year ago, and its holdings April, 1930 FEDERAL RESERVE BULLETIN 142 of Government securities were more than $300,000,000 higher. Discounts for member banks, on the other hand, were about $800,000, 000 lower than last year, and with one exception were at the lowest point since before the war. FEDERAL RESERVE BANK DISCOUNTS-BY DISTRICTS 160 1W) 120 100 PHILADELPHIA 60 60 m V 160 80 60 40 20 0 FEDERAL RESERVE BULLETIN D e a th o f G overnor H a rd in g Governor W. P. G. Harding, of the Federal Reserve Bank of Boston, died on April 7, 1930. Governor Harding was a member of the Federal Reserve Board from its organization in 1914 to 1922, and was its governor from 1916 to 1922. Since that time he has been governor of the Federal Reserve Bank of Boston. ? V W r — — Y. i A^ aJ \ —i--------n KANSASCITY- CLEVELAND- - , ___ A fl ./ k z --- fX iL -J / yU._j ^ - 143 M arch 14 .— B ank of P o lan d , from 8 to 7 per cen t. M arch 2 0 .— B ank of E n g lan d , from 4 to 3 & per cen t. M arch 2 1 .— B an k of N orw ay, from 5 to 4?4 p er cen t. M arch 2 2 .— A u stria n N a tio n a l B an k , from 6J4 to 6 p e r cen t. M arch 2 5 .— N e th erlan d s B an k , from 3}4 to 3 p er cen t; G erm an R eich sb an k , from 554 to 5 p er cen t. M arch 2 9 .— N a tio n a l B ank of H u n g a ry , from 6}4jto 6 p e r cen t. A pril 3 .— Im p e ria l B ank of In d ia , from 7 to 6 p er cen t; B an k of Sw eden, from 4 to 3}-4 p e r cen t; N atio n al B ank of S w itzerlan d , from 3)4 to 3 p e r cen t. C hanges in D iscount R a te s an d Bill R a te s C ondition o f All B an k s in th e U n ited S ta te s on D e c e m ber 31 , 1929 The discount rate on all classes and maturi ties of paper was reduced from 4 to 3% per cent at the Federal Reserve Bank of New York, effective March 14; and from 4% to 4 per cent at the Federal Reserve Bank of Cleveland, effective March 15; at the Federal Reserve Bank of Philadelphia, effective March 20; and at the Federal Reserve Bank of San Francisco, effective March 21. At the Federal Reserve Bank of New York buying rates on bills of all maturities were successively reduced during February and March as shown in the following table: Total loans and investments of all banks in the United States—including national banks, State banks, trust companies, mutual and stock savings banks, and private banks under State supervision—increased by $151,000,000, or 0.3 per cent, during the year ending December 31, 1929, according to figures that have recently become available. This increase brought the total loans and investments of all banks to the level of $58,417,000,000. The growth of $151, 000,000 reflected an increase of $250,000,000 for member banks and a decrease of $99,000,000 for nonmember banks. The entire increase in bank credit, both inside and outside the Federal reserve system, occurred in loans, as shown by the accompany ing table. The banks’ investment holdings Date effective M 40 20 0 1<*0 120 100 --------- 1--------- 1--------MINNEAPOLIS April, 1930 1 to 15 days 16 to 45 days 46 to 120 121 to 180 days days In effect Feb. 1........................ 3J6 3J6 4 496 Feb. 11..................................... Feb. 24..................................... Mar. 5___ ____ _____________ Mar. 6_____________________ Mar. 11________________ ___ Mar. 14______________ _____ Mar. 17__________ _______ . Mar. 19.............. .............. ... . Mar. 20 _ ............................... 394 394 494 A l l B a n k s in t h e U n i t e d S t a t e s 396 396 394 396 396 396 4 394 396 [Figures for end of December. Amounts in millions of dollars] 3Hi 3 396 3 396 1394 396 396 396 394 396 3 396 394 1929 394 1928 Increase or decrease (-) Amount Per cent 1 Rate of 3y6 on maturities of 91-120 days. V — C h an g es in F o reig n C en tral B ank D isco u n t R a te s The following changes have been made since the first of February in the discount rates of central banks in foreign countries: F e b ru a ry 5.-— G erm an R eich sb an k , from 6J4 to 6 per c en t. F e b ru a ry 6 .— B ank of E n g lan d , from 5 to 4% p er cen t. F e b ru a ry 1 0 .— B ank of J a v a , from 5 to 5 p e r cent. F e b ru a ry 11 .— A u strian N a tio n a l B an k , from 7 to 6 per cent. F e b ru a ry 13 .— N a tio n al B an k of H u n g a ry , from 7 to 6}i p e r cen t. M arch 3.-—H a n k of Ita ly , from 7 to 6J4 p e r cen t. M arch 6 .— B ank of E n g lan d , from 4% to 4 p er cen t. M arch 7 .— D an ish N a tio n a l B a n k , from 5 to 4% per cen t; B ank of N e th e rla n d s, from 4 to 3}i p e r cent; B ank of S w eden, from 4)A to 4 p e r cen t. M arch 8 .— G erm an R eich sb an k , from 6 to 5% per cen t; B ank of D anzig, from 6 to p er cen t. M arch 10 .— B ank of Ja v a , from 5 to 4 % p e r cen t. 10 3 0 2 5 — 30 -2 Loans and investments: All banks.......................... Member banks................. Nonmember banks.......... Loans: All banks.......................... Member banks................. Nonmember banks_____ Investments: All banks.......................... Member banks................. Nonmember banks.......... 58,417 35,934 22,483 58, 266 35,684 22,582 151 250 -9 9 0.3 .7 -.4 41, 898 26,150 15,748 40, 763 25,155 15,607 1,135 995 141 2.8 4.0 .9 16,519 9, 784 6,735 17, 504 10,529 6,975 -985 -745 -240 -5 .6 -7 .1 -3 .4 continued the decline which began in the mid dle of 1928, and at $985,000,000 at the end of the past year were 5.6 per cent smaller than on December 31, 1928. Investments of member banks decreased 7.1 per cent during the year, and investments of nonmember banks de creased 3.4 per cent. More detailed compilations of the principal resources and liabilities of these banks, by Federal reserve districts and by States, are given on pages 270-273 of this B ulletin 144 FEDERAL RESERVE BULLETIN April, 1930 BRANCH, CHAIN, AND GROUP BANKING: DECEMBER, 1929 Compilations by the board covering branch, State banks are permitted under State law and chain, and group banking developments at the national banks under Federal law to establish end of 1929 are presented in detail for States in branch offices has not changed materially in general tables on pages 151 to 157 of this issue recent years. Within this area state-wide of the B ulletin, indicating changes during the branch banking, which has developed most last half of the year, and also, in so far as data extensively in California, has shown consider are available, during the period following and able development also in Maryland, North preceding passage of the McFadden Act early and South Carolina, Rhode Island, and Virginia in 1927. In these tables the number of na In several other States of the branch-banldng tional, State member, and nonmember banks area—New York, Michigan, Ohio, Pennsyl and banking offices in the several States vania, New Jersey, Massachusetts—in which affiliated in branch, chain, and group systems, the establishment of branches is restricted to and the number of independent unit banks of the home city of the parent bank or territory these classes is shown, together with aggregate nearly contiguous thereto, a considerable devel loans and investments. opment of urban or local branch systems has Branch-banking developments during the been in evidence for several years past. last half of 1929.—On December 31, 1929, 822 Comparison of figures compiled for June of the 24,630 banks1*of all classes in the country with those for December, 1929, indicates a con were operating 3,547 branch offices, including tinuance of branch-banking developments dur 119 banks operating 1,415 branches which were ing these six months at about the same rate of also reported as affiliated in chain or group increase as during the past three years. In this systems. Banks operating branches at the end half year the number of banks operating of 1929 included 166 national banks operating branches increased by 4 and the number of 1,027 branches; 180 State member banks oper branch offices by 107. Only inconsiderable ating 1,299 branches; and 476 nonmember increases were, however, shown for some of the banks operating 1,221 branches. Loans and principal branch-banking States, the number investments of these banks totaled $25,000, of branches of the California banks increasing 000,000, of which over $20,000,000,000 was only from 861 in June to 863 in December, and reported from States which permit branches of Michigan banks from 433 to 439. More only in the city in which the parent bank is considerable increases are reported for New located or territory contiguous thereto, and in York, Ohio, Pennsylvania, and Massachusetts. Although the number of branch systems which accordingly branch banking is carried on only in local urban or home-city systems. increased by only 4 during the last half of the Nearly $11,000,000,000, or more than half of year, 36 banks which were not operating this $20,000,000,000, was reported from the 71 branches in June, were operating branches in banks operating 580 branches in the city of December. This addition of 36 to the number New York. A majority of these New York of branch systems was offset in large part by City banks were, however, operating only one a decrease of 25 through merger procedures, a or two branch offices each in the city. Approx decrease of 6 as a result of suspension of opera imately $4,000,000,000 of loans and invest tions of the parent bank, and a decrease of 1 ments was reported from banks operating by discontinuance of branches. The increase of 107 in number of branches branches in the nine States which permit state wide branch banking. This aggregate included also is a net increase covering 163 branches nearly $2,700,000,000 reported for the 53 established during the six months’ period—82 branch systems operating 863 branches in de novo as branches, and 81 by conversion of California, and about $1,300,000,000 from the banks into branches—and the discontinuance 8 remaining States which permit development of 56 branches, partly by merger with other of branch systems on a state-wide basis, and branches, and in the case of 7 branches following in which 151 banks (in a total of 1,567 banks suspension of parent banks. The number of banks operating branches, of all classes) were operating 399 branch offices. A large majority of these banks, also, as well as and the number of their branches on June 30 the banks operating branches in California, and December 31, 1929, and for February 25, were operating only one or two branch offices. 1927, and June 30, 1924, are shown, by States, The branch-banking area, comprised of 21 in Tables 2 and 3. Branch banking developments since passage States and the District of Columbia, in which of McFadden Act.—Branch banking develop 1 Based on abstracts of condition reports covering national and State ments since February, 1927, when the McFadbanks for Dec. 31 or nearest available date, as shown on pp. 270-273. April, 1930 FEDERAL RESERVE BULLETIN den Act became effective, have been principally in the building up of urban branch systems. In the period of approximately two years and 10 months from February 25, 1927, to Decem ber 31, 1929, the number of home-city branches in the country as a whole increased from 1929 to 2,432, or by 503, and the number of branches located outside the home city of the parent bank from 971 to 1,115, or by 144. During this period 120 branch systems were merged with other banks, 15 suspended operations, and 28 (of which 26 operated only 1 branch and 2 operated 2 branches each) discontinued all branches. These decreases were more than offset by 206 banks which initiated branch banking during the period, giving a net in crease of 43 in the number of branch systems. Of the 2,900 branches in operation in Febru ary, 1927, 224 were discontinued or merged with other branches during the period, includ ing 30 discontinued following suspension of parent banks, and 871 branches were estab lished—511 de novo as branches and 360 by conversion of banks into branches. In this period, also, the classification of branches operated by national and by State member banks was materially affected by nationalization of large State-bank systems in California, either directly or by merger with existing national banks. These procedures account largeh7 for the increase in the number of branches of national banks from 390 in February, 1927, to 1,027 in December, 1929, and for the decrease in number of branches of State member banks from 1,560 to 1,299. In the same period nonmember bank branches increased from 950 to 1,221. Principal branch banking States and cities.— At the end of 1929 branches were in operation in 29 States and the District of Columbia— 1,286 in the 9 States and the District of Columbia which permit state-wide branch banking, 2,207 in the 12 States which restrict the establishment of branches to the home city of the parent bank or territory nearly con tiguous thereto, and 54 in 8 States in which the further extension of branch banking is prohibited by State law. Two-thirds of the 3,547 branches in operation in December were located in 5 States—California, New York, Michigan, Ohio, and Pennsylvania— and in each of 4 other States—Massachusetts, New Jersey, Louisiana, and Maryland—more than 100 branches were in operation. Of the 2,432 home-city branches, 1,659, or more than two-thirds, were located in 10 cities, the number of such branches in each of these cities being as follows: N ew Y o rk _______ 580 D e tro it_____ _ _ 1 309 Los A ngeles__ __ __ 1 2 0 1 P h ila d e lp h ia _____ 13 3 San F ra n c isc o ___ __ 1 9 7 145 C le v e la n d _____ _ Buffalo _______ . . . B o sto n _________ B a ltim o re ______ C in c in n a ti_____ . . . 85 73 66 65 1 50 Size of branch systems.—At the end of the year, 18 banks were operating each more than 30 branches, including six California systems, one of 287 branches, and 5 of 160, 139, 94, 56, and 31 branches, respectively. Three Detroit banks were operating 94, 33, and 31 branches, respectively; 7 New York City banks were operating each from 33 to 67 branches; 1 Cleve land bank was operating 57; and 1 Buffalo bank 33 branches. These larger branch sys tems represent in many cases a succession of mergers of smaller branch systems or of con version into branches of independent banks. All but 2 of these 18 banks were members of the Federal reserve system. It was still true in December, however, as at earlier dates, that a large majority of the banks operating branches in the country as a whole were operating only 1 or 2 branches each. Of the 822 banks operating branches, 448, or more than half, were operating only 1 branch each, 150 w~ere operating 2, and 124 were operating 3 to 5 branches each, the proportion of small systems being not materially different from the proportion shown in Februarj^, 1927. Rural branches.—Of the 1,115 branches located outside the home city of the parent bank, 612 were located in places of less than 2,500 population; 136 in places of 2,500 to 5,000; 86 in places of 5,000 to 10,000; and 281 in places of over 10,000. The 281 outside branches located in places of over 10,000 popu lation represented largely branches of state wide California systems with head offices in Los Angeles and San Francisco operating branches in other large cities of the State. The number of branches located in places of less than 2,500 increased by 40 in the period from June, 1928, to December, 1929. Method of establishment of branches.— More than two-thirds of the branches in opera tion in February, 1927, were offices which had been established de novo as branches, the re maining branches representing largely conver sions of independent banks into branches, although in some instances the method of establishment was not ascertained. In the period from February, 1927, to December, 1929, the number of de novo branches increased by 383—from 1,996 to 2,379—and the number of branches representing conversions of banks increased by 282—from 735 to 1,017, the method * Exclusive of branches whose head offices were located in other cities. 146 FEDERAL RESERVE BULLETIN of establishment in the case of 151 offices not having been ascertained. Suspension or failure of branch systems.— During the 9-year period 1921-1929, 41 branch systems operating a total of 80 branches sus pended operations, with total deposits of $49,000,000. Five of these systems were subse quently reopened, and later one of these was again closed. Of the 41 systems, 29 were oper ating 1 branch each, six 2 branches each, two 3, two 4, one 5, and one 20 branches. Ten of these banks, operating a total of 18 branches, with deposits of $20,000,000, suspended operations during 1929, one of these 10 operating 2 branches with deposits of $5,882,000 being later reopened. Banking offices.—Branch-banking develop ments may involve some reduction in the num ber of corporately independent banking insti tutions without involving a corresponding reduction in the number of banking offices serving the public; as, for example, in case a bank is acquired by a branch system and con verted into a branch office, or where a branch office is established de novo as a branch in place of a bank which has closed its doors. In some States increase in the number of branches in recent years has partially offset a decrease in the number of corporately independent banks, as may be seen from the following table sum marizing changes in the number of banking offices, in and outside the branch-banking area, in the periods before and following passage of the McFadden Act early in 1927. B a n k in g O f f ic e s — I n c r ea se or D e c r ea se ( —) in t h e N u m b er of O f f ic e s in and O u t sid e t h e B ra nch -B a n k in g A r e a : 1 9 2 4 - 1 9 2 9 Date and area Number of banking offices Total United States: 1924, June_____ 1927, Feb. 2 5 ... 1929, Dec. 3 1 ... Branch banking area: 1924, June....... . 1927, Feb. 2 5 ... 1929, Dec. 3 1 ... Outside branch banking area: 1924, June....... . 1927, Feb. 2 5 ... 1929, Dec. 3 1 ... California: 1924, June_____ 1927, Feb. 2 5 ... 1929, Dec. 3 1 ... Michigan: 1924, June_____ 1927, Feb. 2 5 ... 1929, Dec. 3 1 ... New York: 1924, June....... . 1927, Feb. 2 5 ... 1929, Dec. 3 1 ... i Mar. 23, 1927. Increase or decrease (—) Banks Branches Total Banks Branches 31,289 28,996 29,873 >26,973 28,177 24, 630 2,293 2,900 -1,416 -2,023 3, 547 -1 , 696 -2 , 343 607 647 13,002 10, 770 13,110 110, 264 13,134 9,641 2,232 2,846 3,493 -506 -623 614 647 61 54 -1 , 524 -1 , 517 54 -1,720 -1 , 720 _7 18,287 18, 226 16,763 116, 709 15,043 14,989 108 24 1,213 1,316 1,300 675 i 554 437 538 762 863 103 -1 6 -121 -117 224 101 1,050 1,140 1,182 718 1 739 743 332 401 439 90 42 21 4 69 38 1,482 1,120 1,669 1 1,152 1,849 1,127 362 517 722 187 180 32 -2 5 155 205 1 April, 1930 The number of banks of all classes in the country as a whole decreased in the period from June, 1924, to the end of February, 1927, by 2,023. For the 21 States and the District of Columbia comprising the branch-banking area, the decrease amounted to 506, and in this area the number of branch offices increased in the same period by 614, giving a relatively small increase in the total of banking offices for the area, from 13,002 to 13,110. Outside this area the decrease of 1,517 in the number of banks was, of course, not offset by any extension of branch systems. In the period of approxi mately equal duration from February, 1927, when the McFadden Act wTent into effect, to the end of December, 1929, the number of banks in the country decreased further by 2,343, the decrease within the branch-banking area of 623 being relatively as well as absolutely less than the decrease of 1,720 outside this area, and being more than offset by an increase of 647 in the number of branch offices. In the State of California the number of banks fell off in each of these periods, the decrease being more than offset in the first period and nearly offset in the second period by increase in the number of branch offices, so that the total number of banking offices increased in the first period from 1,213 to 1,316 and fell off slightly in the second period to 1,300 at the end of December, 1929. In other States of the branch-banking area, however, decreases and increases in the number of banks and of branches have been in varying proportions, and no close correspondence has been in evidence. In New York, for example, where the increase in number of branch offices since the passage of the McFadden Act has been double the increase shown for California, the number of banks has remained nearly constant, and this is true also of Michigan, the third State in number of branches in oper ation at the end of December, 1929. In Penn sylvania the number of banks decreased over the whole period from June, 1924, to December, 1929, by 84, and the number of branches increased by 87; in Ohio the number of banks fell off by 92, and the number of branches increased by 65; in New Jersey the number, both of banks and of branches increased by 89 and 82, respectively; in Massachusetts the number of banks increased by 2 and the num ber of branches by 63; and in Maryland the number of banks fell off by 20 and the number of branches increased by 36. The number of banking offices at the end of December, 1929, is given, by States, in Table 4. On this date approximately one-eighth of the total banking offices in the country as a whole were branch offices. April, 1930 FEDERAL RESERVE BULLETIN Unit banks and chain, group, and branch systems.—Chain or group banking develop ments are not reflected in changes in the num ber of banks, since these developments repre sent affiliation of corporately independent in stitutions usually through stock ownership con trol, by an individual or group of individuals, a bank or a holding company. The grouping up of bank offices of national, State member, and nonmember banks in chain, group, or branch systems, and the number of independ 147 ent unit banks of these classes at the end of December, 1929, is shown in the following table, which gives a corresponding classification of loans and investments of banks. In this table, as elsewhere throughout the board’s compilations, only affiliations of three or more banks are classified as chain or group systems. It follows that some single banks classified as independent unit banks may be affiliated through stock ownership with other single banks. B a n k in g O f f ic e s and L oans and I n v estm en ts in and O u t sid e C h a in , G r o u p , or B ranch S ystem s , by C lass of B a n k : D ec e m b e r 3 1 , 1 9 2 9 Banking offices—banks or branches In independent branch systems In chains or groups Class of bank Total Banks not operating branches Banks operating branches Head offices Unit banks 1 Head offices Branches Branches Number . Total............ . Member banks___ National........... State................. Nonmember banks 28,177 10,848 8,430 2,418 17,329 1,984 855 757 98 1, 129 119 83 45 38 36 1,415 1,150 550 600 265 703 263 121 142 440 2,132 1,176 477 699 956 21,824 7,321 6,480 841 14, 503 Loans and investments (in millions of dollars) Total............ Member banks___ National......... . State................. Nonmember banks 58,417 35,934 21, 584 14,350 22, 483 4,913 3, 726 2,825 901 1,186 6,264 5,579 3,083 2,496 686 1 Banks operating no branch offices, and not affiliated with any chain or group system. Of the 28,177 banking offices in operation at the end of December, 21,824, or approximately three-fourths, were unit banks having no branches and operating independently of chain or group systems; 2,103 were banks operating in chains or groups; 1,415 were branches of chain or group system banks, and 703 were head offices and 2,132 wrere branch offices of branch systems operating independently of chain or group-system affiliations. Unit banks unaffiliated with chain or group systems and operating no branch offices reported approxi mately one-half of the loans and investments of all banks in the country. Area of chain and group banking.—While chain and group banking developments have not been generally restricted by provisions in State banking codes, the area within which these developments have been relatively more (2) (*) (2) (2) (2) 18,839 13, 354 5,906 7,448 5,484 (*) (2) (2) (2) (2) 28,401 13,275 9,770 3,505 15,127 * Included in figures for head offices. considerable in extent is composed largely of States which have prohibited the establishment of branch banking offices—as, for example, in Minnesota, North Dakota, Kansas, Iowa, Illinois, Oklahoma, and Texas. Developments of this character have, however, by no means been restricted to these States. In certain other States, particularly in several which have restricted the development of branch banking to the building up of home-city or local branch systems, as in Michigan and New' York, as well as in California, which permits state-wide branch banking, and in Florida, Georgia, and Mon tana, chain or group banking has shown very considerable developments. There were in fact relatively few States in which no affiliation of banking institutions in chain or group systems was reported in December, 1929. The area within which such affiliations have been re- April, 1930 FEDERAL RESERVE BULLETIN 148 latively predominant, however, comprises the Central, Middle Western, Northwestern, and Western States. This chain or group banking area is in general relatively much more extensive and less clearly defined than the branch banking area. Data for banks in and not in chain or group systems, operating and not operating branches, are given, by States, in Tables 5 and 6. As has been noted above, a number of banks which operate branch systems, themselves operate as members of chain or group systems, and in individual instances these combined branch, chain, and group systems control very large resources and an extensive network of affiliated banks and branch offices operating in several States and comprising national with State banks. Number and loans and investments of chain or group systems.—At the end of December, a total of 287 bank chains or groups were in operation, embracing 2,103 banks, with total loans and investments in excess of $11,000, 000,000 or approximately one-fifth of total loans and investments of all banks in the country. Banks operating in chain or group systems on this date included 802 national, 136 State mem ber, and 1,165 nonmember banks. Changes during the last half of 1929 are summarized in the following table: . N u m b e r and L oans and I n v estm en ts o f B an ks O p e r a t in g in C h a in s or G r o u p s : J u n e and D ecem ber, 19 29 Number of banks Loans and invest ments (millions of dollars) Class of bank and date Total Members Total, Members of chains all banks of chains or groups1 or groups and to a relatively small number of systems— one system increasing in this period from 20 to 92 banks, and one from 12 to 78 banks, while one system not in existence in June was operating in December 35 banks. D ata for June and December are given, by States, in Table 7, and for the nine States showing the more considerable increases, changes during the last half year are summarized in the fol lowing table: Number of banks operating in chains or groups State Decem ber, 1929 Total................................................ Minnesota............................................. . North Dakota........................................... New York................................................. Washington............................................... Arkansas------ ------------------- -----------Montana................................................... Other States.............................................. 2,103 308 135 114 102 75 72 45 45 16 1,191 June, 1929 1,821 261 86 100 81 59 55 32 33 4 1,110 Increase 282 47 49 14 21 16 1 17 13 12 12 81 i May include some banks not known to be operating in chains or groups in June. Size of banking chains or groups.—Chain or group systems as reported for December, 1929, are classified by number of banks comprised in individual systems for States in Table 8. A summary of this classification is given below: . , . , Number of N u m b e r of b a n k s in c h ain o r g ro u p sy ste m : systems 3 b a n k s -------------------------------------------------------- 6 4 4 b a n k s _____________________________________ 5 6 5 b a n k s _____________________________________ 3 9 * 6 to 9 b a n k s ------------------------------------------------- 8 6 10 to 1 9 b a n k s ----------- ---------------------------------- 3 2 10 2 0 or m o re b a n k s ----------------------------------------T o ta l___________________________ — - 2 8 7 Of the larger chain or group systems in opera tion on December 31, a very considerable num ber comprised one or more banks operating Member banks: 9,305 branches, and while in a majority of instances 35, 934 938 8, 522 December....... - ................ 6,668 35,711 756 8,707 June_______ _______ ____ the banking offices of these systems, including National— 5,908 head offices of banks with their branches, were 21, 584 802 7, 403 December................... 4,159 located in the same State as the offices of the 21,457 645 7, 530 June.............. ............. controlling agencies, in some instances banks State— 3,397 and branches of a single system were located in 14,350 136 1,119 December.......... ........ 2,509 14, 254 111 1,177 June........... ......... ...... several States. One Minneapolis system con Nonmember banks: 1,872 trolled banks located in 8 States and in 4 Fed 1,165 22,483 16,108 December..... ............. ...... 1,632 eral reserve districts, and 1 group system with 22, 763 1,065 16,403 June................ .................. head office in New York City, with aggregate t Based largely on condition figures published in July. loans and investments in excess of $1,400,000, Increase during the last half of 1929 in the 000 comprised two extensive branch systems in number of banks affiliated in chain or group California, 1 of 287 and 1 of 160 branch offices, systems was confined largely to nine States, and 1 branch system of 34 branches located in All banks: December-........- ........ — June------------ ----------------- 24,030 25,110 2,103 1,821 58,417 58, 474 11,177 8,300 New York City. The system having the second largest aggregate of loans and investments com prised 5 banks with 179 branch offices located in three States—New York, California, and Pennsylvania. One Detroit system, the third largest in aggregate loans and investments, con trolled 21 banks with 213 branches all located in the State of Michigan, as were also the branches of banks comprised in two other systems with headquarters in Detroit. Detail of loans and investments and number of banks and branches is given in an accompanying table for chain and group systems with loans and investments in excess of $50,000,000. C h a in s or G ro u ps w it h L oans and I n v estm en ts in E x c ess of $ 5 0 ,0 0 0 ,0 0 0 : 1 9 2 9 Rank by loans and in vestments and loca tion of controlling agency and of bank ing offices controlled 149 FEDERAL RESERVE BULLETIN April, 1930 Number Loans and in vest ments, in thou sands of To dollars: tal To 1929 1 tal 1. New York City: Total__________ 1,418,361 278,482 California........ 1,139; 879 2. New York City: 815, 684 Total__________ 550,911 New York___ 225,072 39; 701 Pennsylvania. 3. Detroit: 705, 032 Michigan.......... 4. Boston: Massachusetts— 568,312 5. Chicago: 512, 069 6. Pittsburgh: 458,901 Pennsylvania— 7. Buffalo: 425, 436 New York_____ 8. Detroit: 403, 990 Michigan............ 9. Minneapolis: 339, 754 Total--------------Minnesota....... 208,180 15,116 14,875 22,213 South Dakota. 35,358 24,338 8,973 Wisconsin....... 10,701 Washington... 10. Minneapolis: 339, 267 Total_________ Minnesota....... 252, 785 53,496 14, 378 North Dakota. 9,727 8i 881 11. New York City: 328, 789 New York_____ 12. Chicago: 270,719 13. Boston: Massachusetts... 194,642 14. Chicago: 171,453 15. Milwaukee: Wisconsin........... 168,466 16. Pittsburgh: 167,180 Pennsylvania— 17. Providence: 153,331 Rhode Island— 500 35 405 18 1 17 184 81 95 8 5 3 1 1 of banking offices Dec. 31, 1929 Banks Not op Operat Branches erating ing branches branches 4 1 3 482 34 448 1 1 4 2 1 1 179 78 94 7 14' 14 234 21 9 12 213 51 20 13 7 31 7 7 7 6 0 6 65 19 13 6 46 10 74 109 35 25 95 49 7 9 10 8 4 7 1 92 40 7 9 10 8 4 7 1 1 91 3 45 1 3 7 9 10 8 4 7 1 _____ __ _____ __ 81 39 13 15 11 3 78 36 13 15 11 3 77 35 13 15 11 3 1 1 3 3 2 71 1 12 4 74 3 1 14 14 14 18 6 5 5 5 5 22 18 17 1 8 7 6 1 1 17 3 2 1 14 1 Figures based largely on July Bankers Directory. C h a in s or G ro u ps w it h L oans and I n v e st m e n t s in E xc ess o f $ 5 0 ,0 0 0 ,0 0 0 : 1 9 2 9 — C o n tin u e d Rank by loans and in vestments and loca tion of controlling agency and of bank ing offices controlled 18. San Francisco: Total.................. California........ Washington... 19. Buffalo: New York........ 20. Chicago: 21. Nashville: Total................... Tennessee....... 22. Syracuse: New York.......... 23 Atlanta: Georgia............... 24. Louisville: Total__________ Kentucky....... Ohio................ 25. Jersey City: New Jersey......... 26. Kansas City: Missouri......... 27. Seattle: Washington....... 28. Tulsa: 29. Savannah: Total................... Georgia............ South Carolina 30. Detroit: Michigan............ 31. Columbus: Ohio................... 32. Augusta: Maine............... 33. Boston: Massachusetts... 34. St. Paul: Number of banking offices Dec. 31, 1929 Loans and in vest Banks ments, in thou sands of To Branches dollars: tal op Operat To Not 1929 1 ing erating tal branches branches 146,138 145,006 1,072 IS 17 1 17 16 1 16 15 1 1 1 1 1 1 18 132,477 21 3 2 132, 329 3 3 3 131,308 97,028 34,280 86 31 55 66 11 55 61 6 55 5 5 20 20 115, 559 27 14 13 1 13 104,954 17 7 6 1 10 97,429 72,341 25,088 17 10 7 5 3 2 1 1 4 2 2 12 7 5 94, 382 13 3 2 1 82,025 5 5 5 10 __ _____ 1 2 5 4 1 2 1 1 10 9 1 13 11 2 29 4 3 1 13 9 7 2 17 3 7 6 78, 298 9 7 77,753 76-, 181 '915 657 21 19 1 1 21 19 1 1 21 19 1 • 1 67, 683 59,951 7, 732 17 14 3 7 5 2 61, 701 42 61, 302 17 59, 576 26 55,7S5 15 8 5 52,932 32’ 919 1,893 15|233 2,887 71 30 1 32 8 71 30 1 32 8 71 30 1 32 8 Types of banking chains or groups.—Three types of chain or group systems have been re ported, which may be characterized with refer ence to the controlling agency, as follows: (1) Instances where control is exercised by a holding corporation, which has usually been formed by interests connected with one or more of the principal banks belonging to the system. (2) Instances where control is exercised by the principal bank of the system, either through direct ownership of stock by the bank, or through owner ship by the stockholders or direc tors of the bank. 150 FEDERAL RESERVE BULLETIN (3) Instances of ownership of controlling or substantial interest in a number of banks by an individual, family, or group of individuals. Chain or group systems in the several States are classified with reference to these types of control in Table 8. Recent developments have been conspicuously of the first and second t 3rpes noted, and these developments, commonly utilizing holding companies as controlling agencies, have been distinguished in some dis cussions as “ group systems,” the designation of “ chain system” being reserved for organiza tions of the third type. These classifications by types of control are, however, very general, since the actual method and agency of control varies from system to system and may in the case of any given system be modified from time to time. Suspension or failure of banks operating in chains or groups.—On the basis of the best information available, which is admittedly un satisfactory for earlier years, it appears that a total of 226 banks, with deposits of $102, 000,000, reported as belonging to 50 different bank chains or groups suspended operations during the 9-year period 1921-1929. Of these banks 61, with deposits of $35,000,000, were subsequently reopened. Classification of States.—In the tables giving details by States for chain, group, and branch banking developments, the States have been grouped with reference to provisions in State laws permitting, restricting, or prohibiting the establishment of branches. No attempt has April, 1930 been made to group States with reference to laws affecting the ownership of bank stock by holding corporations, so as to show in which ‘States the growth of chain or group systems may be retarded under such provisions. A majority of the States have, in fact, adopted no laws specifically regulating the development of chain or group systems. As has been noted, however, developments of this character have been more or less affected by provisions in State laws relating to branch banking, and the grouping of States with reference to their branch banking regulations has accordingly some significance for chain or group banking developments. State-wide branch banking is permitted in 9 States; the establishment of branches in the home city of the parent bank or in territory nearly contiguous thereto is permitted in 10 States; the establishment of any branches whatever is prohibited in 22 States; and 7 States have enacted no legislation expressly either permitting or prohibiting establishment of branches. In Kentucky, however, which is included as one of these 7 States, the establish ment of additional offices or agencies is per mitted under court decisions, and 28 such offices were in operation in December; and in Michigan, another of these 7 States, the State banking department has raised no objection to the establishment of home-city branches, of which there were 439 in operation at the end of 1929. The grouping of States with reference to branch banking provisions in State banking codes is shown on page 258 of this issue of the B u l l e t in . FEDERAL RESERVE BULLETIN April, 1930 151 T able 1.— Summary of B ranch B anking D evelop T able 2.— N umber of Banks O perating B ranches and N umber of Branches in O peration, by ments:1924-1929 States,for Specified D ates Dec. 31, 1929 Class of bank or branch June 30, 1929 Number of banks: Total.-.---------- ------------ 24. 030 25,115 822 Operating branches........ S18 164 National banks_____ 166 State bank members. 190 ISO Nonmember commercial banks........ 407 39S M utual savings 62 65 banks..................... 4 4 Private banks........... N um ber operating branches— Only in home city... Only outside home city.......................... Both in and outside home city............... Number of parent banks in cities with population of— 100,000 or more........ 50,000 to 100,000____ 25,000 to 50,000.......... Less than 25,000______ Number operating— 1 branch................. . 2 branches_________ 3-5 branches............. 6-10 branches............ 11-30 branches______ Over 30 branches___ Number of branches: Total................................ Of national banks.. . Of State bank members_______ ______ Of nonmember commercial banks....... Of mutual savings banks___ ________ Of private banks----In home city............. Outside home city... Outside branches in places with population of— 9wo r,o 5,000 s’nm to iii.ooo . ___ Number established— De novo as branches By conversion of Net reported--------- June 30, 1928 Feb. 25, 1927 June 30, 1924 Number of banks operat ing branches Class of bank or State 25,950 835 169 186 26,973 779 145 189 28,996 714 10S 191 415 387 387 58 7 50 8 28 (>) 517 518 526 476 391 257 252 262 261 283 4S 48 47 42 40 351 81 75 315 359 84 70 305 372 81 66 316 353 65 61 300 284 289 * 33 376 129 448 150 124 41 41 18 443 153 130 37 38 17 469 150 126 35 41 14 446 127 124 35 35 12 3, 547 1,027 3, 440 993 3,230 941 2,900 390 2,293 248 1,299 1,298 1, 220 1,560 1,137 1,115 1,046 973 863 90S 99 7 96 7 86 10 70 11 2, 432 1,115 2, 362 1,078 2, 214 1,016 1,929 971 612 136 86 281 591 133 84 270 572 128 79 237 2,379 2,329 2,214 1,996 1,017 151 958 153 853 163 735 169 *33 Virginia.......... ........ , Dec. June Feb. June Dec. June Feb. June 25, 25, 31, 30, 30, 30, 30, 31, 1929 1929 1927 1924 1929 1929 1927 1924 822 166 180 407 65 3.547 3,440 2.900 2,293 1,027 993 390 248 1,299 l, 298 1.500 1, 137 863 ! 90S 1,115 1,046 76 99 96 (*) 11 7 7 (*) 818 164 190 398 62 4 779 145 189 387 50 8 714 108 191 387 28 (») 215 7 54 7 11 33 42 11 12 226 8 72 5 10 35 40 11 8 38 37 237 1,286 1,265 1,120 22 22 23 6 762 861 99 863 12 14 5 13 24 23 20 11 124 125 27 113 74 40 77 77 29 35 35 9 50 57 25 9 10 60 60 61 31 4 STATE-WIDE BRANCH BANKING PERMITTED 216 7 53 7 12 30 39 11 11 7 39 835 20 538 18 19 88 66 21 20 45 BRANCHES RESTRICTED AS TO LOCATION Total............. Georgia................... Kentucky............... Louisiana......... ...... Maine___________ Massachusetts........ Michigan_________ Mississippi............. New Jersey......... . New York________ Ohio....................... Pennsylvania_____ Tennessee............... 581 16 10 42 24 88 62 11 55 106 55 80 32 578 16 9 42 24 86 61 11 53 106 58 81 31 526 21 5 41 24 79 68 11 14 106 53 82 22 447 2.207 2.121 1.726 34 39 21 39 28 26 13 4 108 106 106 34 54 63 61 23 154 161 133 61 439 433 401 63 25 25 25 11 21 103 14 103 682 722 517 77 268 259 231 51 131 185 169 67 55 68 67 21 1.397 53 12 93 47 98 332 25 21 362 203 98 53 ESTABLISHMENT OF BRANCHES PROHIBITED BY LAW* 1,508 785 2Not separately tabulated; included with “ State bank nonmembers. 5Mutual savings and private banks. Total_______ Arizona................... California................ Delaware........... . Dist. of Columbia-. Maryland....... ........ North Carolina___ Rhode Island_____ South Carolina___ (J) I 1 March. 1927. Total............. National_________ State member......... State nonmember.. Mutual savings___ Private.................... Number of branches ,, Total............. Alabama................. Arkansas........ ........ 25 5 2 25 5 2 27 5 2 Wisconsin............... 4 2 2 1 3 6 4 2 2 1 3 6 4 2 2 1 4 7 30 5 2 1 4 3 2 1 5 7 54 19 3 54 19 3 54 19 3 9 6 2 1 5 9 9 6 2 1 5 9 8 6 2 1 6 9 61 19 3 1 8 11 2 1 7 9 i Not separately tabulated. * Branches reported were established prior to prohibitory legislation. Other States which have prohibited establishment of branches in which no branches were in operation include Colorado, Connecticut, Idaho, Illinois, Iowa, Kansas, Missouri, Montana, Nevada, New Mexico, Texas, Utah, West Virginia. States which have enacted no legislation especting branch banking in which, also, no branches were m operation .nclude: New Hampshire, North Dakota, Oklahoma, South Dakota, U ’ l.nm im r 152 FEDERAL RESERVE BULLETIN April, 1030 Table 3. N umber of Banks Operating B ranches and N umber of Branches in Operation,by Class of Bank , by States: D ecember 31, 1929 Number of banks operating branches States Total______ ___________________ 822 State National member 166 180 Non member 476 FEDERAL RESERVE BULLETIN Banks in chains or groups Total 3,547 Location 1 State Non National bank banks members member banks 1,027 1,299 State In home city Outside home office city 2,432 1,115 1,221 Total............................. Number of banks Total____ ____________________ _ 216 7 53 7 12 30 39 11 11 7 39 North Carolina_______ _______________ Rhode Island................. ........ ................ South Carolina........................... ........... Vermont_____________ ______ ________ Virginia................................ ............... 37 23 156 1,286 12 2 5 2 5 36 22 Total number 24,630 2,103 2 6 25 33 6 3 6 7 28 8 13 24 124 77 35 57 10 61 480 12 8 2 8 24 7 26 10 278 11 12 92 66 7 318 24 68 11 16 10 38 12 27 811 Total............................................. 581 16 10 42 24 88 62 11 55 106 55 80 32 121 151 309 2,207 17 11 1 18 32 8 16 9 1 16 30 19 37 20 17 35 23 55 21 10 18 37 27 47 23 28 1,099 63 439 25 Total..................... ................... 25 5 2 4 2 2 1 3 6 8 6 1 2 2 1 1 545 10 56 66 19 49 34 Total................ 2,045 64 54 46 437 47 41 230 416 33 217 104 474 6 49 3 6 41 3 8 547 3 2 1 2 1 1 1 1 14 1 1 1,286 3, 331 22 863 13 24 124 77 35 57 10 61 68 1,300 60 65 354 493 68 274 114 535 1,775 40 388 44 41 230 416 30 215 103 474 33 343 37 45 316 20 205 10 10 21 56 2C6 405 1C4 836 7, C87 6,610 477 1,371 2, 207 9,803 20 13 8 7 32 109 20 47 84 3 41 21 2 3 2 5 13 26 1 13 18 3 7 11 19 13 9 21 53 353 2 27 271 18 13 37 383 556 215 121 405 608 287 508 1,025 1,009 1,518 452 369 549 175 102 330 572 277 466 937 957 1,445 431 14 7 40 19 75 36 10 42 88 52 73 21 20 15 97 42 108 86 23 76 451 250 172 31 39 28 106 63 161 439 25 103 722 268 185 68 444 600 331 196 611 1,182 333 671 1,849 1,283 1,751 552 37 54 13,418 19 369 418 274 237 235 137 1,765 978 1,257 1,069 1,052 1, 277 195 806 35 56 235 1,308 104 345 297 969 19 3 24 10 1 33 9 38 i ' 3 ESTABLISHMENT OF BRANCHES PROHIBITED 1 2 1 , fut3? Ranches located in head-office cities, 687 were operated by national banks, 1,163 by State bank members, and 582 by nonmember banks. Of tne 1,115 branches located outside head-office cities, 340 were operated by national banks, 136 by State bank members, and 639 bv nonmember banks. J 3Branches reported were established prior to prohibitory legislation. See note 2 attached to Table 2. 724 1,981 22 16 10 12 45 135 21 60 102 6 48 32 8 f5 o -- 562 509 18 1 10 405 572 225 133 450 743 308 568 1,127 1,015 1,566 484 27 9 6 2 1 28,177 7,596 11 2 3,547 Total___ 43 19 2,132 Georgia............ Kentucky____ Louisiana........ Maine— ......... Massachusetts. Michigan......... Mississippi___ New Jersey___ New York....... Ohio................. Pennsylvania.. Tennessee____ 19 ESTABLISHMENT OF BRANCHES PROHIBITED BY LAW Alabama................................................... Arkansas............................................... Indiana___________ ____ _____ Minnesota......................................... Nebraska...... ...................................... Oregon................................................ Washington_____________________ Wisconsin_________ _____________ 703 23 3 57 24 25 21,824 277 722 185 68 22,527 16 25 49 6 142 436 1 93 721 235 176 30 60 1 1,415 1,930 4 10 8 119 BRANCHES RESTRICTED AS TO LOCATION 9 1 1,984 Arizona.................... . California.................. Delaware__________ District of Columbia. Maryland.................. North Carolina......... Rhode Island_______ South Carolina....... . Vermont.................... Virginia..................... BRANCHES RESTRICTED AS TO LOCATION Georgia_____________________________ Kentucky_________ _________________ Louisiana___________ ______________ Maine............................................ ......... Massachusetts_____________________ Michigan___________________________ Mississippi............................................... New Jersey__________________ . . New York................................................ Ohio............ ............. ............................... Pennsylvania____ ___________________ Tennessee................................................. Number operating Total no Number number branches Number of branches Total number Total of bank number Number ing offices of operating (branches no Number branches plus branches Number of banks) branches Operating branches STATE-WIDE BRANCH BANKING PERMITTED 475 12 105 Banks not in chains or groups Operating branches STATE-WIDE BRANCH BANKING PERMITTED Arizona..................................................... California___________________________ Delaware.................................................. District of Columbia............................... 153 T able 4. Banks i n Chains or G roups, Operating and N ot O perating B ranch O ffices, N umber of Branches,and T otal of Banking Offices (Banks Plus Branches),by States:D ecember 31, 1929 Number of branches Operated by— Total April, 1930 Total....... Alabama........... Arkansas........... Colorado........... . Connecticut___ Florida.............. . Idaho................. Illinois................ Indiana________ Iowa.................. Kansas.............. Minnesota_____ Missouri............. Montana______ Nebraska______ Nevada.......... . New Mexico___ Oregon.............. . Texas.................. Utah.................. . Washington____ West Virginia... Wisconsin......... . 13,364 1,238 350 415 274 237 235 137 1,765 969 1,257 1,069 1,046 1, 277 195 804 35 56 234 1, 308 104 340 297 900 22 72 16 8 40 41 84 17 87 88 308 30 45 73 13 9 36 84 26 75 58 1,233 5 17 12,126 22 72 16 _________ ........... 8 40 41 84 16 1 5 87 88 306 2 6 36 45 73 13 9 36 84 26 74 1 2 328 343 258 229 195 96 1, 681 952 1,170 981 738 1,241 150 731 22 47 198 1,224 78 265 297 902 57 1 4 12,106 341 258 229 195 96 1,681 949 1,170 981 738 1,241 150 729 22 47 197 1,224 78 263 297 897 20 3 4 6 1 O 3 5 5 5 9 NO PROVISION IN STATE LAW REGARDING BRANCH BANKING Total......... 1, 625 New Hampshire. North Dakota... Oklahoma.......... South Dakota... Wyoming______ 123 412 617 387 86 292 114 85 61 32 292 1,333 1,333 1,625 114 85 61 32 123 298 532 326 54 123 298 532 328 54 123 412 617 387 86 April, 1930 FEDERAL RESERVE BULLETIN 154 April, 1930 FEDERAL RESERVE BULLETIN 155 T able 5.— Loans and Investments of Banks in and N ot in Chain or G roup Systems, Operating and N ot Operating Branches, by States:D ecember 31, 1929 T able 6.— N umber and Loans and Investments of M ember Banks in and N ot in Chain or G roup Sys tems,O perating and N ot Operating Branches,by States: D ecember 31, 1929 [In millions of dollars] [Amounts in millions of dollars] Banks in chains or groups State All banks Total Operating Operating no branches branches Total Operating Operating no branches branches In chains or groups 58,417 11,177 4,913 6,264 47,240 28,401 Total............ ............................................................... California.............................................. - ............................ Rhode Island......................................................................... South Carolina.................................................................... 6,623 1,709 213 81 3,420 167 245 837 370 533 169 250 551 18 1,528 1 18 178 1 153 8 1 11 4 1 1,496 1,350 142 4 Total.................. 8,522 4,914 2,326 2,588 63 1,892 166 245 837 370 380 161 249 551 38 553 60 98 521 219 147 108 222 360 25 1,339 106 147 316 151 233 53 27 191 BRANCHES RESTRICTED AS TO LOCATION Total...................... ........ ............................................. 36,642 5,986 1,624 4,362 30,656 14,500 16,156 Georgia................................................................................... Kentucky............................................................................... Louisiana........ ........ ........................... ...............- ................ Maine....... .................. ........................................................... Massachusetts............ ........................................................... Michigan........................................................... ........ ........ Mississippi........................................................................... New Jersey.......... ................................- .............................. New York_____________________ ___________ _________ - 334 554 429 433 4,225 2,021 212 2,388 17,222 2,691 5, 703 430 166 124 33 70 871 1,262 15 396 2,011 86 803 149 35 37 17 21 91 302 12 160 226 32 668 23 131 87 16 49 780 960 3 236 1,785 54 135 126 168 430 396 363 3,354 759 197 1,992 15,211 2,605 4,900 281 136 360 165 282 2,311 534 170 1,163 4,849 1,226 3, 093 211 32 70 231 81 1,043 225 27 829 10,362 1,379 1,807 70 Pennsylvania......................................................................... Tennessee........................................... - ................................. 1 Total 18,839 STATE-WIDE BRANCH BANKING PERMITTED ESTABLISHMENT OF BRANCHES PROHIBITED Not in chains or groups In chains or groups Not in chains or groups State Total Total.................................................................... ........ Loans and investments of member banks Number of member banks Banks not in chains or groups 938 Operat Operat Operat Operat Total ing no ing ing no Total ing branches branches branches branches 855 83 7,584 7,321 263 35,934 Total 9,305 Opeiat- Operat Operat Operat ing no ing ing Total ing no branches branches branches branches 3,726 13,275 13,354 2,770 1, 106 1,664 36 1,297 SO 127 322 174 179 95 69 391 21 350 33 45 158 117 25 53 69 235 15 9-17 47 82 164 57 154 42 4,012 17,488 5,579 26, 629 STATE-WIDE BRANCH BANKING PERMITTED Total Arizona........................ California..................... Delaware____________ District of Columbia.. Maryland..... ........... . North Carolina........... Rhode Island________ South Carolina______ Vermont....................... Virginia........................ 710 35 30 17 217 20 12 85 72 14 55 46 172 1 30 1 26 2 1 1 1 1 1 5 4 1 675 620 55 4,106 1,336 176 16 187 20 12 85 72 12 54 45 172 14 174 18 6 SO 66 7 49 45 161 2 13 2 6 5 6 5 5 42 2,474 80 127 322 174 328 98 70 391 6 1,177 6 159 149 3 1 7 3 1 11 1,100 1,018 142 156 BRANCHES RESTRICTED AS TO LOCATION Total........... 3,315 277 204 73 3,038 2,839 199 22,707 5,219 1,207 Georgia................ . Kentucky............ . Louisiana............ . Maine.................. . Massachusetts___ Michigan............. . Mississippi.......... . New Jersey........... New York........... . Ohio..................... Pennsylvania___ Tennessee............ . 115 145 42 55 177 273 38 364 666 388 948 104 14 12 6 5 34 53 2 40 70 5 25 11 11 9 5 5 24 32 2 32 55 2 21 6 3 3 1 101 133 36 50 143 220 36 324 596 383 923 93 97 130 30 49 120 200 35 295 542 358 894 89 4 245 3 328 6 283 1 145 23 1,691 20 1,460 1 77 29 1,525 54 11,005 25 1,958 29 3,705 4 285 164 118 30 15 835 1,074 8 207 1,862 84 717 105 29 31 17 15 71 143 8 98 170 30 589 6 10 21 8 15 3 4 5 135 87 13 764 931 109 1,692 54 128 99 5,859 11,629 81 210 253 130 856 386 69 1,318 9,143 1,874 2,988 180 69 148 87 127 381 224 68 709 1,207 711 2,005 123 12 62 166 3 475 162 1 609 7,936 1,163 983 57 5,987 5,926 180 92 195 302 44 28 1,656 '409 281 177 66 719 44 144 10 28 140 769 54 148 202 299 180 92 195 802 44 28 1,656 397 281 177 66 719 44 136 10 28 139 769 54 146 202 261 ESTABLISHMENT OF BRANCHES PROHIBITED Total.......... .................. ..................... .........- ........... - Indiana..... .............. ................................. ........................ - TTtah _ _________ Washington_____ ________________________ ____________ Wisconsin.............................................................................- 14,130 3,252 2,846 406 282 198 262 1,336 258 81 3,802 '863 782 404 901 1,199 144 359 38 41 260 1,036 162 460 345 917 32 50 30 37 134 37 1, 212 41 90 46 583 158 81 62 20 3 82 104 50 188 32 50 30 37 134 37 1,212 19 90 46 402 158 81 62 20 3 82 104 50 120 181 212 77 135 22 68 10,878 10, 785 93 250 148 232 1,299 124 44 2,590 '822 692 358 318 1,041 63 297 18 38 178 932 112 272 345 705 237 146 232 1,299 124 44 2,590 796 692 358 318 1,041 63 289 18 38 177 932 112 269 345 665 13 2 26 8 1 3 40 Total... 3,895 483 478 Alabama......... Arkansas___~ Colorado......... Connecticut... Florida........... Idaho.............. Illinois............ Indiana.......... Iowa________ Kansas............ Minnesota___ Missouri......... Montana........ Nebraska....... Nevada........... New Mexico.. Oregon........... Texas.............. Utah............... Washington... West Virginia. Wisconsin___ 119 94 123 67 61 60 544 234 291 252 276 187 88 160 10 29 120 689 42 146 131 172 13 17 11 4 19 15 29 4 34 25 134 14 21 22 3 5 23 28 10 31 13 17 11 4 19 15 29 3 34 25 132 14 21 22 3 5 23 28 10 30 2 21 20 1 NO PROVISION IN STATE LAW REGARDING BRANCH BANKING 1,019 311 112 401 137 58 230 58 103 47 22 5 1 1 3,412 3,403 9 106 77 112 63 42 45 515 230 257 227 142 173 67 138 7 24 97 661 32 115 131 151 105 77 112 63 42 45 515 229 257 227 142 173 67 136 7 24 96 661 32 114 131 148 1 8,544 2,557 2,150 211 125 218 306 164 54 2,575 1 436 350 203 535 856 113 2 190 18 30 1 214 861 86 1 317 202 3 480 31 33 23 4 120 26 919 27 69 26 469 137 69 46 8 2 74 92 32 169 31 33 23 4 120 26 919 5 69 26 288 137 69 46 8 2 74 92 32 100 isi 181 46 135 407 22 69 NO PROVISION IN STATE LAW REGARDING BRANCH BANKING 230 789 789 Total........ 602 58 103 47 22 311 54 298 90 36 311 54 298 90 36 New Hampshire North Dakota... Oklahoma_____ South Dakota... Wyoming........... 57 122 294 101 28 1Less than $500,000. 143 44 55 34 10 143 459 459 578 44 55 34 10 57 78 239 67 18 57 78 239 67 18 73 71 331 69 34 193 44 97 37 15 193 385 385 44 97 37 15 73 27 234 32 19 73 27 234 32 19 61 0) 12 8 1 2 38 156 FEDERAL RESERVE BULLETIN April, 1930 T able 7.— N ational,State M ember,and N onmember Banks in Chain or G roup Systems— N umber and Loans and Investments, by States:June and D ecember, 1929 [Amounts in millions of dollars] Number of banks in chains and groups State Total April, 1930 FEDERAL RESERVE BULLETIN T able 8.— Size of C hain or G roup Systems and C haracter of Controlling A gency, by States: D ecember 31, 1929 Bank chains or groups Loans and investments of banks in chains or groups 1 Number comprising— National State member Nonmembor Total National State member Nonmember Dec. June Dec. June Dec. June 2,103 1,821 802 6-15 136 111 Dec. June Dec. June 1,165 1,065 11,177 8,300 Dec. June Dec. June Dec. 5,908 4,159 3,397 2,509 1,872 Controlled by— State Total number Total......... 157 June 1,632 Total. 287 3 banks 4 banks 5 banks 64 56 39 6 to 9 banks 86 10 to 19 banks 20 or * more 32 10 Maxi mum size1 Holding com panies 92 Individ uals Banks 53 44 190 i 4 STATE - W I D E B R A N C H B A N K I N G P E R M I T T E D STATE - W I D E B R A N C H B A N K I N G P E R M I T T E D Total......... Arizona........... California.......... Delaware..... ...... District of Columbia__ Maryland.......... North Carolina.... . Rhode Island........ South Carolina...... Vermont........... Virginia............ 64 65 33 33 2 4 29 28 1,709 1,656 969 864 367 368 371 423 6 49 o 6 51 3 1 29 1 30 1 3 5 19 3 5 18 18 18 1,528 1,476 1 1 3 6 952 6 848 225 226 12 350 1 12 402 1 3 2 1 3 2 1 1 1 4 4 4 4 1 1 1 1 i 1 1 1 153 8 1 153 8 7 3 1 7 3 142 142 Total...... Arizona.......... California....... Delaware........ District of Columbia. Maryland....... North Carolina____ Rhode Island_____ South Carolina____ Vermont... ..... Virginia.......... 8 1 5 1 3 1 1 1 3 1 1 2 1 17 3 1 6 17 3 3 1 3 1 2 i 1 B R A N C H E S R E S T R I C T E D AS T O L O C A T I O N B R A N C H E S R E S T R I C T E D AS T O L O C A T I O N Total......... Georgia............ Kentucky.......... Louisiana.......... Maine............ . Massachusetts.... .. Michigan.. ........ Mississippi......... New Jersey......... New \ ork... .'...... Ohio.. ...... Pennsylvania...... . Tennessee... ....... 509 387 193 143 84 62 232 22 16 10 12 45 135 21 60 102 6 48 32 20 4 10 5 33 86 21 56 81 9 10 6 5 27 28 2 26 52 2 15 11 8 4 6 2 19 9 2 25 45 5 2 4 8 4 4 48 23 15 8 7 25 14 18 3 10 6 12 14 16 10 11 82 19 20 32 1 23 21 182 5,986 4,027 8 4 3 8 65 19 17 20 23 15 166 157 8 124 33 33 53 70 871 530 428 1.262 15 15 396 358 2,011 1,571 86 782 803 149 92 2,604 1,581 2,617 1.876 770 573 144 78 30 15 762 366 8 97 624 31 344 105 143 21 8 40 30 10 281 73 21 708 8 109 98 576 1,238 M 344 374 62 14 2 7 3 55 36 188 8 190 149 9 86 44 1 225 348 76 861 352 3 43 25 59 8 184 134 86 30 Total__ 84 30 15 Georgia..... Kentucky... Louisiana... Maine______ Massachusetts. Michigan... Mississippi__ New Jersey__ New York___ Ohio___ ___ Pennsylvania.. Tennessee... 5 3 2 2 5 11 3 15 20 2 12 4 2 1 1 1 10 1 3 2 1 1 1 3 1 1 2 3 1 2 1 1 1 10 7 7 2 1 1 2 4 2 2 17 1 3 8 3 1 4 1 2 3 1 1 66 25 29 30 7 9 6 9 1 2 1 1 2 1 3 35 10 9 19 4 7 66 3 10 2 4 6 «3 1 14 133 1 1 12 1 1 8 E S T A B L I S H M E N T OF B R A N C H E S P R O H I B I T E D E S T A B L I S H M E N T OF B R A N C H E S PROHIBITED Total... ...... Alabama.......... Arkansas........... Colorado.......... . Connecticut........ . Florida........ .... Idaho............. Illinois............ Indiana............ Iowa... .... Kansas............ Minnesota.......... Missouri........... Montana....... ... Nebraska........... Nevada.......... . New Mexico....... . Oregon............ Texas............. Utah.. .......... . W ashington......... V est Virginia....... Wisconsin...... .... 1,238 1,101 22 72 16 8 40 41 84 17 87 88 308 36 45 73 13 9 36 S4 26 75 19 55 16 43 41 79 10 S3 85 261 34 32 68 16 8 33 79 27 59 .... 58 53 438 13 15 11 4 19 11 20 3 33 24 132 9 16 22 3 5 18 25 6 28 21 361 10 10 11 14 11 19 2 31 22 103 9 8 18 4 5 16 21 6 22 45 40 2 2 4 9 1 1 1 2 5 5 4 8 1 1 I 2 5 3 5 3 4 3 5 3 4 1 19 755 9 55 5 4 21 26 55 13 53 63 174 22 24 51 10 4 13 56 16 44 37 700 3,254 2,416 9 43 5 29 26 52 7 51 62 156 20 21 50 12 3 12 55 17 34 32 50 30 37 134 37 1,212 41 90 46 584 158 81 62 20 3 82 104 50 189 212 7 41 30 129 37 996 30 73 44 269 157 45 27 23 3 82 89 50 79 205 2,145 31 22 23 4 120 17 729 4 68 24 467 26 41 46 g 2 71 78 29 154 181 1,552 411 262 7 15 23 11 11 94 17 663 4 51 22 194 26 13 9 190 22 1 1 2 111 29 9 2 69 62 29 03 3 14 3 15 696 599 Total...... 9 61 22 1 1 • 2 111 23 I 17 7 33 14 11 293 14 21 20 115 20 12 35 u 271 3 21 20 74 20 9 3 14 3 1 12 1 8 12 18 20 10 12 18 15 175 31 x 14 7 SO Alabama..... ... Arkansas..... ... Colorado.. ..... . Connecticut...... . Florida......... . Idaho.... ...... . Illinois... ...... . Indiana......... . Iowa.. ......... . Kansas..... .... . Minnesota_______ Missouri_________ Montana......... Nebraska...... . Nevada.......... New Mexico...... Oregon........... Texas___________ Utah........... Washington...... West Virginia..... Wisconsin... .... 171 28 4 3 3 1 6 3 12 3 12 19 37 7 2 10 1 2 7 16 5 12 1 6 1 38 23 57 20 1 1 1 1 1 1 4 1 5 2 1 6 18 3 2 3 1 1 1 2 i l 2 2 i 2 4 1 1 1 4 4 5 6 4 1 3 7 2 4 1 5 1 2 4 4 3 2 1 1 5 I 5 1 3 2 1 1 1 3 1 1 4 2 1 i l l 1 1 l 92 24 10 11 8 7 8 10 16 7 17 1 92 9 8 10 12 5 10 12 25 22 18 1 1 1 5 3 1 9 12 19 34 6 3 1 10 1 5 i 1 1 14 5 i 5 N O PROVISION IN S T A T E L A W R E G A R D I N G B R A N C H B A N K I N G N O PROVISION IN S T A T E L A W R E G A R D I N G B R A N C H B A N K I N G Total......... New Hampshire...... North Dakota........ Oklahoma__________ South Dakota....... Wyoming.......... 292 26S 138 108 114 85 61 32 100 82 54 32 44 54 31 9 30 45 24 9 5 5 149 155 230 201 192 162 1 3 1 70 30 27 22 70 36 27 22 58 103 47 22 44 96 39 22 44 97 36 15 30 2 2 35 36 14 14 Total... 1 3 1 28 15 2 2 9 6 9 6 New Hampshire. North Dakota... Oklahoma____ South Dakota... Wyoming_____ 24 3 6 8 5 5 1 1 1 2 6 9 3 1 2 3 4 2 1 1 2 1 2 1 2 1Based largely on figures taken from the Bankers Directory for June, 1929. 1Maximumnumber of banks in any single chain or group system. 21 i 14 21 7 5 i 23 6 5 158 FEDERAL RESERVE BULLETIN April, 1930 April, 1930 FEDERAL RESERVE BULLETIN 159 N A T I O N A L S U M M A R Y O F BUSI N E S S C O N D I T I O N S [C o m p iled M a rc h 2 1 a n d released fo r p u b lic a tio n M a rc h 24 ] Industrial production increased in February, while the number of workers employed in fac tories was about the same as in January. Wholesale commodity prices continued to decline. Credit extended by member banks was further reduced in February, but increased in the first two weeks of March. Money rates continued to decline. Production.—In February industrial produc tion increased about 2 per cent according to the board’s index, which is adjusted to allow for seasonal variations. This increase reflected chiefly a substantial gain in the output of iron and steel. Automobile production was in larger volume than during January but was 30 per cent smaller than the large output of a year ago. Cotton and wool consumption by mills was substantially lower in February, and production of bituminous coal and copper also decreased. In the first two weeks of March the output of steel mills declined in comparison with February, contrary to the usual seasonal move ment. Bituminous coal output also was smaller. The volume of building contracts awarded in February was about the same as in the preced ing month, according to the F. W. Dodge Corporation. Residential building continued at an exceptionally low level, while contracts for public works and utilities were large in comparison with the corresponding month in other recent years. Awards in the first two weeks of March were larger than in the first half of February. Employment.—The volume of factory em ployment, which had reached a low point in January, showed little change in February, when an increase usually occurs. Factory pay rolls increased during the month, but by a smaller amount than is usual at this season. In the steel, automobile, agricultural imple ment, and tobacco industries, employment in creased during the 4-week period, while further decreases occurred in the cotton and wool textile, lumber, automobile tire, electrical ma chinery, and machine-tool industries. Distribution.—Freight car-loadings on an average daily basis were slightly larger than in January, but smaller than in the correspond ing month of any other recent year. Slight seasonal increase was reported during early March. Department-store sales in February continued to be below the level of a year ago. Prices.—Wholesale prices of commodities declined further during February, and the Bureau of Labor Statistics index at 92.1 per cent of the 1926 average was at the lowest point since January, 1922. Marked declines oc curred during the month in the prices of many agricultural products—grains, hides, raw wool, and cotton; in certain imported raw materials, notably sugar and silk; and also in textiles, petroleum, and pig iron. During the first part of March, a number of these commodities declined still further in price. Wheat and cotton prices were con siderably lower, and silver reached the lowest point on record. By the middle of the month, however, prices of cotton, hides, and silver had recovered somewhat. Bank credit.—Liquidation of credit at mem ber banks continued throughout February, and on February 26 total loans and investments of member banks in leading cities were in about the same volume as in the early summer of last year. During the following two weeks, however, there was an increase of $230,000,000 in loans and investments, chiefly in loans on securities. All other loans, largely for commer cial purposes, increased slightly. From the middle of February to the middle of March the volume of reserve-bank credit outstanding decreased further by $90,000,000. This decline reflected chiefly an increase in gold stocky of $75,000,000 and a further decline of money in circulation, offset in part by some increase in member-bank reserve balances. Member-bank indebtedness at the reserve banks declined to $267,000,000, the lowest level since early in 1925; reserve-bank holdings of bills declined, while those of United States securities increased. Money rates in the open market eased fur ther, and bond yields declined rapidly to the lowest level since 1928. At the middle of March the discount rate at the Federal Reserve Bank of New York was reduced from 4 to 3% per cent, and the rate at the Cleveland, Phila delphia, and San Francisco banks from 4% to 4 per cent. F E D E R A L R E S E R V E B A N K CREDIT BANK CREDIT OUTSTANDING AND PRINCIPAL FACTORS IN CHANGES MILLIONSOFDOLLRESERVE ARS MILLIONS OF DOLLARS Based on weekly averages of daily figures; latest figures are for week ending Marcli 29 160 FEDERAL RESERVE BULLETIN April, 1930 R E S E R V E B A N K CREDIT O U T S T A N D I N G A N D F A C T O R S IN C H A N G E S 161 FEDERAL RESERVE BULLETIN April, 1930 M E M B E R B A N K B O R R O W I N G S AT F E D E R A L R E S E R V E B A N K S [Averages of daily figures. In millions of dollars] [Monthly averages of weekly figures. In millions of dollars] Reserve bank credit outstanding Factors of decrease 1 Factors of increase 1 Reporting member banks in leading cities Month or week Other United reserve Bills dis Bills counted bought seStates bank curities credit8 Total Unex Member Non Monetary Treasury currency iMoney bank member pended gold n circu reserve outstand clearing capital stock lation balances balances funds ing Month or date New York City Total Total 1928— December........ . 1929— January........... February........... March_____________ April______________ M a y .............. June______________ July..... ....... . August............ September.......... October___ ___ _____ November...... ... December.......... 1930— January____________ February..___ _____ March............ Week ending (Saturday)— Mar. 1... ....... Mar. 8........... Mar. 15...... .... Mar. 22.......... Mar. 29.......... 1,013 859 889 969 1,004 956 978 1,096 1,043 969 885 953 803 501 378 274 483 473 385 265 156 145 99 75 124 229 337 296 320 314 285 246 263 229 184 197 165 153 179 147 155 165 154 315 446 485 480 540 65 52 44 50 52 49 61 62 54 64 74 67 74 57 38 35 1,824 1,613 1,502 1,481 1,377 1,303 1,317 1,380 1,376 1,427 1,450 1,631 1,643 1,357 1,181 1,095 4,142 4,115 4,143 4,166 4,226 4,292 4,311 4,335 4,351 4,368 4,381 4,374 4,324 4,283 4,319 4,395 1,790 1,789 1,784 1,791 1,785 1,787 1,779 1,790 1,781 1,766 1,785 1,789 1,797 1,784 1,781 1,797 5,008 4,748 4,686 4,709 4,679 4,684 4,687 4,764 4,777 4,811 4,810 4,845 4,943 4,652 4,556 4,533 2,367 2,387 2,357 2,337 2,308 2,296 2,314 2,334 2,322 2,335 2,386 2,521 2,395 2,349 2,305 2,330 360 329 267 246 230 289 261 238 209 261 482 494 554 593 528 34 42 36 30 34 1,165 1,126 1,095 1,078 1,053 4,344 4,364 4,388 4,407 4,419 1,765 1,797 1,810 1,805 1,786 4,548 4,564 4,535 4,517 4,505 2,307 2,303 2,337 2,348 2,326 27 352 351 357 361 366 370 376 376 382 387 392 395 399 394 r393 397 25 27 28 28 27 394 393 393 397 400 29 31 29 31 35 32 30 31 27 28 28 33 27 29 '27 1For explanation see B ulletin for July, 1929, pp. 432-438. ' Revised. 8 Includes “other securities,’’amounts due from foreign banks, and reserve bank float; for explanation see B ulletin for July, 1929. . ANALYSIS OF C H A N G E S IN M O N E T A R Y G O L D S T O C K G O L D M O V E M E N T S T O A N D F R O M UNITED STATES [End of month basis. In millions of dollars] [In thousands of dollars] 1929 January.... ................... . February...................... — Month Gold stock at end of month Total Through Through Through ear domestic net gold import marking produc or opera tion, export tions etc.1 1928— February...... March........ April......... M a y ......... June.......... July.......... August........ September..... October...... . November..... December...... 4,362 -11.2 4,305 -57.6 4,266 -38.7 4,160 -105. 7 4,109 -51.0 4,113 3.4 4,123 10.3 4,125 2.1 4,142 17.3 4,128 -14.0 4,141 13.2 -11.1 -94.9 -91.2 -81.7 -79.9 -63.9 0.7 0.5 13.3 6.7 23.3 2.9 35.8 45.7 -26.5 30.1 60.9 5.9 -1.2 1.2 -25.0 -15.7 -3.0 1.5 6.8 2.5 -1.2 6.4 3.7 2.8 2.8 4.3 5.6 Total (12 mos.).. -237.9 -392.0 119.6 34.5 -14.4 26.4 34.4 72.4 40.6 23.4 16.3 18.9 12.1 14.4 -19.8 -82.3 47.2 25.5 24.8 23.1 23.6 30.2 34.7 18.4 17.6 17.5 -23.2 -64.4 -65.0 7.5 48.6 16. 1 -7.5 -22.0 -1.0 -6.6 -4.5 1.0 -22.0 3.4 .9 2.1 0.7 0.9 0.7 3.6 1.5 1.1 1.4 2.4 4.1 142.4 175.1 -55.4 22.7 8.8 61.9 66.8 4.0 60.0 47.5 2.5 0.0 13.0 1929— January..... . February.... . March......... April......... M a y ......... June......... July.......... August........ September..... October........ November..... December...... 4,127 4,153 4,188 4,260 4,301 4,324 4,341 4,360 4,372 4,386 4,366 4,284 Total (12 mos.).. 1930— January....... February...... March p.. .... 4,293 4,355 4,421 Im ports England.... ... France_________ Germany....... Italy........... Netherlands..... Canada....... . Central America__ Mexico......... Argentina....... Brazil.......... 5,327 Chile........... 1,007 Colombia_______ Ecuador........ Peru........... Venezuela_______ British India..... China and Hong Kong..... ... 4,684 Dutch East Indies.. Japan__________ 36,355 Philippine Islands.. New Zealand..... All other countries.. ">622 Total...... *47,895 Ex ports 220 »391 17 2,039 391 60,198 39 21 1 473 528 208 153 SO 516 505 482 521 540 560 595 410 1929 71 96 121 46 36 64 47 32 18 38 28 37 Ex ports Im ports 10 178 5,787 513 2,479 297 17,253 45 1,285 257 448 85 841 241 40,906 467 39 Rate in effect on Apr. 1 4 3X 4 4 4^ 414 4 Date estab lished Feb. Mar. Mar. Mar. Feb. Previous rate 13 14 20 15 7 4)4 4 4)4 4)4 5 5 4)4 5 5 4)4 5 4)4 Feb. 8 4H 4)4 4 4)4 4 46 414 Feb. Feb. Feb. Mar. 8 15 8 21 BUYING R A T E S O N A C C E P T A N C E S [Buying rates at the Federal Reserve Bank of N ew York] 2,120 40 207 73,106 9,155 7 1 R A T E S IN N E W Y O R K CITY Ex ports 22 1930 DISCOUNT RATES 8,497 136 119 123 40,906 190 131 166 162 145 165 319 196 166 74 60 80 1930 O P E N - M A R K E T RATES January-February February 2,629 184 1,491 297 11,823 17 71 144 80 37 247 174 81 1929 1930 FEDERAL RESERVE B A N K RATES 1929 Im ports 663 659 740 725 661 670 801 717 706 634 655 490 1929 [Rates on all classes and maturities of eligible paper] 1Includes all movements of unreported origin or destination. 2At New York— imports, $6,956,000; exports, $391,000. Elsewhere— 2.3 imports, $40,939,000. 1.9 6.3 1For explanation of this figure, which is derived from preceding col umns, see B ulletin for December, 1928, p. 831. ^Preliminary. March (pre liminary) 462 371 247 1930 Prevailing rate on— 1930 From or to— 1929 1930 Chicago 1929 228 234 238 266 290 302 299 296 268 251 289 265 1930 215 197 166 iIncludes (in small amounts) discounts by Federal reserve banks for nonmembers: (1) bills discounted for intermediate credit banks and (2) notes secured by adjusted service certificates discounted for nonmember banks. Federal reserve bank Increase or decrease (— ) during month 891 893 978 991 951 972 1,100 1,013 974 885 944 755 Member banks outside leading cities i Other leading cities Total« Maturity 1-15 days...................... 16-30 days..................... 31-45 days..................... 46-60 days..................... 61-90 days..................... 91-120 days............... ...... 121-180 days.................... Rate in effect on Apr. 1 Date estab lished 3 Mar. 19 3 ...do___ 3 ...do___ 3 Mar. 20 3 ___do___ 3 ...do__ 3)4 ...do___ Previous rate i 3)4 3)4 3)4 3)4 3)4 3)4 3)4 1For all changes made during the month of March, see p. 143. N ot e .— R ates on prime bankers’ acceptances. Higher rates may be charged for other classes of bills. Month or week Prime commerical paper, 4 to 6 months Call loans 1 Prime bank Time ers’ accept loans, 90 Re ances, days 8 New newal 90 days 1929 March...... 5)4-6 5)4-5)4 7)4-8 April....... 6 5)4 8)4-9 6 M a y ........ 5)4 8)4-9 June........ 6 5)4 8 -8)4 July........ 6 5)4 7)4-8 5)4 8)4-9 August...... 6 -6)4 5)4 8)4-9 September... 6)4 October..... 5)4 7 -9 6)4 November... 5)4-6)4 3)4—456 4)4-6 December.... 5 3)4-4 4)4-5 1930 January..... February.... March...... Week ending— Mar. 1___ Mar. 8... Mar. 15... Mar. 22... Mar. 29... Average rate Average yield on— on— u. s. Treasury notes Treas and ury certifi bonds8 cates, 3 to 6 months 9.80 9.46 8.79 7.83 9.41 8.15 8.62 6.10 5.40 4.88 9.10 8.89 8.91 7.70 9.23 8.23 8.50 6.43 5.44 4.83 ‘4.60 4.80 5.09 <4.80 4.55 4.70 ‘4.58 4.37 3.47 •3.03 3.76 3.67 3.67 3.71 3.68 3.72 3.70 3.67 3.45 3.46 4)4-5 3)4-4 4)4-5 4.31 4)4-5 3)4-3)4 4)4-5 4.28 3)4—4)4 2)4-3)4 3)4—494 3.56 4.64 4.32 3.69 3.39 3.36 ‘2.95 3.51 3.50 3.40 4.40 4.00 3.90 3.00 3.80 3.06 3.01 ‘3.06 2.94 2.83 3.49 3.44 3.38 3.37 3.40 4)4-4)4 4)4-4)4 4)4 4 3)4-4 3)4 3)4—3)4 3)6—3)6 2)4-3)4 2)4-2)4 4)s-4)4 4)4-4)4 4 -4)4 3)4-4 4 4.28 3.84 3.56 2.97 3.78 1Stock exchange call loans; new and renewal rates. > Stock exchange 90-day time loans. 23 issues— 3)4, 4, and 4>4 per cent; yields calculated on basis of last redemption dates— 1956, 1954, and 1952. 1 Change of issues on which yield iscomputed. 162 FEDERAL RESERVE BULLETIN A p b il , 1 9 3 0 April, 1930 FEDERAL RESERVE BULLETIN P R E V A I L I N G R A T E S C H A R G E D C U S T O M E R S B Y B A N K S IN PRINCIPAL CITIES M E M B E R B A N K CREDIT WEIGHTED AVERAGES REPORTING M E M B E R BANKS [Id millions of dollars. Monthly d&tn flro ftVGr&gcs of weekly figures] 8other northern and eastern New York City January............ February............ ... . March.. ............ ......... April............ ” 1” ........... M a y ... ......... ........... June_____ ____ ‘ July.................. .......... August......... ..... ...... September.............. .... October____________ I November... ...... Ill'll .... **| December........ 1927 1928 1929 4.66 4.56 4.56 4.63 4.63 4.60 4.56 r 41 4.'44 4.49 4.35 4.50 4.56 4.44 4.59 4.72 4.97 5.09 5.38 5.56 5.63 5.63 5.56 5.63 5.74 5.73 5.81 5.85 5.88 5.93 5.88 6.05 6.06 6.08 5.86 5.74 1930 5.64 5.35 5.22 1927 1928 4.99 4.98 4.88 4.90 4.95 4.93 4.90 4.87 4.77 4.79 4.82 4.76 4.73 4.76 4.81 4.91 5.04 5.36 5.57 5.59 5.80 5.80 5.82 5.91 1929 5.87 5.86 5.91 6.00 6.09 6.02 6.08 6.11 1930 1927 5.88 5.66 5.47 6.24 6.25 6.12 5.94 ..... 1928 1929 6.12 5.72 5.53 5.71 ’ 5.53 5.65 5.54 5.57 5.54 5.59 5.56 5.54 5.67 5.52 5.77 5.53 5.80 5.61 5.82 5.56 5.87 5.56 5.90 5.00 5.91 6.04 5.98 on preceding page). All averages are bTed on rate reported^or ^-market rates (which are given on securities. The method of computing the averages takesInto r«loans~ comi°ercial loans, and demand and time loans the relative importance of each reporting bank as measured hv tnt«nnSL e importance of each of these three types of loans and (b) weighted according to the importance of that city in the group, as measured by the loans oTad*banks. " * PREVAILING Q U O T A T I O N S Prime commercial loans Federal reserve bank or branch city !January, Febru March, 1930 ary, 1930 1930 New York City__ 5K-5J/2 Boston......... Buffalo...... .. Philadelphia__ Pittsburgh.... Cleveland.... .. Cincinnati...... Detroit___ ___ Chicago...... 514 Richmond__ Baltimore.. Charlotte... Atlanta... Birmingham_ Jacksonville_ Nashville... New Orleans... St.Louis___ LittleRock__ Louisville__ Minneapolis_ Helena... KansasCity_ Denver.... OklahomaCity. Omaha..... Dallas.. .. ElPaso.... Houston... SanAntonio__ SanFrancisco... LosAngeles.. Portland.... SaltLakeCity.. Seattle....... Spokane____ 5*^-6y2 “ '* 5K-6 5)4-6 «)*-6 6 -7 6 5H-6 5K-6 5*2-6 5**-6 6 -6 y2 6 -8 5M-6 6 6 -6)£ 5 -6 6 6 5H-6 8 5 -5X 4*4-5 5 -6% 5*4-6)! 5 -6 5)4-6 5H-0 4*4-5 5)4-6 5 -5*4 5)4-6 4)4-6 5)46)4 Loans secured by prime stock- Loans secured by warehouse exchange collateral receipts 5)4-6 5 -6 6 5 -5)4 6 -6)4 5)4-6 6 5)4-6 6 -7 6 -6)4 5)4-6 5M-5)4 6 5)4-6 5)4-6 5)4-6 6 -7 5*£-6)4 5 -6)4 6 5}^-6 6 .-7 6 -6)4 6 -7 6 -7 6 6 -7 6 5)4-6 6 6 6)6 6 -7 6 -7 6 6 -7 -6)4 5*4-6 6 6 6 -6)4 6— 8 6 6 -6)4 5M-5J* 5 -5)4 r6 6 -6)4 5 -6 5 -6 6 5)4-6 6 5 ^6 5*4-6 6 5)4-6)4 6 -6)4 6 -8 6 -8 66 -8 -7 5)46 5)4-6 6 -7 6 6 6 5)4-6H 5)4-6)4 6 -7 5 -6 5 -5)4 5*i-6 6 -6)4 6 -6)4 6 -7 6 6 6 -6)4 5)4-6 6 -6)4 8 8 5)45*4 6 6 5)46 5)46)4 5* 4-6 6)47 6 8 -7 6 -8 6 6 -7 5)4-6 6 -6)4 6 6 5)4-6 Interbank loans January, Febru March, January, Febru March, January, Febru March, 1930 ary, 1930 1930 1930 ary, 1930 1930 1930 ary, 1930 1930 5)4-6 6 6 6 6 -6)4 -7 -7 -7 6)4-7 6)4-7 5K-6 6 -7 6 5)4-6)4 8 5*i-6 6 -7 8 6 -6)4 6 -8 6 -8 6 -7 6 -8 6 -6)4 6 -7 6 -6)4 6 -7 6 -6)4 6)4-7 6 -7 6 5)4-6 8 5** 6 6 -7 8 6 -7 6 -8 6 -8 6 -7 6 —8 6 -6)4 6 -7 6 -6)6 6 -7 6 -6)4 6)4-7 5)4-6 6 -7 6 6 6 6 -8 6 6 6 6 5)4-6 6 -8 6 -8 5)4-6 6 -6)4 6 6 -7 6 5)4-5J* 6 -8 5)4-6 6 -8 7 -8 6)4 6 8 6 6 -8 6 6)4-7 6 -7 7 6 -7 7 5)4-6 5 -5)4 5*4-6 6 -6)4 5)46 6 -6)4 6 6 5)46 6)47 6 -6)4 5*4-6 5)46 5 -5)4 454-5)4 6 6 5)4-6 5 -5)4 5)4-6 5 -5)4 4*4-5 5)45*4 5 -6 5) 6)4-7 5)4-6 6 5)46 6 -8 6 -8 5)4-6 6 -6)4 5)4-6 6 -7 6 5 ) 4 — 554 5 -5)4 6 -8 6 8 5)4-6 6 -8 6 46 5*4-6 6 -7 6 5)4-6 6 6 5)4-6 5)4-7 5 )4 6 5)4-6 5)4-6 5*4-6 5)46 5 )4 -6 5)4-6 5)4-6 6 6 6 6 6 5)4-6 6 Total 1930 6 6 6 5)4-6 5)4-6)4 5*4-6 6 6 5)46 6 -6)4 6 6 - 6 )4 5 )4 -6 6 6 5 )4 -6 Bor rowing at ; to invest jbanks F. R. On se All Total banks curities other ments 1 Due Loans Month or date BROKERS’ LOANS Total: 1929—Feb.... 22,263 16,260 Mar.... 22,472 1 6,491 Apr.... 22,388 16,464 M a y ... 22,113 1 6,277 June... 22,231 16,480 July.... 2 2,479 16,950 Aug.... 22,465 16,969 Sept... . 22,646 17,197 Oct.... 23,124 1 7,706 Nov.... 2 3,663 18,041 Dec.... 23,012 1 7,444 1930—J&D___ 22,368 16,821 Feb.... 22,083 16,542 7,522 7,58C 7,392 7,218 7,332 7,716 7,578 7,654 8,098 8,249 7,968 R E P O R T E D BY T H E N E W Y O R K S T O C K E X C H A N G E (Net borrowings on demand and on time. In millions of dollars] I Loans and investments 27 southern and western cities cities Month 8,737 8,911 9,073 9,059 9,149 9,234 9,390 9,543 9,608 9,792 9,476 163 6,004 5,981 5,924 5,836 5,751 5,529 5,496 5,449 5,418 5,623 5,567 2,918 2,861 2,709 2,545 2,532 2,738 2,604 2,718 2,916 3,008 2,886 7,794 9,027 5;548 2,828 7,671 8,871 5,541 2,818 659 740 725 661 670 801 717 706 634 655 490 From New From private York banks banks, brokers, and trust com foreign banking panies agencies, etc. Total End of month 1929 January________ February_______ March______ April.......... M a y ___________ June...... July........... August.......... September... .. October...... November______ December....... 1930 6,735 3,985 6,679 4,168 6,804 *4,656 6,775 6,665 7,071 7,474 7,882 8,549 6,109 4,017 ..... 3,990 247 174 1929 1930 1929 5,664 3,368 5,619 3,529 5,713 4,026 5,580 5,482 $,797 ... 6,154 6,492 7,077 5,313 3,432 ....-3,370 1930 1,071 616 1,060 639 1,091 631 1,194 1,183 1,272 1,325 ..... 1,390 1,470 796 585 620 ..... 1Call loans, $4,052,000,000; time loans, $604,000,000. Feb. 26... Mar. 5__ Mar. 12... Mar. 19... Mar. 26... New York City: 1929— Feb.... Mar.... Apr.... M a y ... June... July.... Aug.... Sept.... Oct.... Nov.... Dec.... 1930— Jan____ Feb____ 22,003 22.101 22,232 22,514 22,563 16,428 16,547 16,704 16,847 16,885 7,641 7,737 7,883 8,054 8,184 8,786 8,810 8,821 8,793 8,702 5,575 5,554 5,528 5,667 5,678 2,790 2,910 2,827 2,933 2,922 152 128 96 51 47 7,190 7,296 7,297 7,182 7,281 7,496 7,407 7,507 7,837 8,349 8,001 7,664 7,493 5,306 5,424 5,437 5,344 5,468 5,804 5,688 5,803 6,108 6,380 6,021 5,705 5,584 2,820 2,823 2,729 2,653 2,749 3,045 2.845 2,892 3,191 3,340 3,112 2,945 2,909 2,486 2,601 2,708 2,691 2,719 2,758 2,843 2,911 2,916 3,040 2,909 2.760 2,675 949 1,885 1,872 916 874 1,859 817 1,838 1,812 796 1,692 935 827 1,720 1,704 887 1,729 1,023 1,969 1,132 1,981 980 931 1,959 902 1,909 131 166 162 145 165 319 196 166 74 60 80 39 21 Feb. 26... Mar. 5__ Mar. 12... Mar. 19... Mar. 26... Other leading cities: 1929— Feb.... Mar.... Apr.... M a y ___ June.... July____ Aug.... Sept.... Oct.... Nov____ Dec____ 1930— Jan____ Feb____ 7,412 7,499 7,595 7,747 7,756 5,499 5,582 5,700 5,787 5,810 2,890 2,953 3,065 3,160 3,280 2,609 1,914 2,629 1,917 2,635 1,895 2,627 1,960 2,530 1,946 15,073 15,176 15,092 14,931 14,950 14,983 15,058 15,139 15,288 15,314 15,011 14,705 14,590 10,954 11,067 11,027 10,933 11,012 11,146 11,281 11,394 11,598 11,661 11,424 11,115 10,958 4,703 4,756 4,663 4,565 4,582 4,670 4,734 4,762 4,906 4,909 4,856 4,849 4,762 6,251 6,310 6,364 6,368 6,430 6,476 6,547 6,632 6,692 6,752 6,568 6,267 6,196 4,119 4,109 4,065 3.998 3,938 3,837 3,776 3,745 3,690 3,654 3,587 3,589 3,632 Feb. 26... Mar. 5__ Mar. 12... Mar. 19... Mar. 26... Chicago: 1929— Feb.. Mar__ Apr__ M a y __ June__ July__ Aug-Sept__ Oct... Nov__ Dec__ 1930— Jan___ Feb__ 14,591 14,603 14,637 14,767 14,807 10,929 10,966 11,004 11,059 11,075 4,751 4,784 4,818 4,894 4,904 6,176 6,181 6,186 6,165 6,171 3,662 1,886 3,637 1,966 3,634 1,930 3,707 1,951 3,732 1,938 2,096 2,130 2,045 2,015 2,033 2,015 2,064 2,054 2,119 2,106 2,037 1,957 1,928 1,641 1,676 1,606 1,596 1,616 1,601 1,659 1,663 1,733 1,712 1,639 1,552 1,534 911 950 905 897 910 906 943 933 998 990 954 917 922 731 726 701 698 706 695 716 730 735 722 685; 635 611 455 454 440 419 417 414 405 391 386 395 398 406 394 323 342 320 307 314 310 309 313 309 303 310 306 311 Feb. 26. Mar. 5.. Mar. 12. Mar. 19. Mar. 26. 1,942 1,970 1,974 1,984 1,981 1,546 1,564 1,575 1,591 1,587 935 942 956 979 973 611 623 619 612 614 396 406 399 393 393 314 330 327 341j 338 904 943 897 982 983 1,969 1,945 1,835 1,728 1,736 1,803 1,777 1,830 1,893 1,875 1,906 1,897 1,916 M A D E BY R E P O R T I N G M E M B E R B A N K S IN N. Y. CITY In millions of dollars. Monthly data are averages of weekly figures] For banks Month or date Total Total In New York City* Outside For New others York City * 1929— January...... 5,408 2,974 1,173 1,801 2,434 February_____ 5,555 2,899 1,082 1,817 2,656 March....... 5,679 2,800 1,071 1,729 2,879 April........ 5,477 2,583 934 1,649 2;893 Ma y ... ..... 5,491 2,526 861 1,665 2,965 June........ 5,383 2,443 895 1,548 2,940 July.... .... 5,841 2,849 1,198 1,651 2,992 1 August______ 6,069 2,778 993 1,786 3,290 2 September.... 6,540 2,898 1,048 1,850 3 ,642 1 October...... 6,498 2,896 1,257 1,639 3^602 November____ 4,023 1,869 1,090 779 2,154 December.... 3,391 1,601 888 713 l’790 1930— January...... 3.351 1,706 844 862 l’644 February_____ ‘3,459 1,913 942 971 1,546 528 1930— Feb. 26...... 3,489 1,933 953 574 980 1,556 Mar. 5....... 3,583 2,038 1,006 1,032 563 1,545 Mar. 12...... 3,720 2,225 1,146 516 1,079 1,494 Mar. 19...... 3,841 2,437 1,266 505 1,171 1,404 Mar. 26...... 3,820 2,542 1,424 482 1,118 1,278 521 540 1Weekly reporting member banks in New York City. 561 !Member and nonmember banks outside New York City (domestic 594 banks only); includes unknown amount for customers of these banks 410 3 Call loans, $3,087,000,000; time loans, $371,000,000. 208 152 115 126 96 51 47 A C C E PT A N C E S AND C O M M E R C IA L P A P E R (In millions of dollars] Bankers’acceptances out standing Commercial paper out standing 1927 1928 1929 1930 1927 1928 1929 January..... 774 February.... 785 March...... 809 April....... 811 M ay....... 775 June....... 751 July........ 741 A ugust...... 782 September... 864 October..... 975 1 November... 1,029 1 December___ 1,081 1,058 1,056 1,085 1,071 1,041 1,026 978 952 1,004 1,123 1,200 1,284 1,279 1.693 1,228 1,624 1,205 1,111 1,107 1,113 1,127 1,201 1,272 1,541 1,658 1,732 551 577 606 599 582 579 569 591 600 611 603 555 577 567 570 571 541 503 483 458 430 427 421 383 407 411 387 351 304 274 265 267 265 285 316 334 96 121 46 36 64 47 32 18 38 28 37 7 1 End of month 1930 404 457 Figures for acceptances as compiled by American Acceptance Council; for commercial paper as reported by about 25 dealers. 164 FEDERAL RESERVE BULLETIN April, 1930 April, 1930 FEDERAL RESERVE BULLETIN SECURITY PRICES, SECURITY ISSUES, AND BUILDING CONTRACTS SECURITY PRICES PRODUCTION, EMPLOYMENT, CAR LOADINGS, AND PRICES FOREIGN CAPITAL ISSUES [Index numbers of Standard Statistics Co.] 165 [Index numbers; 1923-1925 average=100. The terms “ adjusted” and “ unadjusted” refer to adjustment for seasonal variations] [In millions of dollars] Industrial production* Common stocks (1926= 100) Month or date (Thursday) Bonds, 404 stocks 337 in 34 public 60 issues combined dustrials 33 rails utilities 1928—December______ 1929—January________ February_______ M a r c h ........... . April.................... M ay___________ June..................... July...................... August................. September_____ October........ ....... November_____ December........... 1930—January............... February_______ March.................. Mar. 6.................. Mar. 13................ Mar. 20................ Mar. 27________ 171.4 185.2 186. 5 189.1 186.6 187.8 190.7 207.2 218. 1 225. 3 201.7 151.1 153.8 156.3 165.5 172.4 169.2 169.8 173.8 176.6 178.4 192.5 192.3 196.0 193.4 192.6 191.0 202.7 210.3 216.1 194.4 144.8 146.9 148.8 155.9 163.0 159.4 160.9 164.4 167.2 134.9 141.8 141.6 140.4 138.3 138.7 144.8 160.0 165.4 168. 1 157.0 135.1 136.3 136.5 142.5 143.2 142.4 140.8 144.8 144.7 173.4 192.7 202.4 203.7 201.4 212.3 233.0 272.8 304.3 321.0 276.6 194.4 200.9 208.7 230.5 241.6 236. 5 237.3 243.3 249.1 97.2 97.0 96.3 95.8 95.3 95. 7 95.3 95.2 95.0 94.8 95.1 95.7 96. 5 96.5 96.4 97.8 96.9 97.6 98.4 98.2 Class of issue Gov Cor ern po ment rate Total................................. 42.8 Gov Cor Gov ern porate ern ment rate ment 45.4 65.1 93.8 45.2 38.8 20.1 93.8 34.3 38.6 23.6 36.8 18.4 13.1 5.5 19.6 1.5 12.0 9.4 2.2 Source: Commercial and Financial Chronicle) 1.5 Class of issue New T o t a l......................... 465.5 Corporate issues.................. Bonds and notes— Long-term_______ Short-term.............. Stocks........................... . Farm-loan issues............... Municipal issues................. Total new and re funding........ .......... Re fund ing New 1929 New Re fund ing 28.8 1,182.1 85.6 1, 703.6 265.9 387.4 27.7 998.5 82.8 1, 565. 5 262.9 224.2 14.1 149.1 2.0 76.1 21.3 5.5 .9 660.2 62.4 275.9 2.0 181.6 65.5 402.3 16.4 30.2 .9 1,133.0 134.2 4.7 124.0 494.3 1.1 1, 267.7 2.8 m 158.9 T 2A ) 84.0 [Value of contracts in millions of dollars] Month Re fund ing 1.5 40.0 January-February February, 1930 1930 Cor po rate New issue................................... 11.8 45.4 Europe__________________ 29. 3 Canada and Newfoundland....... .......... ................ 10.3 16.1 Latin America__________ 1.5 United States insular possessions____________ Miscellaneous___________ Refunding issues................... . . 31.0 Total Government and corporate...................... 88.2 45.0 138.1 1,969.4 3.0 1929—January___ February.. March........ April........... M a y .......... June______ July............. August....... September. October___ November December.. 1930—January___ February.. Total 410.0 361.3 484.8 642.1 587.8 545.9 652.4 488.9 445.4 445.6 391.0 316.4 324.0 317.1 Resi Com den Indus mer trial tial cial 138.1 129.5 197.2 256.8 192.0 189.8 199.9 146.1 118.4 137.7 113.5 114.0 66.6 74.8 63.1 56.1 55.8 68.2 80.8 70.0 66.6 75.3 52.6 60.9 39.7 67.4 38.3 33.5 100.4 68.3 75.6 78.0 86.5 80.9 91.3 72.0 76.9 67.7 101.8 33.4 54.1 72.9 Public works Educa All and public tional other utilities 66.5 57.6 71.5 152.1 139.4 120.8 194.5 119.3 117.2 85.1 72.4 51.8 112.1 85.8 17.7 22.6 37.5 29.9 38.2 43.4 48.0 32.3. 29.8 36.9 25.7 19.8 19.0 21.2 Building con tracts awarded Year and month 1929 BUILDING CONTRACTS A W AR D ED , BY TYPES OF BUILDING D O M E ST IC CAPITAL ISSUES [In millions of dollars. February, 1930 1930 24.1 27.3 47.2 57.1 50.9 40.9 52.0 43.9 50.4 57.3 38.0 29.9 34.0 28.8 Figures for building contracts awarded are for 37 States east of the Rocky Mountains, as reported by the F. W . Dodge Corporation. tal Unad justed 1919 1920 1921 1922 1923 1924 1925 1926 1927 1928 1929 Adjusted Unadjusted ..................... 83 ..................... 87 67 ..................... ..................... 85 ............. ..................... ..................... 95 ............ ..................... 104 — ..................... 108 ..................... 106 ............ ..................... _ ____________ 118 101 111 1926 January___ February.. March........ April.......... M ay............ June............ July............. August....... September. October___ November. December.. 1929 January____ February... March.......... April............. M ay............. J u n e ........... July............... August......... September.. October........ November.. December. 84 87 67 87 _______ 101 94 _______ 105 _____ . 108 106 111 119 77 89 70 74 105 96 99 108 107 106 115 Adjusted Unadjusted Adjusted 64 63 57 81 84 95 122 130 128 135 117 Unad justed Unad justed 107 108 82 90 104 96 100 101 99 97 100 . . - Miscellaneous and mdse, in less-than-carload lots Total Unad justed Ad justed Unad justed 98 118 77 81 103 96 101 104 102 102 107 84 91 _______ 79 86 100 98 ___ 103 _______ 107 103 103 106 84 78 88 97 98 105 108 107 108 110 Ad justed All corn- Farm modi- prod ties ucts 13Q 154 98 97 101 98 104 lftf) 95 98 Q7 158 151 94 90 100 no 99 10fi 108 111 111 110 108 106 102 108 112 112 108 99 109 108 108 107 106 108 107 111 112 110 106 103 90 92 98 96 102 109 110 115 118 124 123 113 92 95 104 107 104 106 107 109 110 114 118 119 in 106 146 139 134 133 126 14S 137 126 119 131 143 145 129 120 123 121 124 133 134 122 130 142 101 102 103 102 101 101 99 101 103 103 101 100 101 106 107 105 104 104 99 104 105 108 105 104 94 96 99 98 106 110 111 113 122 123 113 98 102 104 104 107 107 109 108 108 109 109 109 107 93 98 103 105 110 111 111 112 121 122 112 96 107 107 106 106 109 109 108 107 109 no 108 107 104 102 100 100 101 101 100 99 100 99 98 98 107 105 102 103 102 101 99 97 99 98 95 95 106 106 108 111 109 111 108 106 107 105 102 99 100 104 110 113 112 113 107 102 104 106 104 101 95 105 107 109 109 111 109 107 107 105 102 99 99 112 113 111 96 108 108 103 111 111 112 105 97 116 117 118 107 109 105 99 106 104 105 101 103 94 96 151 147 135 154 130 135 127 137 114 116 120 131 134 127 122 141 128 121 125 133 125 126 98 100 100 100 99 99 98 99 101 99 97 95 99 105 106 105 104 102 99 102 102 103 98 99 97 100 102 100 105 106 104 109 116 114 101 88 105 109 108 108 106 104 101 104 104 101 97 95 94 99 107 109 110 110 110 112 120 118 107 90 108 109 109 110 108 108 107 108 108 106 103 100 97 96 95 94 94 94 94 95 97 97 97 97 97 95 94 94 96 97 98 102 106 105 104 104 106 109 no 109 109 109 r 110 112 114 115 113 115 106 114 115 113 111 108 100 110 116 117 115 109 106 110 111 110 109 111 111 113 116 115 113 115 100 r 99 r 98 94 104 ' 104 103 ' 111 115 122 117 106 103 ' 103 103 «•105 105 ' 101 r 101 105 107 " 114 113 112 104 113 144 157 163 158 142 126 143 145 115 105 133 153 128 135 148 145 139 113 140 141 126 116 94 96 97 96 96 96 96 98 100 100 99 98 96 101 103 100 101 101 98 103 104 107 104 104 92 94 97 96 104 103 105 109 119 119 108 95 100 102 102 104 105 102 102 104 106 106 104 103 93 97 105 107 111 109 112 114 123 123 111 97 100 106 107 108 no 107 109 109 111 111 107 10S 96 96 96 97 99 98 98 99 100 98 97 97 106 105 104 108 no 107 107 107 109 104 102 104 117 117 118 122 123 r 127 124 123 122 117 106 99 116 120 125 127 127 126 119 121 122 118 107 92 117 116 120 123 125 129 126 124 122 117 105 96 113 ' 116 101 r 104 116 ' 116 ' 118 121 127 -■127 ' 114 110 p 118 120 107 115 116 ••113 114 114 118 118 ' 110 116 100 88 118 156 143 133 159 119 108 109 95 77 128 119 104 135 130 122 156 107 106 105 105 85 97 100 101 102 102 101 101 102 103 102 98 95 101 108 111 '111 ' 111 109 105 109 111 110 102 99 95 99 98 102 110 109 111 114 121 118 102 90 104 107 103 111 111 108 108 109 108 104 99 97 95 99 109 113 115 114 115 118 126 123 107 90 109 109 111 114 114 112 112 113 113 111 103 100 • 97 97 98 97 96 96 98 98 98 96 94 94 106 105 107 105 102 103 108 107 107 104 101 102 102 105 107 p 104 p 79 77 101 104 93 93 94 97 89 92 97 99 89 96 102 105 93 92 101 98 105 106 105 101 96 105 r112 112 110 110 108 105 111 116 118 115 108 116 120 121 123 125 125 119 121 123 ■120 108 95 p Unadjusted Fac tory pay rolls 106 106 107 107 106 108 107 110 112 111 108 106 110 113 110 112 107 102 1928 January___ February... March_____ April______ M ay............. June............. July.............. August......... September.. October....... November.. December... Adjusted Minerals Fac tory em ploy ment 105 108 109 108 107 106 103 109 113 114 110 101 1927 January___ February.. March____ April........... M ay............ June............ July....,----August........ September. October___ November.. December.. 1930 January... February. Manufactures Commodity prices t Freight-car loadings* January- February 103 108 p 103 106 p 102 109 p r 112 108 i * leverage per working-day, except for annual indexes. T Wholesale price index of Bureau of Labor Statistics; 1926=100. . p Preliminary. r Revised. 166 FEDERAL RESERVE BULLETIN April, 1930 INDUSTRIAL PRODUCTION, BY INDUSTRIES [Index numbers of the Federal Reserve Board. Adjusted for seasonal variations. 1923-1925 average=100] 1929 1930 Industry Jan. M anufactures I ron and steel ..................................... Pig iron............................................. Steel ingots........................................ T extiles ................................................... Cotton consumption...................... . W ool.................................................... Consumption......... ................... Machinery activity l__........... Carpet and rug loom activity Silk...................................................... Deliveries.................................... Loom activity 1......................... F ood products....................................... Slaughtering and meat packing... Hogs............................................ Cattle....................................... . Calves............. ............. .............. Sheep..... ...................................... Flour.................................................... Sugar m eltings................................ Paper and printing............................. Wood pulp and paper........ ........... Newsprint................................... Book paper................................. Fine paper.................................. Wrapping paper_____________ Paper board................................ Wood pulp, mechanical........... Wood pulp, chemical............. Paper boxes_____________________ Newsprint consumption............. T ransportation equipment : Automobiles_______________ _____ Locomotives............................... ....... Shipbuilding____________________ L eather and products....................... Tanning.............................................. Sole leather i............................... Upper leather— C attle................................. Calf and kip_______ _____ Goat and kid______ _____ Boots and shoes................................ C ement and glass : Cement.............................................. Glass, plate......................................... N onferrous metals *.......................... Copper (smelter)............................ Tin (deliveries) .......................... F uels , manufactured : Petroleum r e f i n i n g ..................... Gasoline >_................................ Kerosene___________ ________ Fuel oil i .................................... Lubricating oil >........ ................ Coke (by-product)........................... R ubber tires and tubes ................... Tires, pneumatic.............................. Inner tubes............... ........................ T obacco products................................. Cigars.............................. ................... Cigarettes........................................... C oal: Minerals Bituihinous....... .............. ................. Anthracite______________ _________ Petroleum, crude__________ __________ Iron ore shipments__________ _________ Copper (mined)______________________ Zinc.............................................................. Lead............................................................ Silver........................................................... Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. 117 114 118 126 114 128 132 116 134 145 126 147 155 127 158 151 131 153 143 128 144 139 121 141 124 118 124 100 107 99 90 95 90 99 94 99 118 101 120 116 118 99 105 93 X9 135 144 119 116 117 97 100 92 94 144 152 128 121 121 125 122 102 101 109 107 92 93 98 > 95 138 . 149 142 159 130 128 118 119 95 109 85 83 146 155 127 120 119 101 114 86 90 150 161 130 116 115 98 106 89 90 148 158 128 96 90 77 80 74 75 140 148 124 103 102 78 85 72 69 141 145 133 96 88 86 90 97 105 104 111 102 99 100 93 101 119 107 111 97 92 94 86 91 125 112 90 96 90 90 87 83 117 109 102 96 94 96 88 90 124 100 94 99 93 94 88 85 126 103 112 98 101 106 91 99 126 99 84 118 117 101 109 91 96 148 158 130 96 97 104 86 88 125 91 99 108 104 89 94 82 88 144 153 128 103 98 102 90 95 109 100 129 122 117 94 124 109 112 134 101 114 141 136 113 115 97 101 93 91 132 135 126 101 97 104 87 87 106 104 108 135 117 137 120 119 101 106 96 95 149 159 129 96 95 101 82 88 125 92 106 123 116 90 125 114 104 135 103 114 150 137 125 119 92 132 118 102 139 96 114 157 138 124 119 93 135 118 103 135 91 115 151 132 127 122 93 134 119 109 143 92 120 150 137 128 120 92 133 120 107 136 100 118 ISO 142 124 120 91 138 122 101 131 103 117 152 131 125 119 95 134 118 101 129 101 120 169 135 129 120 94 143 119 101 125 100 120 178 148 126 120 94 145 119 96 128 91 118 156 139 122 118 92 139 120 97 129 85 113 144 133 95 91 96 81 91 113 ' 94 110 118 113 93 139 116 95 107 91 116 125 134 96 89 89 88 96 116 92 127 122 117 95 140 116 93 126 96 115 147 131 99 94 76 81 73 70 145 149 138 94 92 93 86 92 132 97 93 150 15 48 148 17 21 159 28 49 153 53 62 148 55 93 162 46 129 142 59 155 133 49 101 113 57 75 81 45 69 49 32 97 102 95 88 94 98 89 92 99 89 85 97 94 89 101 92 84 113 106 97 114 105 86 143 55 175 116 103 93 116 105 94 113 108 94 105 103 95 93 98 93 73 67 117 100 67 73 120 104 73 86 112 105 76 93 123 100 78 96 116 106 74 104 153 117 75 111 158 120 80 108 136 125 87 102 144 123 97 99 147 117 88 88 145 108 82 70 151 90 76 100 66 129 97 75 127 96 Jan. 39 109 95 93 99 68 Feb. 97 131 151 103 40 95 93 126 141 115 140 99 148 110 144 111 146 116 154 118 164 122 168 118 174 113 172 109 149 109 117 108 124 124 132 137 123 132 134 129 140 128 137 147 143 137 145 145 126 130 137 127 133 123 122 126 121 126 127 131 121 125 126 119 126 113 114 122 106 105 110 99 110 122 101 103 92 159 186 93 134 123 137 160 187 94 136 123 142 170 199 110 140 126 151 173 208 95 141 123 148 178 215 103 142 121 146 171 209 93 136 110 139 166 201 90 132 115 131 163 199 89 121 120 132 168 204 96 125 126 136 158 163 121 114 117 87 94 97 74 80 82 70 142 109 173 142 101 178 136 100 168 135 99 168 130 96 160 133 83 173 * 107 * 109 *85 131 84 167 * 106 * 109 *84 126 93 153 119 123 87 133 99 163 116 120 90 129 95 159 162 167 125 139 100 173 171 205 95 138 123 151 141 146 105 176 209 108 142 131 152 152 157 118 165 194 93 141 125 145 161 166 126 168 196 103 140 126 149 148 153 113 131 86 167 160 187 97 138 116 139 152 157 116 ' 104 110 137 ' 110 110 137 '9 0 77 133 ' 102 95 132 ' 103 106 140 ' 102 116 140 '9 8 92 131 ' 103 121 132 99 ' 106 132 136 106 '100 91 135 112 112 93 141 116 125 103 ' 102 76 135 12fi 124 122 112 94 '9 8 81 145 129 100 111 94 ' 104 86 134 143 139 120 122 93 119 127 107 91 125 124 119 89 123 112 115 94 118 105 114 114 116 102 105 87 131 97 160 ' 102 72 143 11Q 122 125 114 88 101 103 92 88 133 92 167 102 135 95 99 106 *90 1\\ ithout seasonal adjustment. 2 Includes also lead and zinc. See “ Minerals.” * Preliminary. 'Revised. ^ ° / ECrThe coalbined ind.ex Of industrial production is computed from figures for 58 statistical series, 50 of manufactures and 8 of minerals ™ stofw h ich are shown in this table.. Adjustments have been made in the ditTerent industries for the varying numbw ofworkiP n g d aysin e ach s?®f°.Dal vamtions. a° d tba individual products and industries have been weighted in accordance wit if their relative importance. I he sources of data and methods of construction were described in the B ulletin for February and March, 1927. 167 FEDERAL RESERVE BULLETIN April, 1930 FACTORY EMPLOYMENT AND PAY ROLLS INDEXES OF FACTORY E M P L O Y M E N T AND PAY ROLLS [Without seasonal adjustment. Monthly average 1923-1925=100] January_____ February____ April July Annual index. 1927 1928 1929 1930 97.4 r92.9 99.7 92.9 101.3 101.8 101.6 101.2 100.7 102.0 103.4 102.1 98.2 94.8 98.6 104.8 106.3 105.0 104.3 102.5 98.6 102.2 101.9 102.5 98.5 99.4 95.7 101.1 102.5 100.3 100.8 100.9 98.3 102.5 104.2 107.5 103.6 104.2 ' 100.7 ' 103. 0 ' 110.8 r 111. 3 r 111. 2 109.2 104.8 109.4 110.5 110.0 102.0 98.7 94.2 97.4 100.4 102.0 101.8 107.2 1927 1928 1929 98.1 99.7 100.4 99.8 99.1 99.0 98.0 99 2 100 6 99.3 96. 9 96 5 94.2 95.7 96.6 96.0 95.7 96.2 95.7 98.3 100.3 100.2 98.8 98.1 98.8 97.2 110 FACT ORY ElMPL0YIYIENT ( 1923 25-100 ) Factory pay rolls Factory employment Month PERCENT PERCENT 110 1930 ■jn 100 , f t Y « A 100 Pid r \ y 90 90 ___ A d/usled foirSeasonal'l/arialtons ..... V l/ithouf S tasonal Adj’ijstment L _ 801 1923 1924- 1925 80 | 1926 1927 1928 1929 1930 Seasonal adjustment provisional FACTORY E M P L O Y M E N T : IN D EXES BY GROUPS Iron and steel Month 1928— M a Textiles chinery Food prod ucts 96.9 October....... 97.7 November.. 97.1 December... 102.8 103.8 105.2 95.7 96.2 97.0 102.6 101.9 102.0 97.1 98.3 99.3 99.7 100.7 100.8 99.8 101.0 101.0 99.4 97.0 92.2 91.7 93.5 106.7 110.4 113.8 116.7 119.1 120.8 121.5 119.4 119.5 118.7 115.0 112.1 109.9 109.3 95.9 98.0 101.1 99.3 97.3 96.3 91.5 94.2 98.4 99.8 97.1 94.3 92.8 92.9 98.6 98.8 97.6 96.2 97.3 99.2 99.8 99.7 102.4 104.2 101.6 100.5 97.4 96.7 1929— January........ February... March.......... April............. M ay.............. June.............. July............... August.......... September.. October........ November.. December... 1930— January....... February___ Paper and print ing 102.4 103.7 103.6 102.5 103.4 103.1 102.5 102.8 103.2 103.6 104.1 106.0 106.1 106.7 106.9 105.1 104.0 Lum ber and prod ucts 90.6 90.5 88.2 85.5 85.8 86.6 88.2 89.2 90.0 90.5 92.2 91.8 90.1 86.7 81.6 76.8 75.0 Transportation equipment Ce Leather ment, and clay, prod and Auto Group mobiles ucts glass 94.4 90.2 89.9 94.0 99.0 100.5 101.7 101.5 97.6 96.4 95.5 94.8 90.2 82.9 81.3 83.2 83.9 119.8 109.1 107.7 94.6 89.3 88.6 118.3 129.5 131.1 131.4 130.0 120.6 117.8 115.0 113.1 101.3 83.7 79.6 85.7 89.7 91.9 94.1 92.7 90.6 90.3 89.4 94.6 98.1 99.5 99.3 94.4 90.0 91.4 92.4 94.1 91.8 89.5 84.3 84.5 86.8 90.5 93.1 93.8 91.6 93.8 93.6 91.9 88.9 82.3 74.7 75.3 Chemicals rous metals 100.0 102.2 102.4 102.4 106.1 107.9 107.7 105.3 102.9 100.5 99.8 98.6 98.5 93.6 89.9 85.9 84.6 Petro Group leum refining 107.4 107.3 107.8 107.6 110.9 115.5 119.0 110.3 107.9 108.9 111.2 114.5 116.1 113.8 111.8 110.6 110.2 104.3 104.0 104.7 104.0 106.7 109.2 111.9 114.4 116.4 120.0 121.9 124.0 124.6 123. 7 120.9 120.8 120.9 prod ucts 113.2 109.8 109.6 112.2 112.3 113.3 114.3 115.3 115.0 114.2 111.5 108.3 102.7 91.2 89.2 89.7 87.9 To bacco prod ucts 99.1 98.9 95.7 84.1 92.0 92.0 91.3 90.3 91.4 90.5 93.0 93.7 95.0 96.1 89.2 84.2 88.9 FACTORY PAY ROLLS: IN D EX ES BY GR O U PS Iron and steel Month M a Textiles chinery Food prod ucts 1928— October........ Novem ber.. December... 105.1 105.1 103.3 111.3 110.3 114.0 101.0 96.7 100.3 1929—January........ February__ March.......... April............. M ay.............. June........ . J u l y ........... August......... September.. October........ Novem ber.. December... 1930—January........ February— 101.3 107.2 108.5 110.5 111.6 109.9 103.5 109.3 108.9 107.9 100.0 93.5 90.5 98.1 112.3 120.7 126.5 129.5 131.9 131.6 128.2 127.5 127.9 129.0 121.6 119.9 97.0 103.6 108.8 m 99.3 97.8 90.4 97.4 103.0 104.8 96.2 93.8 106.0 104.9 106.3 102.2 102.5 101.2 100.4 103.1 105.6 105.6 105.0 108.1 108.8 105.5 105.5 113.8 115.2 92.2 94. 1 102.5 101.6 2 Paper and print ing 111.5 111.7 113.7 111.4 113.0 114.9 113.3 114.3 113.6 111.4 112.8 116.3 117.8 117.2 118.2 114.9 114.9 Lum ber and prod ucts 95.8 94.4 90.8 83.4 86.5 88.4 90.9 92.8 92.2 93.5 94.7 96.6 96.8 89.2 82 7 72.8 72.6 Transportation Chemicals Ce equipment Leather Rubber To ment, Nonfer bacco and rous prod day, prod Petro prod metals ucts and Auto leum ucts Group Group mobiles ucts glass refining 104.7 96.1 95.8 134.1 114.5 112.4 95.9 80.1 86.0 93.6 111.4 113.9 117.0 116.0 107.9 97.1 106.8 103.3 99.8 89.4 85.6 80.9 89.8 114.5 147.4 148.2 152.0 147.1 130.9 110.2 128.0 120.3 108.0 84.3 72.9 90.2 94.5 91.4 87.9 88.1 89.8 97.8 105.0 104.3 100.0 83.9 84.1 85.4 86.2 74.0 92.7 94.1 90.7 88.4 79.0 81.0 84.8 89.3 91.8 92.5 86.1 91.2 91.3 90.6 86.4 80.2 67.3 70.2 116.6 118.5 120.5 109.2 108.2 108.1 107.8 107.1 107.2 120.4 112.4 114.1 95.2 94.1 94.3 117.4 124.1 127.6 127.0 123.1 117.0 112.6 113.2 112.1 112.5 99.6 96.1 91.5 91.7 106.3 111.3 113.6 117.8 113.1 111.2 111.2 113.0 116.0 118.2 115.6 114.0 109.3 110.0 105.3 110.2 112.1 117.1 118.9 120.0 123.3 125.1 129.3 129.4 126.3 124.8 121.1 125.0 r 111. 7 •■123.3 ' 123.6 '124.4 '125.7 120.6 115.1 110.9 104.9 100.9 85.9 85.0 88.9 92.1 76.3 82.3 84.4 86.1 86.1 88.5 87.9 90.6 93.4 94.2 94.3 88.8 77.0 80.0 ' Revised. N ote .—T hese tables contain index numbers of factory employment and factory pay rolls for certain months, together with group indexes fot important industrial components. The nature and sources of basic data and the method of construction were described and the indexes for the period January, 1919, to November, 1929, were published in the B ulletin for November, 1929, pp. 706-716. 103025— 30-------3 168 FEDERAL RESERVE BULLETIN April, 1930 BANKING AND BUSINESS CONDITIONS IN FEDERAL RESERVE DISTRICTS FEDERAL RESERVE BANKS—RESERVES, D EPOSITS, N O T E CIRCULATION, AND RESERVE PER CEN TAG ES [Averages of daily figures. Amounts in thousands of dollars] Total cash reserves Federal reserve bank March Total deposits 1929 1930 February Federal reserve notes in circulation 1 1930 March March 1929 February March March 1930 February March 1929 March Febru March ary 263,083 912,761 222, 371 307, 581 109,661 158,366 540,311 120,963 84,011 138,079 64,744 280,149 266,297 910, (MO 209,986 279,819 112,175 152,758 509,129 118,981 88,455 144,430 63,780 305,465 195,614 988,224 166,846 2S8.854 92,568 145,672 401.433 74,733 86,448 109,994 71, 766 226.434 145,896 962,762 136,457 188,058 65,920 65,922 342,821 78, 786 52,740 89, 295 63,972 180,450 148,337 952,221 135.034 186.035 68, 320 66,538 336,187 80, 656 51,758 88,879 65,327 182,468 145,498 944,547 134,903 188,152 69,457 68,910 349, 767 81,826 54,102 92,973 70,894 183,646 162,250 205,347 146,422 180,335 76, 299 131,943 296,363 82, 262 59, 843 79, W4 37,440 158,404 162,582 246,391 146, 724 177,865 80,969 132,116 297,460 85, 766 61,393 80,489 41,261 164,793 130,408 306,296 142,828 207, 272 73,574 137,915 283,388 59,603 63,473 67,021 38,588 159,393 85.4 78.1 78.6 83.5 77.1 80.0 84.5 75.1 74.6 82.0 63.8 82.7 85.6 75.9 74.5 76.9 75.1 76.9 80.3 71.5 78.2 85.3 59.8 88.0 70.9 79.0 60.1 73.0 64.7 70.4 63.4 52.8 73.5 68.7 65.6 66.0 Total.......... 3,202,080 3,161, 315 2,848, 586 2,373,079 2,361, 760 2,384,675 1,615,952 1, 677,809 1,669,759 80.3 78.3 70.3 Boston.. ............ New York______ Philadelphia____ Cleveland______ Richmond........... Atlanta................ Chicago................ St. Louis_______ Minneapolis........ Kansas City____ Dallas................... San Francisco___ FEDERAL RESESVE BULLETIN B U IL D IN G P E R M IT S IS S U E D [Value of contracts in thousand? of dollars] [Value of permits in thousands of dollars] 1929 Federal reserve district Num ber of cities Federal reserve district February January February Boston................................ New York.......................... Philadelphia................... Cleveland........................... Richmond................. ........ Atlanta............................ . C h icago........................... St. Louis...... .................... Minneapolis...................... Kansas City...................... Dallas................................. 17,961 90,312 17, 743 35,992 2S, 707 19,526 37,983 24, 510 4, 980 18,071 21,267 16,631 79, 462 50,914 34,801 27,433 21,433 39,900 13,114 3,808 14,922 21,432 25,325 76,0W 32, 369 36,360 34, 252 22,3014 09,845 23, 372 4, 757 12,874 23,665 Total (11 districts). 317,053 323,975 361, 274 Figures for building contracts awarded are for 37 States east of the Rocky Mountains, as reported by the F. W . Dodge Corporation. IN D E X O F D E P A R T M E N T S T O R E SA LES Without seasonal adjustment Num ber of stores Federal reserve district 1930 Excess Total Federal reserve district December, January, December, January, December, January, December, January, December, January, 1929 1930 1930 1929 1929 1929 1930 1930 1929 1930 Kansas (Jity__________________ San Francisco.......................... — 1,398 7,355 i; i58 1,493 ' 569 550 2,582 ' 705 447 856 664 1,328 1,394 7,080 1,144 1,473 569 571 2,535 699 427 850 659 1,312 943 3,182 1,057 1, 612 '557 428 2,079 519 448 357 220 1,663 951 3,241 1,080 1, 623 562 434 * 2,053 536 442 354 225 1,756 150.1 999.6 133.4 180.1 65.3 62.6 342.7 79.3 53.3 89.0 64.4 175.1 149.9 956.5 133.8 182.2 66.2 64.5 337.0 79.3 51.3 88.7 63. 0 176.7 19,105 18,713 13,065 13,257 2,394.9 2,349.1 1 1.9 23.1 1.1 -1 .7 .8 2.3 6.0 1.5 2.8 3.6 2.9 4.0 1.9 14.0 1.8 2.0 1.4 2.4 6.8 1.6 2.8 3.8 2.1 3.9 40.4 188.3 80. 2 98.4 42.3 41.1 133.0 30.9 17.3 46.0 19.1 64.3 23.9 110.9 52.0 72.8 31.2 31.8 87.4 17.7 7.0 27.8 13.3 21.8 48.3 44.5 801.3 497.6 -------- - 1929 1930 14 22 14 12 15 15 19 5 9 14 9 20 4.076 30,231 4,241 9 39 6,011 3,179 15, 729 2,670 1,083 6, 501 4,614 14,144 4,464 34,649 3,913 8,098 9, 363 3, 177 14,174 1,202 808 3,011 4, 179 20,132 11,031 113,382 8,672 12,586 9,437 6,537 19,801 4,426 1,494 4,8! 6 5, 5! 5 21, 385 Total.................................... 168 102,118 107,168 219, 240 In millions of dollars] Num ber of stores 1929 Feb. Feb. Federal reserve bank March February March Minneapolis___________________________ Kansas City_________________ __________ Dallas........" .. .......................................„ ___ San Francisco__________________________ 21.1 54.3 36.7 31.1 16.8 21.6 35.2 14.0 2.4 16.2 8.3 15.8 23.2 70.5 50.5 53.3 22.2 25.3 63.0 16.7 3.0 23.0 11.9 15.1 58.6 231.5 101.6 76.0 43.4 51.7 210.6 48.1 15.6 31.8 14.8 85.0 Total____ ________________________ 273.5 377.6 968.6 Boston_________________________________ Philadelphia_________________ __________ Jan. 1930 77 89 73 77 104 99 80 78 76 90 75 83 103 114 90 98 110 110 92 93 102 114 93 105 Richmond................... Atlanta........................ Chicago....................... St. L o u is .................. 28 41 97 19 81 83 88 83 85 76 '9 0 72 78 87 95 85 107 103 113 102 102 93 ' 112 88 105 108 123 106 Minneapolis............... Kansas City 1_______ Dallas.......................... San Francisco............ 19 27 22 36 73 75 85 90 70 74 80 104 68 76 85 91 99 82 92 107 117 93 117 107 118 Total................. 497 83 89 85 106 102 110 Outside New York City_____ Federal reserve district: San Francisco..................... 1 140 31,117 21,534 34,732 25,723 11 7 10 13 7 15 21 5 9 15 10 18 2,329 31,940 2,233 2,325 654 1,009 5,489 1,050 664 1,222 640 3,090 3,050 35, 662 2,609 2,827 780 1, 211 6, 563 1,281 751 1,409 741 3,569 2,674 47,146 2,536 2,740 692 1,115 6, 505 1,212 659 1,260 687 3,578 141 52,651 60,455 70,804 Jan. Feb. Feb. Feb. Feb. 87 101 79 86 85 96 71 80 91 99 85 91 93 108 83 90 93 104 77 94 97 106 90 96 Richmond................... Atlanta........................ Chicago...................... St. Louis..................... 28 29 79 19 91 90 105 82 86 82 ' 100 79 94 98 106 86 96 92 110 88 98 89 ' 113 91 10O 110 92 Minneapolis............... Kansas City 1_______ Dallas........................... San Francisco............ 15 21 21 32 67 113 77 1W 64 102 • 72 100 75 124 79 98 70 72 78 80 109 83 108 82 103 Total................. 414 93 88 95 98 '9 9 100 09 ' Revised. B AN K S U S P E N S IO N S 1 IN FE B R U A R Y , 1 9 3 0 [Amounts in thousands of dollars] All banks Feb. 1930 1929 Feb. Jan. Member banks 8 Nonmember banks Federal reserve district Num ber D e posits 8 Num ber De Num posits 8 ber De posits 8 10,223 259 1 10 11 20 11 3 5 4 1 l 671 3,597 l, 737 7,316 2. 309 484 765 814 320 14, 794 66 18, 413 Feb. Boston................................ New York......................... Philadelphia..................... Cleveland.......................... 283 563 123 168 251 588 177 197 232 378 98 166 6,124 13,466 3, 757 3, 023 3,999 16, 603 6,887 6, 101 4,151 9, 256 2,590 2,891 Richmond......................... Atlanta.............................. Chicago.............................. St. Louis............................ 145 93 376 102 184 124 428 170 128 107 297 120 2,418 1,844 8,845 6,030 4,510 2,587 7, 966 3,054 1,942 1,711 3, 708 1, 762 Minneapolis............... Kansas City...................... Dallas................................. San Francisco................... 48 115 42 2W 60 163 67 350 47 121 40 231 522 1,231 1,359 2,706 999 3,983 740 3, 756 1,362 1,505 552 2,605 Total..... .................. 2,262 2,759 1,965 51,326 61,185 34,036 i Figures reporten by R. G. Dun Co. Jan. 34 42 45 49 Liabilities 1929 Jan. 1929 Boston......................... New York................... Philadelphia............... Cleveland................... [Amounts in thousands of dollars] 1930 1930 ' Revised. C O M M E R C IA L F A IL U R E S 1 Federal reserve district 46,289 24,515 1929 1 Monthly average 1925= 100. i Monthly average 1925=100. With seasonal adjustment Feb. 36 60 57 55 Number February, January, February, 1930 1930 1929 of centers 1929 ,1 IN D E X O F D E P A R T M E N T S T O R E S T O C K S Federal reserve district BANK D E B IT S In millions of dollars] 1930 Jan. Number [Debits to individual accounts. [Averages of daily figures. February Without seasonal adjustment With seasonal adjustment Boston..............- ......... New York................... Philadelphia............... Cleveland____ ______ 1 Deficiency in reserves. D IS C O U N T S O F F E D E R A L R E S E R V E B A N K S February January [Monthly average 1923-1925=100] Indebtedness at Federal reserve banks l ime deposits 1920 Boston........................................... New York...................................... Philadelphia................................. Cleveland....................................... Richmond.................................. . Atlanta___________ ____________ Chicago........................................... St. Louis......................................... Minneapolis................................ Kansas City.............................. Dallas.............................................. San Francisco.............................. Feb. Feb. Reserves held isei ciemana deposits 1930 [Monthly average 1923-1925=100] 1 Includes “ F. R. notes of other F. R. hanks” as follows: Latest month $22,792,000; month ago, $24,282,000; year ago, $15,512,000. ALL M E M B E R BANKS—DEPOSITS SUBJECT TO RESERVE, RESERVES HELD, AND IN D EBTED N ESS AT FEDERAL RESERVE BANKS [Averages of daily figures. In millions of dollars] 169 B U IL D IN G C O N T R A C T S A W A R D ED 1930 Reserve percentages 1929 1930 April, 1930 Boston....................... New York................. Philadelphia............. Cleveland.................. Richmond................. Atlanta...................... Chicago..................... St. Louis................... Minneapolis............. Kansas C ity............. Dallas......................... San Francisco.......... 1 11 14 23 12 6 5 11 2 1,071 5,181 2, 534 ■ 8,285 2,867 888 765 11,037 579 Total............... 85 33,207 i 3 3 1 3 7 1 19 1,584 797 969 558 4W 1 Banks closed to the public on account of financial difficulties by order of supervisory authorities or directors of the bank. 8 Includes 18 national banks with deposits of $14,744,000 and 1 State member bank with deposits of $50,000. 8 Subject to revision. April, 1930 FEDERAL RESERVE BULLETIN 170 April, 1930 FOREIGN BANKING AND BUSINESS CONDITIONS FEDERAL RESERVE BULLETIN GOLD HOLDINGS OF CENTRAL BANKS AND GOVERNMENTS, 1913-1929 [In thousands of dollars, converted at par of exchange] GOLD HOLDINGS OF PRINCIPAL COUNTRIES AT THE END OF 1929 The annual table showing from 1913 to date the central gold holdings of all countries for which satisfactory figures are available is pre sented herewith.1 A large number of revisions have been made in the table this year.2 The fig ures for total gold holdings have been affected also by inclusion in the table for the first time of Albania, Ecuador, Guatemala, and Mexico. Total gold holdings of the 44 countries now represented amounted at the end of 1929 to $10,291,000,000, an increase of $280,000,000 during the year. This figure is to be compared with an estimated output from the gold mines in 1929 of about $405,000,000, an absorption of gold by India in nonmonetary uses of nearly $70,000,000, an annual industrial consumption of new gold in the United States of between $30,000,000 and $40,000,000, and an unknown volume of new gold consumed industrially in the other countries of the world. Making rea sonable allowance for industrial consumption elsewhere than in the United States, it is ap parent that central gold holdings were built up in 1929 not only from the new output of the mines but from other sources as well.3 This ad ditional gold came partly, as in the previous year, from the return of gold from “ circulation” in France, Russia, and the United States; but also from the Canadian and, to a yet greater extent, the Australian commercial banks which were feeling the pressure of world financial and agricultural conditions. Gold held by the Australian commercial banks is now subject to requisition by the Commonwealth Bank. i For a discussion of the items considered as “ central gold holdings” see the F ederal R eserve B ulletin for April, 1929, p. 262. a Every figure was reworked in terms of thousands of local currency converted into dollars at par carried to four decimal points, and this resulted in many minor differences from figures previously published in the F ederal R eserve B ulletin. In addition several more substantial improvements were made in the figures for the earlier years of the period. In a few cases figures not strictly as of the year-end were replaced by yearend figures. From certain other figures small amounts of silver were eliminated. In connection with yet other figures the handling of items reported as gold abroad was changed. In view of the large number of revisions, most of them of small importance, it has been decided not to encumber the table with the usual notes calling attention to those figures which differ from figures presented in the previous year. Instead, the table is to be regarded as a new table throughout. « It is probable that the real growth of central gold holdings during the year was greater than that shown by the figures. Considerable amounts of gold (at least $30,000,000) were in transit at the year-end, and in general this gold had already been deducted from the central holdings reported by the country of origin and had not yet been taken up into the central holdings of the country of destination. As a result, the Federal Reserve Board’s monthly figures of central gold holdings ac tually showed a decline from November to December, 1929, followed by an unusually large increase in January, 1930. (See p. 250.) Decem ber is always affected by the withdrawal of gold coin in the United States for Christmas circulation, but in December, 1928, central hold ings, nevertheless, increased. Only a small amount of gold was in ^transit over the year-end 1928-29. The more important changes in central gold holdings during 1929 are shown in the table below. The year for the United States was characterized by a steady gain in gold stock until the end of October followed by a loss of $100,000,000 in November and December. Since the figures in the table, however, refer only to the last date of each year, they show net changes for the year as a whole and do not bring out turning points. C hanges in G old H oldings of C entral Banks and G overnments [In millions of dollars] Holdings at end of year Country 1928 Countries in which holdings increased: 1,253 3,746 92 126 103 70 266 49 175 1,465 1929 1,633 3,900 147 163 115 79 273 55 180 1,483 +380 +154 +55 +38 +12 +9 +7 +6 +18 607 650 750 114 108 68 35 324 434 544 711 78 89 56 28 314 -173 -1 0 6 -3 9 -3 6 -2 0 -1 2 -7 -1 0 -4 0 4 Note on commercial banks.—At the end of 1929 the gold held by member banks of the Federal reserve system in the United States amounted to $20,000,000; by Canadian banks in vault at home and abroad to $73,000,000; by the commercial banks of Australia (fourth quarter average, 1929) to $104,000,000; and by the Argentine banks (other than the Bank of the Nation) to $11,000,000. A small amount of silver is included in the figures for the Canadian and Australian banks. The ag gregate holdings of the above group of com mercial banks are less than the corresponding holdings of 1928 by $28,000,000, of which amount $22,000,000 is attributable to the re duction in gold held by the Australian banks. Aus AustriaHun tria gary Total United States 1913 1914 1915 1916 1917 1918 4,932,445 5,419,867 6, 226,898 6,618,404 7,126,340 6,783,361 1,290,420 1,206.487 1, 706,922 2, 202,157 2, 523,084 2, 657,885 256,126 21,899 241.539 38,932 238,906 73,484 265.540 78,351 288,020 85,650 304,466 104,143 1919 1920 1921 1922 1923 1924 6,768,245 7, 205,805 7,994,314 8,380,754 8,612,199 8,933,486 2, 517,722 2,451,182 3, 221, 215 3, £05,551 3, 833, 735 4,090,067 336, 707 473,913 472,415 472,529 466,495 443,896 116,796 115,409 113,487 116,499 121, 088 121,200 1925 1926 1927 1928 1929 8,925,922 9,191,219 9,546,363 10.010,178 10, 290,638 3,985,399 4,083,380 3,977,181 3,746,111 3,900,160 450, 592 450, 557 529,134 607,290 433,932 127,838 2,087 106,975 7,388 105,121 11,883 108,430 23, 743 88,882 23,727 End of year Change during 1929 +684 Total increases— ------------------------------- — Countries in which holdings decreased: 171 Egypt 6,673 19,367 35,264 29,318 19, 075 16, 357 170, 245 428, 223 389, 203 402,971 422, 592 523,689 1919. 1920. 1921. 1922. 1923. 1924. 16.475 16.475 16, 510 16, 619 16, 658 16, 510 583,211 762,911 763,719 751, 597 754,400 757,033 1925. 1926. 1927. 192S. 1929. 16, 708 17,439 18, 388 19,006 18, 789 703,482 735,421 741,698 749, 767 710, 645 1913. 1914. 1915. 1916. 1917. 1918 1919. 1920. 1921. 1922. 1923. 1924. 1925. 1926. 1927. 1928 1929- 16,683 4,689 5,900 6,238 6,722 19 303 251 241 340 England Estonia 1913. 1914. 1915. 1916. 1917. 1918. Mexico Al Argen bania tina Fin land Aus tralia France Den Brazil 251,421 213.757 138.758 58,759 53,717 53,072 48,062 50,963 50, 720 50, 720 50,720 50, 720 89,610 44,805 24.588 24, 588 24.588 26,227 10.615 10.615 11,773 13,124 12,159 12,352 45,111 51,417 51,438 51,451 51,901 52,204 52,543 26, 227 32, 784 42,619 46,152 48, 669 53,803 7,137 7,155 7,335 7,415 7,629 7, 792 129,712 112,605 95,073 146, 588 127,169 151,467 52,856 54,305 86,214 56,329 99,878 100, 746 125,576 148, 555 163,351 150,395 7,981 8,464 9,198 9,529 9,997 156, 768 34.025 14,599 158,105 10,303 17, 901 151,978 7,439 19,962 113,948 7,363 24,271 77, 626 7,695 21,774 '11 * 16 19 1,313 1,560 Ger many Czech Bul Co Ecua Canada Chile oslo garia lombia vakia mark dor Bel gium Greece Guate mala Hun gary 116,572 99,126 1.330 126, 545 1.330 131,558 1.330 139,823 9,039 129,761 23,413 24, 384 32,893 34.025 34.025 34.025 34.025 19,666 24, 506 29,833 42,847 46,611 52,159 60,807 60, 992 01,192 61,173 56,171 56,145 4,053 12, 545 20,458 1,875 27.020 6,774 27.020 27,213 27,032 29, 737 34,237 37, 249 India Italy 265,476 64,963 269, 584 64,062 263, 278 68,187 223,400 113,411 206,721 229,980 202,403 225,622 10,398 15,11S 12,053 29,452 31,517 43,423 Japan Java 56,085 56,007 48,780 46,298 46, 204 Latvia 2,046 1,124 1,114 Lithu ania 6,948 8,236 8, 230 8,232 8.227 8,234 678,858 802, 583 967,950 652,886 639,682 664,009 278,687 498, 508 582,443 600,377 573,249 538,861 4,825 7,086 10, 939 11,378 11, 907 10, 246 123,921 80,068 67,881 78,127 90,118 64,231 1,427 8, 227 8.227 8.227 8,371 8,242 8,354 694,847 685, 517 690,141 708,403 709, 480 710,394 259,519 260,028 237,102 239,354 111,247 180, 939 10,744 10,765 10,770 5,944 7,182 7,533 128, 819 116,249 118.341 118.341 108.609 6,872 108, 609 200,098 204,372 210, 739 217, 284 215, 699 218,382 349,971 556.475 610,822 605, 532 602,343 585, 738 69,134 88, 214 58, 728 61,306 62,869 53,726 2,123 2,512 3,188 4, 555 1,519 1,645 3,078 1,318 1,353 1,377 1,710 1,717 8, 357 710,968 8,250 711,106 7, 979 954, 000 7, 672 1,253,500 7, 608 1, 633,402 287, 763 436, 235 444,158 650,127 543,838 7,833 8, 729 9,903 7,196 8,326 108.609 108.609 119,097 123,988 128,076 218,825 220.732 239,177 265.732 273,001 575,768 561,810 541,870 540,873 542.475 73,394 79,369 71,640 68, 264 56,101 4, 548 4,559 4, 570 4,584 4,618 3,229 3,136 3, 320 3,427 3, 508 South Africa Spain Sweden 92,627 110,611 167, 375 241,423 379,614 430, 070 472, 064 474, 228 484, 984 487, 278 487,841 489, 294 27,372 29,088 33, 385 49,183 65, 514 76,532 75, 351 75,516 73,631 73,428 72, 853 63,508 489,630 493,489 502,484 493,903 495, 227 61, 647 60,162 61,685 63, 223 65, 569 94 1,476 Nether New lands Zealand Nor way Peru 10,365 29, 526 34,432 35,169 28,465 Poland Portu gal Ru mania Russia 8,140 8,662 9,195 9,247 9,261 9,263 29, 240 29, 733 42,647 95, 201 34, 531 34.466 872,367 891,542 830, 572 758,962 666,523 9,265 9, 267 9.267 9.267 9, 267 9.267 34.467 34, 794 34, 794 42,050 46, 364 47,822 45,043 73,047 35, 540 50,441 49,361 51,692 52,500 53, 098 9.267 9.267 9.267 9.267 9.267 48, 537 49,588 50,805 49,324 55,112 93, 858 84,605 97, 043 91, 887 147, 021 43,594 36,703 40,032 39, 273 36,474 60,899 83, 664 172, 531 236,216 280, 690 277,155 25,325 30,250 33,827 37,414 39,161 39, 506 11,892 10, 290 13,837 33,027 31,193 32, 691 256, 204 255,729 243,600 233,879 233,876 202,854 38,260 37,263 37,394 38, 367 38,290 37,579 39, 590 39, 472 39.474 39.474 39,472 39,457 19,933 20,872 19, 753 1,644 2,954 5,931 9,769 13,099 19,949 178,080 166,231 160, 796 174, 692 179, 881 37,667 38,007 38,280 34,873 31,978 39.456 39.457 39.458 39,362 39,302 19,164 20,084 19,437 19,938 18, 668 25,793 26, 677 58,041 69,685 78, 598 i Austrian account only. 2,535 1,955 1,977 2,341 0 0 8 2,609 34,377 30,693 32, 056 27,048 30,036 33,340 Switzer Uru Yugo slavia land guay 32,801 45,922 48,275 66,585 69, 025 80,041 10,826 13,483 22, 530 33, 251 42,003 46, 718 11,194 11,034 12,381 12, 321 12,310 12,306 99, 779 104, 780 106,058 103,283 103,669 97,642 56,756 57,307 56,813 56.812 56.812 56,809 12,233 12, 386 14,318 12,355 13,286 13,965 90,140 91,050 99, 785 102,874 114, 832 56,815 56,823 59, 319 68,365 68,205 14,657 16, 620 17,133 17, 566 18,426 a Figures not available. N ote.— F ig u res are for c e n tra l b a n k s only, ex cep t in th e follow ing co u n tries: United States— T re a su ry a n d F e d e ra l reserve b an k s; Argentina— G o v ern m en t conversion fu n d a n d B an k of th e N a tio n ; Australia— P rio r to 1 9 2 0 , T re a su ry n o te reserve; su b se q u e n tly , C o m m o n w ealth B an k n o te reserve; Brazil— P rio r to 1 9 2 3 , g u a ra n ty of cu rren cy fu n d ; su b se q u e n tly , B an k of B razil an d G o v e rn m e n t sta b iliz a tio n fu n d ; Canada— G o v e rn m e n t reserve a g a in s t D o m inion n o tes a n d sav in g s-b an k d ep o sits, a n d gold d ep o sits of c h a rte re d b a n k s in th e c e n tra l reserve; Chile— P rio r to 1 9 2 6 , G o v e rn m e n t conversion fu n d ; su b se q u e n tly , C e n tra l B an k of C hile; Czechoslovakia— P rio r to 1 9 2 6 , b a n k in g office of M in iste r of F in an ce; su b se q u e n tly , C zechoslovak N a tio n a l B ank; Engla?id— B an k of E n g lan d a n d , p rio r to 1 9 2 5 , G o v e rn m e n t reserve a g a in s t cu rren cy notes; India — C u rren cy a n d gold s ta n d a rd reserves of G o v ern m en t; Italy— P rio r to J u ly , 1 9 2 6 , th r e e b a n k s of issue; s u b se q u e n tly , B a n k of Ita ly ; Japan— -D o m e stic holdings of B ank of J a p a n a n d G o v ern m en t; New Zealand— Six b a n k s of issue; South Africa— P rio r to 1 9 2 1 , gold a t hom e of n o te-issu in g jo in t sto ck b a n k s; su b se q u e n tly . S o u th A frican R eserv e B a n k . 172 FEDERAL RESERVE BULLETIN A pril,1930 FINAL ACT OF THE HAGUE CONFERENCE Following the report of the committee of experts on reparations on June 7, 1929 1 a meeting of delegates of the various countries concerned was held at The Hague (August 6 to 31, 1929). As a result of this first meeting at The Hague a protocol 2 was adopted in which the report of the experts was approved in principle, various questions connected with its application were settled, and the necessary organization committees were established. The organization committees having submitted their reports, the conference resumed its sessions at The Hague on January 3, 1930. This second meeting, which lasted until Janu ary 20, 1930, resulted in a general settlement of reparation and other financial claims arising out of the war, although the settlement with Hungary was not in all respects final, but was rather the definitive basis for a more detailed agreement to follow. The instruments drawn up and signed at the second Hague meeting are presented in full below. They become effective only upon ratification by the Govern ments concerned in accordance with the stipu lations contained in the various agreements. FINAL ACT OF THE HAGUE CONFERENCE The representatives of Germany, Belgium, France, Great Britain, Italy, and Japan, meet ing at Geneva on September 16, 1928, being inspired by the desire which was common to all their Governments to reach a speedy settle ment of the questions arising out of the war, declared to this end their agreement on the following points: (1) The opening of official negotiations relating to the request put forward by the Chancellor of the Reich on the subject of the early evacuation of the Rhineland. (2) The necessity for a complete and final settlement of the question of reparations and of the constitution for this purpose of a com mittee of financial experts nominated by the six Governments. (3) The acceptance of the principle of the constitution of a committee of verification and conciliation, the composition, mode of oper ation, object and duration of this committee to form the subject of negotiations between the Governments. The committee of financial experts met at Paris and made its report on June 7, 1929. The Governments above mentioned, taking the view that the conclusions of this report 1 See Federal Reserve Bulletin for July, pp. 465-495. *See Federal Reserve Bulletin for December, pp. 792-796. concerned also the Governments of Greece, Portugal, Poland, Rumania, Czechoslovakia, and Yugoslavia as well as the Governments of Canada, the Commonwealth of Australia, New Zealand, the Union of South Africa, and India, invited these Governments to take part in the negotiations and agreements affecting them. In consequence the delegates of the Govern ments above mentioned, accompanied by the representative of the Government of the United States of America in the capacity of observer and with specifically limited powers, met in conference at The Hague under the chairman ship of His Excellency, Monsieur Henri Jaspar Prime Minister of Belgium, and as the result of meetings held from August 6 to 31, 1929, the following instruments were drawn u p: (1) Letters of August 30, 1929, relating to the evacuation of the Rhineland. (2) Agreement dated August 30, 1929, as to the Franco-German and Belgo-German Com missions of Conciliation established by the Treaties of Locarno. (3) Protocol of August 31, 1929, with its annexes concerning the approval in principle of the above-mentioned report of the experts, the settlement of various questions connected with its application, and the establishment of various committees intended to prepare the putting into force of that report. These committees and also the organization committees for which that report provided have submitted the result of their labors to the chairman. Moreover, as it appeared necessary to secure at the same time a general settlement of the pecuniary liabilities resulting from the treaties of St. Germain, Neuilly, and Trianon, of Austria, Bulgaria, and Hungary, these powers were invited to take part in the negotiations and to send their representatives to The Hague. These were the circumstances in which the conference resumed its sittings and the repre sentatives of the Governments above men tioned met at The Hague on January 3, 1930 In consequence of the decision which was taken to establish at Basel the seat of the Bank for International Settlements, representatives of the Swiss Government were invited to take part for this purpose in the labors of the con ference. As a result of meetings held from January 3 to 20. 1930, the following instruments were drawn up: 1. Agreement with Germany. 2. Agreement with Austria. A pril,1930 173 FEDERAL RESERVE BULLETIN 3. Agreement with Bulgaria. 4. Agreement with Hungary. 5. Agreement with Czechoslovakia. 6. Convention with Switzerland. 7. Arrangement relating to the concurrent memorandum accompanying the experts’ plan. 8. Arrangement between the creditor powers (Germany). 9. Arrangement between the creditor powers (Austria, Hungary, Bulgaria— Liberation debt). 10. Arrangements as to the financial mobili zation of the German annuities. 11. Letters exchanged concerning the German-American agreement. 12. Letters exchanged concerning the tariffs of the German Railway Company. 13. Transitory provisions. 14. Letters of the German and Belgian Gov ernments on the subject of the agreement on the German marks in Belgium. The president announces further that in con nection with The Hague conference the follow ing agreements have been signed by Germany concerning the waiver of claims, the liquidation of German property rights and interests, the operations of the clearing offices, and German marks in Belgium: With Belgium: Agreements of July 13, 1929, and January 16, 1930. With Great Britain: Agreement of Decem ber 28, 1929. With France: Agreement of December 31, 1929; With Italy: Agreement of January 20, 1930. With Poland: Agreement of October 31, 1929 (deposited together in the archives of the conference). With Canada: Agreement of January 14, 1930. With the Commonwealth of Australia: Agreement of January 17, 1930. With New Zealand: Agreement of January 17, 1930. The present act will remain deposited in the archives of the Belgian Government, which will deliver an authentic copy to each of the Govern ments which have taken part in The Hague conference and also to the powers signatory of the treaties of peace of Versailles, St. Germain, Neuilly, and Trianon. Done at The Hague in a single copy the 20th January, 1930. The president of the conference, Henri Jaspar; the secretary general, M. P. A. Hankey; the secretary of the German delegation, Doctor Boltze; the secretary of the Austrian delegation, Doctor Hans; the secretary of the Belgian delegation, G. do Grunne; the secretary of the Bul garian delegation, Doctor Poulieff; the secretary of the French delegation, de Felcourt; the secretary of the British delegation, Rupert B. Howorth; tho sec retary of the Canadian delegation, J. Reid Hyde; the secretary of the Aus tralian delegation, Jas. R. Collins; the secretary of the New Zealand delega tio n ^ . Toms; the secretary of the Greek delegation, G. Coustas; the secretary of the Hungarian delegation, L. Gajzago; the secretary of the Italian delegation, Buti; the secretary of the Japanese delegation, H. Kobayashi; the secretary of the Polish delegation, J. Lipski; the secretary of the Portuguese delegation, Antonio Potier; the secretary of the Rumanian delegation, Savel Radulesco; the secretary of the Czechoslovakian delegation, Arnost Heidrich; the secre tary of the Yugoslav delegation, VI. Martinac. AGREEMENT The representatives of Germany, Belgium, France, Great Britain, Italy, and Japan, meet ing at Geneva on September 16, 1928, expressed their determination to make a complete and final settlement of the question of reparations and, with a view to attaining this object, pro vided for the constitution of a committee of financial experts. With this object the experts met at Paris and their report was made on June 7, 1929. Ap proval in principle was given to this report by The Hague protocol of August 31, 1929. The duly authorized representatives of the Government of the German Reich, the Govern ment of His Majesty the King of the Belgians, the Government of the United Kingdom of Great Britain and Northern Ireland, the Gov ernment of Canada, the Government of the Commonwealth of Australia, the Government of New Zealand, the Government of the Union of South Africa, the Government of India, the Government of the French Republic, the Gov ernment of the Greek Republic, the Government of His Majesty the King of Italy, the Govern ment of His Majesty the Emperor of Japan, the Government of the Republic of Poland, tho Government of the Republic of Portugal, the Government of His Majesty the King of Rumania, the Government of the Czecho slovak Republic and the Government of His Majesty the King of Yugoslavia have reached the following agreement: 174 FEDERAL RESERVE BULLETIN A rticle I The experts’ plan of June 7, 1929, together with this present agreement and the protocol of August 31, 1929 (all of which are hereinafter described as the new p la n ), is definitely accepted as a complete and final settlement, so far as Germany is concerned, of the financial ques tions resulting from the war. By their accept ance the signatory powers undertake the obliga tions and acquire the rights resulting for them, respectively, from the new plan. The German Government gives the creditor powers the solemn undertaking to pay the annuities for which the new plan provides in accordance with the stipulations contained therein. A rticle II As from the date when the new plan is put into execution as provided in the final clause of this present agreement, Germany’s previous obligation is entirely replaced, except in respect of the German external loan, 1924, by the obligation laid down in the new plan. The payment in full of the annuities there men tioned, in so far as the same are due to the creditor powers, is accepted by those powers as a final discharge of all the liabilities of Ger many still remaining undischarged, referred to in Section X I of Part I of the Dawes plan as interpreted by the decisions of the interpreta tion tribunal set up under the London agree ment of August 30, 1924. A rticle III A. The signatory Governments recognize that the accounts between the Separation Commission and Germany relating to trans actions prior to the period of the Dawes plan, together with all accounts involving credits to Germany, either now or in the future, against the original capital debt are henceforth obsolete and without practical effect and declare them closed in their present condition. B. (a) In execution of paragraph 143 of the experts’ report of June 7, 1929, on the under standing that the following declaration is to be considered as a full compliance with the requirements of that paragraph as to a waiver, Germany declares that she waives every claim as defined by the following list, whether for a payment or for property, which she may have addressed or might hereafter address to the Reparation Commission or to any creditor power signatory of the present agreement for any transaction prior in date to the signature A pril,1930 of this agreement, connected with the World War, the armistice conventions, the treaty of Versailles, or any agreements made for their execution: (1) Claims relating to property or pecuniary rights of prisoners of war in so far as they have not already been settled by special agreements. (2) Claims seeking to obtain the reimburse ment of payments made under paragraph 11 of the annex to article 296 of the treaty of Versailles. (3) Claims relating to loans issued by the former German colonies. (4) Any claims, whether for a payment or for property, which the German Government has presented or might present for its own account other than State claims notified, under the clearing procedure provided for under articles 296 and 72 of the treaty of Versailles, by the creditor to the debtor office. (6) By way of reciprocity the creditor powers accept in conformity with the recommendation of paragraph 96 of the experts’ report of June 7, 1929, the payment in full of the annuities fixed thereby as a final discharge of all the liabilities of Germany still remaining undischarged and waive every claim additional to those annuities, either for a payment or for property, which has been addressed or might be addressed to Ger many for any past transaction falling under the same heads of claim as those appearing under (1) to (4) above. (c) The provisions of the present article do not affect the execution of agreements later in date than January 10, 1920, for the abandon ment of the liquidation of German private property, rights, or interests or the restitution either of those properties, rights, or interests or the proceeds of their liquidation. , C. (a) The creditor Governments under take, as from the date of the acceptance of the experts’ report of June 7, 1929, to make no further use of their right to seize, retain, and liquidate the property, rights, and interests of German nationals or companies controlled by them, in so far as not already liquid or liqui dated or finally disposed of, including the rights of the signatory creditor powers under article 306, paragraphs (5), (6), and (7) of the treaty of Versailles. (6) The execution of this undertaking will be regulated by special agreements between the German Government and each of the Govern ments concerned. (c) The signatory Governments will use every effort to clear up definitely all outstand ing questions relating to the execution of this APRIL. 1930 FEDERAL RESERVE undertaking within one year after the coming into force of the new plan. (d) This undertaking has no application cases where special settlements have already been made. D. All or some of the questions mentioned in the present article as to the waiver of claims and the cessation of liquidation are governed, as between the German Government on the one hand and the following Governments respec tively on the other hand, by the agreements concluded on the following dates, that is to say: Belgium, July 13, 1929, and January 16, 1930; Great Britain, December 28, 1929; Canada, January 14, 1930; Commonwealth of Australia, January 17, 1930; New Zealand, January 17, 1930; France, December 31, 1929; Italy, January 20, 1930; Poland, October 31, 1929. 175 BULLETIN A rticle V I in The contracting parties recognize the neces sity, with a view to putting into force the new plan, of the constitution of the Bank for International Settlements. They recognize the corporate existence of the bank to take effect as soon as it is constituted in accordance with the statutes annexed to the law incor porating the bank which is the subject of the convention concluded with the Government of the Swiss Confederation. A rticle V II The Government of the Reich will deliver to the Bank for International Settlements, as trustee for ** the creditor powers, the debt certificate referred to in Annex III. Further, the German Government guarantees A rticle IV that the German Railway Company (Deutsche From and after the date on which the new Reichsbahngesellschaft) will deliver to the plan comes into force, the Office for Reparation Bank for International Settlements the certifi Payments and the organizations in Berlin con cate mentioned in Annex IV. nected therewith shall be abolished and the relations with Germany of the Reparation A rticle V III Commission shall come to an end. W itlU a view to facilitating the successful Under the regime of the new plan only those of the functions of these organizations the working of the new plan the German Govern maintenance of which is necessitated by the ment declares spontaneously that it is firmly new plan will continue in existence; these determined to make every possible effort to functions will be transferred to the Bank for avoid a declaration of postponement and not International Settlements by the “ small special to have recourse thereto until it has come to committee” ; the Bank for International Settle the conclusion in good faith that Germany’s ments will exercise them within the conditions exchange and economic life may be seriously and limits of the new plan in conformity with endangered by the transfer in part or in full of the postponable portion of the annuities. It the provisions of its statutes. Under the regime of the new plan the powers remains understood that Germany alone has of the creditor powers in relation to Germany authority to decide whether occasion has will be determined in accordance with the pro arisen for declaring a postponement as pro vided by the new plan. visions of the plan. In regard hereto the representatives of the A rticle I X Belgian, British, French, Italian and Japanese Governments, and the representatives of the The German Government undertakes to German Government have made the declara take the measures necessary for the enactment tions contained in Annex I. The other measures necessary in view of the of the special laws required for the application change from the present system to that of the of the new plan; that is to say (a) the law for new plan are those provided for in Annex II the amendment of the bank law of August 30, 1924, in accordance with Annex V ; (6) the law for the amendment of the law of the Deutsche A rticle V Reichsbahngesellschaft, in accordance with The annuities mentioned in the present Annex VI. agreement include the amounts required for These laws may only be amended in the the service of the German external loan, 1924. conditions and in accordance with the pro These annuities do not include the amounts cedure laid down by Annexes V a and VI a . which the experts’ plan of June 7, 1929, assigns The German Government further under to the United States of America. takes to apply the provisions contained in 103025— 30---- 4 176 FEDERAL RESERVE BULLETIN Annexes V II and X I relating to the assignment of the proceeds of certain taxes by way of collateral security for the service of the several parts of the German annuities. A pril,1930 The Governments of the creditor powers have settled the text of a trust agreement, appearing in Annex V III, for the receipt, management, and division of the German annuities. The Bank for International Settlements upon its establishment will be invited to give its adhesion to the agreement, and the Govern ments referred to will appoint delegates with the powers necessary to sign. The German Government declares that it has been informed of the text of the agreement. or in consequence of the termination of the Dawes plan, diminishes or varies the nature and extent of its prior obligations and engage ments assumed under the general bond secur ing said loan, all of which are preserved in their integrity. The Governments of the other signatory powers similarly confirm and recog nize the absolute prior position of the service of the German external loan, 1924, and declare, in so far as they are concerned, that all the priorities, securities, and rights hitherto granted said loan remain unimpaired including those under the London protocol dated August 30, 1924. In particular, but without limiting the foregoing general declarations, the Govern ments of the German Reich and of the other signatory powers recognize that the specific first prior charge for the benefit of the said loan continues to attach to all payments here after to be made by Germany for reparation or other treaty costs, including not only the nonpostponable portion of the German annuities to be paid into the annuity trust account but also the postponable portion of the German annuities to be paid into the annuity trust account; and the said powers accordingly agree that the amounts currently required for the service of said loan shall be paid out of said annuities to, or upon the order of, the trustees of said loan in priority to any other disbursements made therefrom. The Govern ment of the German Reich further accepts and confirms the provisions for the security of the German external loan, 1924, which are con tained in Annex X I, of which the English text is alone authentic. A rticle X I I A rticle X IV The system of deliveries in kind will be gov erned by the provisions contained in Annex IX hereto and in the second Annex to the Protocol of August 31, 1929. The methods of administering the law of Great Britain entitled “ The German reparation (recovery) act, 1921,” and the levy on German imports into France have been settled by agree ments between the German Government on the one hand and the British and French Govern ments, respectively, on the other; the text of these agreements is set out in Annex X. The creditor powers recognize that their ac ceptance of the solemn undertaking of the German Government replaces all controls, special securities, pledges, or charges existing at the present time, with the exception of those specially mentioned in Article X I I I and in Annexes VI, V II, and X I. A rticle X The contracting parties will take in their respective territories the measures necessary for securing that the funds and investments of the bank, resulting from the payments by Germany, shall be freed from all national or local fiscal charges. The bank, its property and assets, and also the deposits of other funds intrusted to it, on the territory of, or dependent on the adminis tration of, the parties shall be,.immune from any disabilities and from any restrictive meas ures such as censorship, requisition, seizure, or confiscation, in time of peace or war, reprisals, prohibition, or restriction of export of gold or currency and other similar interferences, re strictions, or prohibitions. A rticle X I A rticle X V 1. Any dispute, whether between the Gov ernments signatory to the present agreement or between one or more of those Governments and the Bank for International Settlements, A rticle X I I I as to the interpretation or application of the The German Government confirms all th new plan shall, subject to the special provisions priorities, securities and rights hitherto created of Annexes I, V a , V I a , and I X be submitted for the benefit of the German external loan, for final decision to an arbitration tribunal of 1924, and declares that nothing in the new plan five members appointed for five years, of whom A pril , 1930 FEDERAL RESERVE one, who will be the chairman, shall be a citizen of the United States of America, two shall be nationals of States which were neutral during the late war; the two other shall be respectively, a national of Germany and a national of one of the powers which are creditors of Germany For the first period of five years from the date when the new plan takes effect this tri bunal shall consist of the five members who at present constitute the arbitration tribunal established by the agreement of London of August 30, 1924. 2. Vacancies on the tribunal, whether they result from the expiration of the five yearly periods or occur during the course of any such period, shall be filled, in the case of a member who is a national of one of the powers which are creditors of Germany, by the French Government, which will first reach an under standing for this purpose with the Belgian, British, Italian, and Japanese Governments; in the case of the member of German nation ality, by the German Government; and in the cases of the three other members by the six Governments previously mentioned acting in agreement, or in default of their agreement, by the president for the time being of the Permanent Court of International Justice. 3. In any case in which either Germany or the bank is plaintiff or defendant, if the chair man of the tribunal considers, at the request of one or more of the creditor Governments parties to the proceedings, that the said Government or Governments are principally concerned, he will invite the said Government or Governments to appoint— and in the case of more Governments than one by agreement— a member, who will take the place on the tribunal of the member appointed by the French Government. In any case in which, on the occasion of a dispute between two or more creditor Govern ments, there is no national of one or more of those Governments among the members of the tribunal, that Government or those Govern ments shall have the right to appoint each a member who will sit on that occasion. If the chairman considers that some of the said Governments have a common interest in the dispute, he will invite them to appoint a single member. Whenever, as a result of this pro vision, the tribunal is composed of an even number of members, the chairman shall have a casting vote. 4. Before and without prejudice to a final decision, the chairman of the tribunal, or, if he is not available in any case, any other member appointed by him, shall be entitled, on the request of any party who makes the application, 177 BULLETIN to make any interlocutory order with a view to preventing any violation of the rights of the parties. 5. In any proceedings before the tribunal the parties shall always be at liberty to agree to submit the point at issue to the chairman or any one of the members of the tribunal chosen as a single arbitrator. 6. Subject to any special provisions which may be made in the submission— provisions which may not in any event affect the right of intervention of a third party— the procedure before the tribunal or a single arbitrator shall be governed by the rules laid down in Annex X II. The same rules, subject to the same reserva tion, shall also apply to any proceedings before this tribunal for which the annexes to the present agreement provide. 7. In the absence of an understanding on the terms of submission, any party may seize the tribunal directly by a proceeding ex parte, and the tribunal may decide, even in default of ap pearance, any question of which it is thus seized. 8. The tribunal, or the single arbitrator, may decide the question of their own jurisdic tion, provided always that, if the dispute is one between Governments and a question of jurisdiction is raised, it shall, at the request of either party, be referred to the Permanent Court of International Justice. 9. The present provisions shall be duly ac cepted by the bank for the settlement of any dispute which may arise between it and one or more of the signatory Governments as to the interpretation or application of its statutes or the new plan. FINAL CLAUSE M. Henri Jaspar, Prime Minister of Belgium, as chairman of The Hague Conference of 1930, will deliver to each of the signatory Govern ments a certified copy of the present agreement (which expression here, and in all places where the context admits, includes the annexes hereto) immediately after signature. The French and English texts are both, in the absence of special provision to the contrary, authentic, provided that, for the certificates mentioned in Article V II and the German laws mentioned in Article IX of the present agreement the German text, and for the provisions of Annex X I the English text, alone will be authentic. The present agreement shall be ratified and the deposit of ratifications shall be made at Paris with the French Government. 178 FEDERAL RESERVE The powers of which the seat of government is outside Europe will be entitled merely to inform the French Government through their diplomatic representatives at Paris that their ratification has been given; in that case they must transmit the instrument of ratification as soon as possible. The new plan will come into force and will be considered as having been put into execu tion on the date on which the Reparation Commission and the chairman of the Kriegslastenkommission have agreed in reporting— (1) The ratification of the present agree ment by Germany and the enactment of the German laws in accordance with the relative annexes. (2) The ratification of the present agreement by four of the following powers; that is to say, Belgium, Great Britain, France, Italy, and Japan. (3) The constitution of the Bank for Inter national Settlements and the acceptance by the bank of the undertakings by it for which the present agreement provides, and also its receipt of the certificate of the German Government and the certificate of the German Railway Company as provided in Annexes I I I and IV. The report of the Reparation Commission shall require a unanimous vote of the members of the commission as constituted for the pur poses of the treaty of Versailles when a ques tion concerning Germany is under consideration, the Japanese delegate nevertheless taking part in the discussion and giving his vote. The report of the Reparation Commission and the chairman of the Kriegslastenkommission will be notified to all the powers signatory of the present agreement. Provided always that the substitution of the obligations and annuities of the new plan for those of the experts’ plan of April 9, 1924, shall date from September 1, 1929, regard being had to the provisions of The Hague Protocol of August 31, 1929, and of Annex I I to the pres ent agreement. The present agreement will come into force for each Government other than the four of those mentioned above by name who first ratify, on the date of notification or deposit of ratification. Provided always that any such ratification shall have the same effect as if it had taken place before the report of the Reparation Com mission and the chairman of the Kriegslastenkommission. The French Government will transmit to all the signatory Governments a certified copy of the proces-verbaux of the deposit. BULLETIN A peil,1930 Done in a single copy at The Hague, the 20th day of January, 1930. Curtius, Wirth, Schmidt, Moldenhauer, Henri Jaspar, Paul Hymans, E. Francqui, Philip Snowden, Peter Larkin, Granville Ryrie, E. Toms, Philip Snow den, Philip Snowden, Henri Charon, Loucheur, N. Politis, J. G. Politis, A. Mosconi, A. Pirelli, Suvich, M . Adatci, K. Hirota, J. Mrozowski, R. Ulrich, Tomaz Fernandes, G. G. Mironesco, N. Titulesco, J. Lugosiano, Al. Zeuceano, Dr. Eduard Bene§, Stefan Osusky, Dr. V. Marinkovitch, Const. Fotitch. Annex Annex Annex Annex Annex Annex Annex Annex Annex Annex Annex Annex Annex A.nnex LIST OF ANNEXES . I. Exchange of declarations between the representatives of the Bel gian, British, French, Italian, and Japanese Governments on the one hand and of the Ger man Government on the other. II. Measures of transition------------III. Debt certificate of the German Reich------------------------------IV. Certificate of the German RailwayCompany _________________ V. Provisions to be inserted or main tained in the German bank law---------------------------------Va. Procedure for the modification of certain provisions of the Ger man bank law_____________ VI. Law for the amendment of the law on the Deutsche Reichsbahngesellschaft----------------VIa. Procedure for the amendment of the law on the Deutsche Reichsbahngesellschaft----------------VII. Assignment by way of “ collateral guaranty” of certain revenues of the German Reich_______ VIII. Trust agreement.. . . --------------IX. Rules for deliveries in kind_____ X. Agreements between Germany and Great Britain and between Germany and France as to the “ German reparation (recovery) act” and corresponding French legislation_________________ XI. Securities for the German exter nal loan___________________ X II. Rules of procedure of the arbitral tribunal___________________ Page 178 180 181 185 185 187 188 199 200 201 207 217 218 219 ANNEX I Exchange of declarations between the B elgian , B ritis h , French , Ita lia n , and Japanese Gov ernments on the one hand and the German Government on the other The representatives of the Belgian, British, French, Italian, and Japanese Governments make the following declaration: A pril,1930 FEDERAL RESERVE BULLETIN The new plan rests on the principle that the complete and final settlement of the reparation question is of common interest to all the coun tries which this question concerns and that the plan requires the collaboration of all these coun tries. Without mutual good will and confi dence the object of the plan would not be attained. It is in this sense that the creditor Govern ments have, in The Hague agreement of Jan uary, 1930, accepted the solemn undertaking of the German Government to pay the annui ties fixed in accordance with the provisions of the new plan as the guaranty for the fulfillment of the German Government’s obligations. The creditor Governments are convinced that, even if the execution of the new plan should give rise to differences of opinion or difficulties, the procedures provided for by the plan itself would be sufficient to resolve them. It is for this reason that The Hague agree ment of January, 1930, provides that, under the regime of the new plan, the powers of the creditor powers shall be determined by the pro visions of the plan. There remains, however, a hypothesis out side the scope of the agreements signed to-day. The creditor Governments are forced to con sider it without thereby wishing to cast doubt on the intentions of the German Government. They regard it as indispensable to take account of the possibility that in the future a German Government, in violation of the solemn obliga tion contained in The Hague agreement of January, 1930, might commit itself to actions revealing its determination to destroy the new plan. It is the duty of the creditor Governments to declare to the German Government that if such a case arose, imperiling the foundations of their common work, a new situation would be created in regard to which the creditor Governments must, from the outset, formulate all the reserva tions to which they are rightfully entitled. However, even on this extreme hypothesis, the creditor Governments, in the interests of general peace, are prepared, before taking any action, to appeal to an international jurisdiction of incontestable authority to establish and appreciate the facts. The creditor power or powers which might regard themselves as con cerned, would therefore submit to the Perma nent Court of International Justice the question 179 whether the German Government had com mitted acts revealing its determination to destroy the new plan. Germany should forthwith declare that, in the event of an affirmative decision by the court, she acknowledges that it is legitimate that, in order to insure the fulfillment of the obligations of the debtor power resulting from the new plan, the creditor power or powers should resume their full liberty of action. The creditor Governments are convinced that such a hypothetical situation will never in fact arise and they feel assured that the German Government shares this conviction. But they consider that they are bound in loyalty and by their duty to their respective countries to make the above declaration in case this hypothetical situation should arise. The representatives of the German Gov ernment, on their side, make the following declaration: The German Government takes note of the above declaration of the creditor Governments whereby, even if the execution of the new plan should give rise to differences of opinion or difficulties in regard to the fulfillment of the new plan, the procedures provided for in the plan would be sufficient to resolve them. The German Government takes note accord ingly that under the regime of the new plan the powers of the creditor powers wall be deter mined in accordance with the provisions of the plan. As regards the second part of the declara tion and the hypothesis formulated in this declaration, the German Government regrets that such an eventuality, which for its part it regards as impossible, should be contemplated. Nevertheless, if one or more of the creditor powers refer to the Permanent Court of Inter national Justice the question whether acts originating with the German Government re veal its determination to destroy the new plan, the German Government, in agreement with the creditor Governments, accepts the proposal that the Permanent Court should decide the question, and declares that it acknowledges that it is legitimate, in the event of an affirma tive decision by the court, that, in order to insure the fulfilment of the financial obliga tions of the debtor power resulting from the new plan, the creditor power or powers should resume their full liberty of action. 180 FEDERAL RESERVE The French, German, and English texts of the present annex are equally authoritative. C uiitius . WlRTH. S chmidt . M o ld en h auer . H enri Jaspar . P aul H ym an s . E. F ran co u i . P h ilip S n o w d e n . H enri C haron . L oucheur . A. M osconi. A. P ir e l l i . S uvich . A datci. K, H irota . A N N E X II Measures of transition 1. The transfer to the Bank for International Settlements of the documents belonging to the Reparation Commission and the organizations of the Dawes plan, will take place in so far only as may be deemed by the small special committee referred to in Annex V of the experts’ report of June 7, 1929 (sec. 166) to be strictly necessary for the exercise of the functions of the Bank for International Settlements. 2. (i ) Germany’s previous obligation, except in respect of the German external loan 1924, being entirely replaced by the obligation laid down in the new plan, the German A, B, and C bonds, the bonds of the Deutsche Reichsbahngesellschaft the German industrial bonds aud the bonds of the Bank fiir Deutsche Industrie Obligationen are finally cancelled and shall be destroyed ( ii) The claims of Germany against Austria, Hungary, and Bulgaria referred to in article 261 of the treaty of Veisailles and the debts of Germany referred to in articles 213 of the treaty of St. Germain, 196 of the treaty of Trianon and 145 of the treaty of Neuilly are finally cancelled and the securities and docu ments relating thereto shall be destroyed (H i) The measures to be taken for the destruction of the instruments above mentioned will be settled by the small special committee. 3. (i) As soon as the new plan has been put into force the accounts of the transitional period referred to in Annex III, Article I (1) and (2) to The Hague protocol of August 31 1929 will be closed. Sums in fact paid by Germany during that period in excess of the BULLETIN April , 1930 amounts due by her during the same period, whether under the fifth annuity of the Dawes plan or under the new plan, and the provisions of Section II of Annex III and Section I of Annex IV of The Hague protocol, will be reimbursed to Germany. ( ii) For the whole of the period during which the agent general for reparation pay ments has had such a surplus at his disposal, interest will be credited to Germany in so far as the agent general has received interest by the investment in reichsmarks of the sums at his disposal up to the amount of that surplus; interest will be debited to Germany in so far as, and for the period during which, the pay ments made by her have been less than those which she would have made if the new plan had been put into force on September 1, 1929, regard being had to the sums referred to in the two following paragraphs; this interest will be calculated at a rate equal to that of the average interest produced by the total surplus to be reimbursed to Germany (H i) The sum of 6,000,000 reichsmarks re ferred to in section 2 of Annex III to The Hague protocol is to be deemed due by Germany on the day on which the agent general for reparation payments received from Ger many payments in excess of the amounts due under the new plan sufficient to cover that sum. (iv) The sum of 30,000,000 reichsmarks re ferred to in section 1 of Annex IV to The Hague protocol is to be deemed due by Ger man y as follows; 5.000. 000 reichsmarks on September 20, 1929 5.000. 000 reichsmarks on October 20. 1929. 5.000. 000 reichsmarks on November 20, 1929. 5.000. 000 reichsmarks on December 20, 1929. the balance ( 1 0 ,0 0 0 , 0 0 0 reichsmarks) on December 31, 1929. (v) The balance of the above interest account will be settled when the principal sum due to Germany is reimbursed in accordance with the complete settlement of accounts to be approved bv the small special committee. (vi) This settlement of accounts is without prejudice to the right of the German Govern ment to recover any savings made on the amount of 6,000,000 reichsmarks referred to in paragraph (H i) above by the Reparation Commission and the organizations of the Dawes plan whose expenses have hitherto been covered by the Dawes annuities The amount of these economies, if any will be notified and paid to the German Government as soon as the Reparation Commission is in a position to do so. A pril,1930 FEDERAL RESERVE BULLETIN 181 A N N E X III Debt certificate of the German Reich I The German Government, by this present certificate, undertakes a solemn engagement subject to the stipulations of the new plan as defined by Article I of the Agreement of The Hague of January 1930, to pay to the Bank for International Settlements as trustee for the creditor powers, and not to any other agent nor by way of direct payment to any one of its creditors, and in conformity with the following provisions, the annuities set out in the following table plus the sums re quired for the service of the German external loan 1924, as provided in the general bond dated October 10, 1924. The annuities set out m the table shall be paid by equal monthly installments on the loth of each month, and if the 15th is not a working day then on the working day next following. Millions of reichsmarks Apr. 1 , 1970-M ar. 31, Apr. 1 , 1971-Mar. 31, Apr. 1 , 1972-M ar. 31, Apr. 1 , 1973-M ar. 31, Apr. 1 , 1974-M ar. 31, Apr. 1, 1975-Mar. 31, Apr. 1 , 1976-Mar. 31, Apr. 1 , 1977-Mar. 31, Apr. 1 , 1978-Mar. 31, Apr. 1 , 1979-Mar. 31, Apr. 1 , 1980-M ar. 31, Apr. 1 , 1981-M ar. 31, Apr. 1 , 1982-Mar. 31, Apr. 1 , 1983-Mar. 31, Apr. 1 , 1984-M ar. 31, Apr. 1 , 1985-Mar. 31, Apr. 1 , 1986-M ar. 31, Apr. 1 , 1987—Mar. 31, Millions of reichsmarks 1971_____ 1 9 7 2 ... . 1973____ 1974______ ZZZZIZZZZ~ 1975_____ 1 9 7 6 ..._ 1 9 7 7 .. 1978..........1 1 9 7 9 ... . 1 9 8 0 ... 1 9 8 1 .. 1 9 8 2 ....I 1 9 8 3 .. 1984. 1 9 8 5 ...X I 1986. 1987__________] " ] ' 1988_______________ leno Jem 1621 1624 1697 9 1 5 9 6 1634 2 9 1637 1644 fi 1654 ? J S 6 16?0 5 leg?’ 6 moi g 1703 1683 995 931 ' 897. 3 5 1 4 8 The service of the German external loan, 1924, shall constitute a part of the annuities payable during the respective annuity years until said loan is fully redeemed, and the amount required for the service of the loan in each annuity year as determined by the trustees of said loan shall be added to the amounts speci fied in the foregoing table in determining the 676 9 i6 4 i ‘ 6 aggregate sum of each annuity payable there 1618 9 under. The annual amounts payable for the 1672* 1 service of the loan shall be treated as payments 1744 9 1807’ 5 on account of the nonpostponable portion of 1833 5 the respective annuities and shall be transferred iggo 3 when received to the credit of the trustees for 1919 g the German external loan, 1924. Sept. 1 , 1929-M ar. 31, 1930 ._ Apr. 1 , 1930-M ar. 31, 1931_____ Apr. 1 , 1931-M ar. 31, 1932.......... . . Apr. 1 , 1932-M ar. 31, 1933___ _ Apr. 1 , 1933-M ar. 31, 1934____ Apr. 1 , 1934-M ar. 31, 1935___ _ Apr. 1 , 1935-M ar. 31, 1936_____ Apr. 1 , 1936-M ar. 31, 1937____ Apr. 1 , 1937-M ar. 31, 1938______ Apr. 1 , 1938-M ar. 31, 1 9 3 9 .. Jogg ? Apr. 1 , 1939-M ar. 31, 1 9 4 0 ... ..................Togo 4 Apr. 1 , 1940-Mar. 31, 1 9 4 1 ... . 2096 1 2114' 6 Apr. 1 , 1941-M ar. 31, 1942___ Apr. 1 , 1942-M ar. 31, 1943____ _______ X ” 2 1 3 l’ 9 Apr. 1, 1943—Mar. 31, 1944 2128 2 Apr. 1 , 1944-M ar. 31, 1 9 4 5 .: " 2141 4 Apr. 1 , 1945-M ar. 31, 1 9 4 6 .. 2137 7 Apr. 1, 1946-M ar. 31, 1947 91 a Apr. 1, 1947-Mar. 31, 1948.11 2149 1 Apr. 1 , 1948-M ar. 31. 1 9 4 9 . . . . 2143 9 Apr. 1, 1949-M ar. 31, 1950. 9240’ 7 Apr. 1 , 1950-M ar. 31, 1951. 9283 1 Apr. 1 , 1951-M ar. 31, 1952. 2967 1 Apr. 1 , 1952-M ar. 31, 1953_________ 227o’ 1 Apr. 1 , 1953—Mar. 31, 1954___________ 2277 2 Apr. 1 , 1954-M ar. 31, 1955__ 2988 5 Apr. 1 , 1955-M ar. 31, 1956. o^gg 7 Apr. 1 , 1956-M ar. 31, 1957___________ "" 2278 1 Apr. 1 1957—Mar. 31, 1958. 2285 7 Apr. 1 , 1958-Mar. 31, 1959. 231?' 7 Apr. 1, 1959-M ar. 31, 1960_____ ____ I 2294’ 5 Apr. 1 , 1960-M ar. 31, 1961_______________ 2304 4 Apr. 1 , 1961—Mar. 31, 1962 2322 2 Apr. 1 , 1962-M ar. 31, 1963. _111Z11111111 2314’ 1 Apr. 1 , 1963—Mar. 31, 1964. _•_____ 2326 5 2326 0 Apr. 1 , 1964-M ar. 31, 1965____ Apr. 1 , 1965-M ar. 31, 1966______ ZIZIZIZZ”" 2352 7 Apr. 1 , 1966—Mar. 31, 1967___ 1566 9 Apr. 1, 1967-Mar. 31, 1 9 6 8 ... 1566 1 Apr. 1 , 1968-M ar. 31, 1969____ _IIIIIIIZ 1575 9 Apr. 1 , 1969-M ar. 31, 1970_______________ 1589! 2 II 1. Except for any period in which the trans fer of the postponable portion of the annuity is suspended, the monthly payments of the Reichmust be made in currencies other than the reichsmark. 2. Provided always that with a view to the execution of the programs relating to deliv eries in kind and of the arrangements under the reparation recovery acts, and with a view to meeting any administrative expenses incurred in Germany, the Bank for International Set tlements may request that a corresponding part of these payments may be made in reichsmarks. 3. The bank may notify to the German Government and the Reichsbank simultane ously one month at least in advance of the pay ment dates the^ bank’s preferences with respect to the currencies in which payment is to be made. In case these preferences are not com plied with, the Government of the Reich may make payment of such parts of the German annuities as do not relate to the service of the German external loan, 1924, in the currencies 182 April , 1930 FEDERAL RESERVE BULLETIN of the creditor countries whose nationals were members of the committee of experts of 1929, divided as nearly as possible in proportion to their respective shares, it being, however, understood that payments in currencies other than the reichsmark which are not on a gold or gold exchange standard shall be made only with the consent of the bank. 4. The Bank for International Settlements shall give its receipt to the German Govern ment for all sums which it pays or causes to be paid under this certificate. The receipt shall make note of the currencies received, but credit shall be given to the German Government in the reichsmark equivalent of these currencies. The bank’s receipt giving credit in reichs marks for payments made to the Bank for International Settlements by the German Gov ernment or on its behalf for the execution of the new plan, shall during the normal operation of the new plan constitute a complete and suffi cient discharge of the obligations of the German Government with respect to such payments. Should, however, transfer postponement be in whole or partial effect, the bank’s receipt giving credit in reichsmarks shall constitute a complete and sufficient discharge of the obliga tions of the German Government with respect to all payments into the annuity trust account made in foreign exchange and with respect to such portions of the payments made in reichs marks as in the opinion of the bank provide current funds for deliveries in kind or services. As to the remainder, the receipt of the bank shall be in the nature of a temporary acknowl edgment only. 5. The German Government undertakes that the reichsmark shall have and retain its convertibility into gold or devisen as contem plated in section 31 of the Reichsbank law of August 30, 1924, and that in all circumstances for the general purposes of the new plan the reichsmark shall have and shall retain a mint parity of 1/2790 kilogram of fine gold as defined in the German coinage law of August 30, 1924. Sums paid in currencies other than reichs marks into the annuity trust account shall be calculated in terms of reichsmarks subject to the provisions of the last preceding paragraph at the average of the mean rates (Mittelkurs) prevailing on the Berlin Bourse during the 15 days preceding the date of payment. required for the service of the German external loan, 1924; each coupon is divided into two parts— part A represents that part of the annuity which is mobilizable and nonpostponable; part B, the postponable portion of each annuity. Each part of the annuity coupon enjoys absolutely equal rights throughout except with regard to the possibility of post ponement hereinafter provided for. 2. The bank shall distribute moneys in payment of the mobilized or mobilizable por tions of the annuity coupon among the whole of the bondholders and the creditor Governments in proportion to the rights of each to share in the portion of the annuity coupons not subject to postponement, without allowing a priority of any kind to any tranche or to any claim. It will distribute the moneys relating to the nonmobilizable portions of the annuity coupons amongst the creditor Governments, the transfer of these moneys taking place only after the transfer of the moneys relating to the mobilized or mobilizable portion of the annuity coupon. IV 1. The service of interest and amortization of the mobilizable or mobilized portions of the annuity coupons shall be paid to the bank in currencies other than the reichsmark by the German Reich without any reservation, i. e., on its own responsibility. The financial service of these mobilizable or mobilized portions of the annuities shall constitute a final and uncondi tional international obligation in the ordinary financial sense of the word. 2. Furthermore, upon the request of the Bank for International Settlements, acting as trustee of the creditor powers, if and in so far as the bank considers such a course opportune, Germany undertakes to substitute for part A of the coupons issuable bonds bearing its name, representing, on the same conditions as this certificate and the said coupons, an obligation of the Reich. The amount and form of these bonds and the specifications of the currency in which they shall be issued shall be fixed by the bank. 3. If any one or more of the creditor States should intend to utilize internal issues of German bonds in connection with operations for the conversion of national debt, such bonds shall be quoted only jon their market of issue. 4. If and in so far as Germany shall redeem Ill reparation loans (general or conversion loans) 1. To this certificate are attached coupons wdiich can be redeemed before their due date representing each the whole of one annuity according to the issue conditions, the part of payable, after deduction of the amounts the annuity destined for the service of the loan A pril , 1930 FEDERAL RESERVE BULLETIN 183 6. Any sum in reichsmarks the transfer of so redeemed will accrue to Germany. It is understood that the bank will, as far as possible, which is postponed shall be deposited to the make every effort to secure that loans will not account of the Bank for International Settle be issued without granting to Germany an ments at the Reichsbank for eventual release of appropriate right of anticipated redemption. balances not absorbed by deliveries in kind, 5. Germany shall have the right to redeemagainst payments in foreign currencies by the all or any part of the not yet mobilized annui German Government. At all times the em ties (parts A and B of the coupons) on a basis ployment, whether for investment or for de liveries in kind, of reichsmarks so deposited of 5% per cent discount. shall be subject to agreement between the V Reichsbank and the Bank for International 1. The payment of the nonmobilizable por Settlements. 7. In settling the way in which these sums tion of the annuity coupons shall be made to the Bank for International Settlements by the are to be employed account shall be taken of German Government in the same conditions as the possibility of establishing special programs that of the mobilized or mobilizable portion of in conformity with the procedure, provision for which is made in Appendix I to Annex II to The the annuity coupons. 2. Nevertheless (a) bonds representing the Hague protocol of August 31, 1929. 8. Interest at the rate of 1 per cent per an nonmobilizable portion of the annuity coupons cannot be created except with the consent of num above the prevailing Reichsbank discount the German Government; ( b) it is in respect of rate, or 5% per cent, whichever is lower, shall the nonmobilizable portion of the annuity cou be paid half-yearly by the German Govern pons that the German Government may avail ment on the daily amount of the sums the itself of the right of postponing transfer or pay transfer or payment of which has been post poned and which have not been invested or ment on the following conditions. _ _ 3. The German Government, by giving at utilized for deliveries in kind. This interest least 90 days’ previous notice, shall have the shall be treated in all respects similarly to the right to suspend for a maximum period of two principal sum upon which it accrues, and the years from its due date all or part of the trans return upon that portion of the funds actually fer of the postponable part of the annuity. invested shall be for the account of the creditor Transfer postponement thus declared shall powers. 9. At the end of any period in respect of affect the postponable annuity as and from which a total or partial postponement of trans that date on which transfer postponement fer or payment has been declared for any becomes effective. 4. If, during any annuity year, the German monthly instalment, the instalment or part Government shall avail itself of this power, thereof the transfer or payment of which has the transfers falling due during any second been so postponed shall become immediately year can not be postponed for more than one payable to the Bank for International Settle year from their respective due dates, unless ments in foreign currencies, with the exception and until the transfers due during the first of any amounts of which the creditor powers year shall have been effected in full, in which have already had the benefit in some other case the transfers due during such second year form in pursuance of the new plan. This may be postponed two years from their respec clause modifies in no way the functions of the tive due dates; and the transfers due during special advisory committee provided for in the any third year can not be postponed at all new plan. 10. In the event of any declaration of post until the transfers due during the first year ponement made by Germany or at any other have been effected in full. 5. At any time when postponement of trans time when the German Government declares fer is in effect but not until one year after it to the creditor Governments and to the Bank has become effective, the German Government for International Settlements, that it has come shall have the right to postpone payment for to the conclusion in good faith that Germany’s one year of 50 per cent of any sum the transfer exchange and economic life may be seriously of which shall then be susceptible of postpone endangered by the transfer in part or in full ment under the conditions stated above. This of the postponable portion of the annuities, percentage may be increased upon the recom the Bank for International Settlements shall mendation of the advisory committee provided convene the special advisory committee men for in part 8 (e) of the report of the experts of tioned in chapter 8 (e) of the experts’ plan of June 7, 1929. 1929. 184 FEDERAL RESERVE The special advisory committee shall forth with consider the situation in all its aspects, as provided in the plan, and shall indicate for consideration by the Governments and the bank what, in their opinion, are the measures that should be taken in regard to the appli cation of the plan. In application of article 124 of the report of the experts of June 7, 1929, any recommendation of the committee affect ing the rights of the creditor Governments shall not bind the creditor Governments unless it is accepted and confirmed by the creditor Governments who participated in the decision of September 16, 1928, to set up the committee of experts. Similarly, any recommendation affecting the rights of the German Govern ment shall not bind the German Government unless it is accepted and confirmed by that Government. VI The German Government undertakes during the period up to March 31, 1966, to maintain at the Bank for International Settlements a non-interest bearing deposit equivalent to 50 per cent of the average deposit remaining in the annuity trust account, but not exceeding 100,000,000 reichsmarks. The bank shall to this end certify to the German Government and to the creditor Gov ernments every month the average of the bal ance at the close of each working day left by the creditor Governments on deposit without interest during that month, in respect of the sums arising from the German payments under the Dawes plan or under the new plan up to the t’me when they are drawn out by the creditor Governments. The first deposit will be paid by the German Government to the bank 15 days after the putting into execution of the new plan, the amount of the deposit being calculated on the average of the daily balances above mentioned left with the agent general for reparation pay ments or the bank during the month ending two working days prior to the date of deposit, excluding sums returnable to the German Gov ernment under Annex I I I of The Hague protocol of August 31, 1929. The deposit shall be maintained at the amount so calculated during one month. At the end of this period the deposit will be ad justed by a further deposit or by the with drawal of part of the existing deposit, on the basis of the average of the daily balances referred to above during the month ending two working days before the date of the adjust ment. BULLETIN A pril , 1930 A similar adjustment will take place at the end of the second month from the date of the first deposit. At the end of the third month, and there after at intervals of three months, the deposit shall be adjusted on the basis of the average of the daily balances referred to above during the three months ending two working days before the date of each such adjustment. The intervals referred to in this paragraph may be changed by agreement between the Govern ments concerned with the concurrence of the Bank for International Settlements. V II As a collateral guarantee the German Govern ment, without prejudice to its general liability for payment of the annuities and its complete freedom to make these payments out of its general revenues and without prejudice to the securities for the German external loan, 1924, assigns, in pursuance of the provisions of the relative annex of the Agreement of The Hague of January, 1930, the proceeds of the customs, tobacco, beer, and alcohol (monopoly adminis tration) duties to the service of the present certificate, including the service of any bonds which may be issued in accordance with the new plan. The proceeds of the annual direct tax of 660,000,000 reichsmarks payable by the German railway company are also assigned as a col lateral guarantee to the service of the annuities. The amounts of the obligation of the German Railway Company will be paid in accordance with the certificate of debt of that company on the first day of each month, and if the full amount of the previous monthly payment due by the German Government has been paid, the amounts so paid by the German Railway Com pany will be transferred, immediately on their receipt, to the German Government. V III The obligation of the German Government in relation to the annuities for which this cer tificate provides shall not be deemed to have been fulfilled until all sums, the transfer or pay ment of which may from time to time have been suspended, have been either in fact completely transferred to the Bank for International Set tlements in the shape of approved currency other than the reichsmark or employed for de liveries in kind. IX At the end of each annuity period, when the Bank for International Settlements has re 185 FEDERAL RESERVE BULLETIN A pbil,1930 ceived from the German Government the amounts due under this present certificate, the bank will return to the Government the coupon corresponding to the payments of that annuity period. The certificate itself will be delivered when all the coupons have been paid. X The foregoing provisions shall not be deemed to affect the provisions of the new plan, which are not dealt with in this certificate. A n n u ity coupon (not including the service of the German external loan, 192V) PART B PART A The German Reich will pay to the creditor powers a t the Bank for Interna tional Settlements on ac count of the nonpostponable part of the annuity for the period from the -------- , 19—, to th e ------- , 19—, the sum of 612,000, 0 0 0 reichsmarks. The relative provisions of the certificate apply to the present coupon. A note of the payment of each instalment will be endorsed on the present coupon. When the full amount of the above sum has been paid this coupon will be returned to the German Government. Berlin, th e -------- , 1930. Reichsschuldenverwaltung. (Administration of the debt of the Reich). on April 1, 1966. Payments on the duo dates must be effected before 9 o’clock in the morning. The tax is to bo paid in accordance with the conditions, privileges, and guarantees fixed by the railway law of ----- ----------- , and, in particular, in conformity with the following provisions: t The tax shall be paid out of the operating receipts of the company with recourse, if neces sary, to all reserves. It shall rank after the expenditure on personnel and on the same foot ing with expenditure on material and consum able stores. It shall enjoy priority over any other tax now levied on the railway company, or which may be levied in the future, and shall rank prior to any other charge, by way of mortgage or otherwise, on the company. In conformity with paragraph 1 of article 5 of the law o f ---------------- , the undertaking as sumed by the company to pay the reparation tax for the year 1965 and until March 31, 1966, will be transferred to the organization to be created to administer the railways of the Reich in conformity with article 92 of the Reich con stitution, the above provisions being applied mutatis mutandis. The German Reich will pay to the creditor powers at the Bank for Interna tional Settlements on ac count of the postponable part of the annuity for the period from th e -------, 19—, to t h e -------- , 19—, the sum o f -------- reichs marks. The relative provisions of the certificate apply to the present coupon. ANNEX V A note of the payment of each instalment will be endorsed on the present Provisions to be inserted or m aintained in the coupon. When the full German bank law amount of the above sum has been paid this coupon will be returned to the A rticle 1 German Government. Berlin, th e -------- , 1930. Remains unchanged. Reichsschuldenverwaltung. _ A rticle 2 (Administration of the debt of the Reich). ANNEX Remains unchanged. IV A rticle 3 Certificate of the Deutsche Reichsbahngesellschaft By the present certificate, the undersigned confirm that the German Railway Company has to pay, as contribution to the annuity for reparation purposes to be paid by the Reich, a Reich tax amounting to 660,000,000 reichs marks per annum. # This tax will fall due in equal monthly in stallments of 55,000,000 reichsmarks after the end of each month on the first day of the fol lowing month, and— where the first day hap pens to be a Sunday or holiday— on the follow ing working day. It shall be paid direct into the account of the Bank for International Set tlements ak the Reichsbank. The payments begin to fall due on October 1, 1929, and end Remains unchanged (in connection with article 5 of the coinage law, 1924). A rticle 6 The bank shall be administered by the managing board of the Reichsbank (Reichsbankdirektorium), which consists of a president as chairman and the required number of mem bers. In particular, the managing board shall direct the currency, discount, and credit policy of the bank. The president and the members must be German nationals. The resolutions of the managing board are passed by simple majority; in the case of an 186 FEDERAL RESERVE BULLETIN equality of votes, the president has a casting vote. The president shall be elected by the general council after the latter has heard the managing board of the Reichsbank. Such election re quires a majority of 7 votes and the confirma tion of the president of the Reich, who signs the deed of appointment. By the delivery of the deed the president elected is duly appointed. The members of the managing board shall be appointed by the president after approval by the general council. The same majority is required for such approval as for the election of the president. The appointment requires con firmation by the president of the Reich. The members are duly appointed by delivery of the deed of appointment. The appointment shall be for a term of 12 years, subject always to the condition that, on attaining the age of 65 years, a member shall cease to hold office. The term of the first-appointed members of the managing board shall be as follows: With the exception of the president they shall be divided into three groups, of which the two first must be equal in number and the third group may be equal in number or less, but in any case shall be as near as possible in number to the first group. The first group shall con tain the members youngest in years, and the third group the oldest, the second group con taining the remaining members. The mem bers of the first group shall be elected for 12 years, the members of the second group shall be elected for eight years, and the members of the third group shall be elected for four years. The same age limit of 65 years shall apply in every case. The term of office of the president is four years. The president and the members are eligible for reelection. The election of a new candidate shall not take place unless the candidate is approved by the managing board. The approval shall be considered as refused if two-thirds of the mem bers have voted against the new candidate. On important grounds the president or a member of the managing board can be dis missed at any time without prejudice to their contractual rights. Dismissal of the president on important grounds can be voted by the general council with the same majority as provided for in paragraph 4 above, and in the case of a member of the managing board it can be voted likewise by the general council with the same majority, but not without the president’s consent. The dismissal of the presi dent or of a member of the managing board A pril , 1930 requires confirmation by the president of the Reich. A rticle 9 (first paragraph) Remains unchanged. A rticle 10 Remains unchanged. A rticle 12 In every year a report as to administration shall be presented to the general meeting. The general meeting shall decide as to the balance sheet and as to the distribution of profits in accordance with this law. The general meeting shall also determine the “ Satzung” and any changes in the “ Satzung” on the proposal of the managing board and with the consent of the general council. The “ Satzung” and any changes therein shall be published by the managing board in the “ Reichsanzeiger. ” 0 A rticle 14 A general council of the Reichsbank shall be constituted consisting of 10 members. These members must be German nationals. A rticle 15 The president of the Reichsbank managing board shall be one of the members and also chairman of the general council. The term of office of a member of the general council with the exception of the president shall be three years. A rticle 16 The members of the general council, with the exception of the president, shall be elected by means of cooption by those members of the general council who are in office at the time, subject to confirmation on the part of such of the shareholders as are German nationals. Before the election the chairman of the general council or his deputy shall consult the Govern ment of the Reich concerning the election. A rticle 17 The following classes of persons shall not be elected as members of the general council: (a) Officials in the immediate service of the German Reich or of any German State, unless they are in a permanent state of retirement. 187 FEDERAL RESERVE BULLETIN A pril,1930 (b) Persons who receive any payment from the German Reich Government or from the gov ernment of any German State. Remuneration for earlier services does not count as payment. A rticle 18 Decisions of the general council shall require a simple majority; if the votes are equally divided the chairman shall have a casting vote. This provision shall not apply to the election of the president, nor to the assent to be given to the appointment of the members of the managing board. At each of its meetings, and at least once in three months, the general council shall examine the reports submitted to it by the president. It shall decide on all proposals made to it by the president, provided that such decisions do not encroach upon the rights of administration of the bank reserved to the managing board. A rticle 21 Add at end as new paragraph: “ All functions confided to and obligations imposed on central banks in general or any one such central bank specially by the new plan (Hague Agreement, January, 1930) will be performed in Germany by the Reichsbank. All functions confided to and obligations imposed on presidents of central banks in general or any one such president specially by the new plan will be performed in Germany by the president of the Reichsbank.” A rticle 22 Remains unchanged. A rticle 27 The preparation and completion, the issue, the withdrawal, and the destruction of bank notes shall be effected under the control of the president of the “ Rechnungshof of the German Reich” as commissioner. The checking of the issue of notes shall be effected by numerically ascertaining the avail able note cover as prescribed by law. The examination shall take place on those days for which the bank, according to article 36, para graph 1, regularly publishes its returns. The reports as to such examination must be sub mitted to the general council at each of its meetings. No examination or discussion con cerning the credit, discount, and currency policy of the bank shall take place in connection with the checking. Statements as to the cover of notes and as to the notes in circulation must be given to the commissioner daily. Paragraphs 4 and 5 remain unchanged. A rticle 28 Remains unchanged. A rticle 29 Remains unchanged. A rticle 31 Remains unchanged. A rticle 38, P aragraph 4 While the note issue privilege is in force, the Reichsbank may only go into liquidation with A rticle 25 the consent of the Government of the Reich. Thereafter the Reichsbank shall, before going The Reichsbank is under obligation to accept into liquidation, give notice to the government or make payment for the Reich at the request in good time. of the Government authorities by any of its A rticle 45 establishments appropriate for that purpose and also to effect transfers without the trans Remains unchanged. mission of cash between the various financial establishments of the Reich. A rticle 46 Without prejudice to the rule contained in the fourth paragraph of this section the bank Remains unchanged. * shall be authorized to give credit to the Reich for purposes of administration; but in each case ANNEX Va for a term not exceeding three months and only up to the maximum amount of 100,000,000 Procedure jo r the modification of certain 'pro reichsmarks. On July 15 of each year the visions of the German bank law Reich must not be indebted to the bank in any Any proposal which may affect the provi way. sions of Annex V must be submitted by the Paragraphs 3 to 6 remain unchanged. 188 FEDERAL RESERVE BULLETIN German Government to the board of directors of the Bank for International Settlements. The board may object to any such proposal, on the ground that it is incompatible with the new plan, by referring the question within a period of two months, in the absence of an agreement being reached, to an arbitrator chosen by common consent, or, in default of such consent, to the tribunal provided for in the present agreement. The decision of the arbitrator or tribunal shall be final and will bind the Reich, the Bank for International Settlements and the States signatory to the present agreement. S ection 4.— Reparation tax A pril , 1930 . (1) The company shall pay, as a contribution of the Deutsche Reichsbahn to the reparation annuities payable by the Reich, a tax of the Reich to an amount of 660,000,000 reichsmarks per annum (reparation tax). The reparation tax shall fall due, in equal monthly install ments of 55,000,000 reichsmarks, upon ex piration of each month on the first day of each subsequent month, and where the first day is a Sunday or holiday, upon the first working day following; the tax shall be paid direct into the account of the Bank for Inter national Settlements at the Reichsbank; the first payment shall fall due on October 1, 1929, A N N E X VI and the last payment on April 1, 1966, subject Amendments to be made in the law concerning and to the provision of section 5 of the present law. in the statutes of the Deutsche Reichsbahn- The payments shall be made before 9 a. m. on the days fixed for the same. _ gesellschaft (2) The reparation tax shall be paid out of the operating receipts of the company with A .— German railw ay law recourse, if necessary, to all reserves. It shall rank after the expenditure on personnel and S ection 1.— Incorporation of the company on the same footing with expenditure on ma (1) A company is incorporated by the present terial and consumable stores. It shall enjoy priority over any other tax now levied on the law to operate the railways of the Reich. (2) The company shall operate the railways railway company, or which may be levied in of the Reich on behalf of the Reich in conform the future, and shall rank prior to any; other ity with the provisions of the present law and charge, by way of mortgage or otherwise, on the regulations annexed thereto. (Annex I.) the company. # . (3) The company shall deposit with the Bank for International Settlements a certificate S ection 2.— Conduct of the undertaking acknowledging its liabilities under paragraphs No change. (1) and (2) above. The reparation bonds created in virtue of section 4 of the law of S ection 3.— C apital August 30, 1924, and handed over to the (1) The original share capital of the company trustee shall be cancelled and destroyed in shall be 15,000,000,000 reichsmarks, divided the presence of a representative of the company. (4) The payment of the reparation tax by into 2,000,000,000 reichsmarks of preference shares (tranche A ) and 13,000,000,000 reichs the company shall be guaranteed by the marks of ordinary shares subject to the special Government of the Reich. As soon as the provisions laid down in section 26 of the stat Bank for International Settlements notifies the Government that a payment due has not utes as regards the preference shares. (2) For the purpose of obtaining the funds been effected either in whole or in part, the required for the improvement, perfecting and Government shall authorize the company to extension of the plant and rolling-stock of the devote to the payment of the arrears of repara railways of the Reich and for other extraordi tion tax the proceeds of the transport tax nary expenditure, the company is entitled to collected for the account of the Reich, in so increase its capital by the issue of further prefer far as such a tax exists. If these resources ence shares (tranche B ), the total nominal prove insufficient the Reich shall meet the amount of such shares not to exceed the sum of deficit within one month of receiving notice 2,000,000,000 reichsmarks for each period of 10 from the bank, either by placing the sums years dating from the first issue of such prefer required for the payment at the disposal of ence shares. The increase of the capital is the company or by making a direct payment conditional upon the assent of the Government into the account of the Bank for International Settlements at the Reichsbank. Apart from of the Reich. the above provision, the transport tax shall (3) formerly (2). No change. FEDERAL RESERVE BULLETIN A pril , 1930 be exempt from all special charges in respect of reparations. (5) The sums paid by the Government to cover a deficit in the reparation tax and the proceeds of the transport tax devoted by the company to the same purpose in virtue of para graph (4) above shall be repaid to the Reich in conformity with the provisions of section 25, paragraph (3), No. 3 of the company’s statutes. (6) The company is entitled, with the assent of the Bank for International Settlements and subject to the terms agreed on with the bank, to discharge the reparation tax in whole or in part b y a capital payment. The Government of the Reich may require the company to exer cise this right of discharge provided that the Reich places the necessary funds at the com pany’s disposal. Any capital payment shall extinguish the liability of the company under paragraphs (1) and (2) in a corresponding degree. The right of the Government of the Reich provided for in the agreement o f ---------o f ----------relating to the redemption of repara tion annuities remains unaffected. S ection 5.— Concessions— Transfer of rights and obligations (1) The Reich shall concede to the company the exclusive right to operate the railways of the Reich under the conditions set forth in this law and in the company’s statutes. The con cession shall terminate on December 31, 1964, provided that at the said date all the repara tion tax payments payable up to that date, including the payment falling due on January 2, 1965, have been discharged and all the pref erence shares have been redeemed. The lia bility of the company to the payment of the reparation tax in 1965 and up to March 31, 1966 shall then be transferred, subject to the continued application of the provisions of sec tion 4, to the undertaking intrusted with the operation of the railways of the Reich in accord ance with article 92 of the constitution. (2) In the event of the company’s liability to pay the reparation tax direct into the ac count of the Bank for International Settle ments at the Reichsbank terminating before December 31, 1964, the concession shall be shortened accordingly and will terminate forth with, provided that the preference shares have all been redeemed by that date. On the other hand, if at December 31, 1964, the whole of the reparation tax payments due up to that date have not been made, or if the whole of the preference shares have not been redeemed, the concession shall be prolonged under the same 189 conditions until such time as the payment of the tax and the redemption of the preference shares have been completed. (3) to (7). No change. S ection 6.— R a ilw a y property of the Reich (1) No change. (2) The company shall be entitled to dispose of property belonging to the railways of the Reich where, in the opinion of the company, such disposal is not inconsistent with reason able operating needs. Nevertheless, before disposing of any property the value of which exceeds 250,000 reichmarks, the company shall be required, subject to the provisions of section 8, to obtain the consent of the Government. Where no other method of utilization has been agreed upon with the Government of the Reich the proceeds of sales shall be utilized for the improvement, completion or extension of plant and rolling stock. S ection 7.— L im ited lia b ility of railw ay prop erty fo r debts of the Reich No change. S ection 8.— Loans and credits (1) The company shall have the right to raise loans on its own account, provided that their currency does not extend beyond January 1, 1965, and for the purpose of such loans to mortgage the property of the railways of the Reich. (2) to (4). No change. (5) For the purpose of guaranteeing loans (pars. 1 and 2) by mortgages the company shall be entitled to grant a collective mortgage (Reichsbahnhypothek) on all land sites form ing part of the property of the railways, to gether with all accessories, including rolling stock. S ection 9.— Operation (1) The company shall assume responsibility for the safe operation of the railways of the Reich and for such adequate maintenance, re newal, and development at its own expense of the undertaking, with all its accessories, as will meet the requirements of traffic and the pro gress in railway technique. (2) Subject to these principles and other legal prescriptions and within the limits of the control reserved to the Reich (see sec. 31 and following) the company shall be entitled to operate the railways on its own responsibility. 190 F E D E R A L R E SER V E B U L L E T IN S e c t io n 1 0 .— M o n o p o ly N o change. S e c t io n 1 1 .— C la ssifica tio n o f ra ilw a y s T h e g o v e r n m e n t o f th e G e r m a n S t a t e c o n c e r n e d a n d th e c o m p a n y s h a ll b e e n t it le d t o b e h e a r d o n th e q u e s t io n as t o w h e t h e r a r a ilw a y is t o b e c o n s id e r e d as o f g e n e r a l i n t e r e s t ; t h e fin a l d e c is io n r e s ts w it h t h e m in is t e r o f th e R e i c h r e s p o n s ib le f o r th e c o n t r o l o f t h e r a ilw a y s . S e c t i o n 1 2 .— T ra n sfe r o f rig h ts und er the con cession I n s p e c ia l c a s e s w h e r e i t a p p e a r s a d v a n t a g e o u s in t h e o p e r a t io n o f t h e u n d e r t a k in g th e c o m p a n y m a y , w it h t h e a s s e n t o f th e G o v e r n m ent^ o f t h e R e i c h , tr a n s fe r t h e c o n c e s s io n o f in d iv id u a l p a r t s o f t h e s y s t e m t o t h ir d p a r t ie s , p r o v i d e d t h a t t h e c o m p a n y ’ s a b i l i t y t o p a y th e r e p a r a t io n t a x a n d t h e s e c u r it y o f t h e s a m e a re n o t d im in is h e d t h e r e b y . S e c t i o n 1 3 .— Services to or by departm ents o f the Governments N o change. S e c t i o n 1 4 .— A pril, 1930 ile g e d p o s it io n in v ir t u e o f th e p r o v i s io n s o f th e p r e s e n t la w o r o f th e c o m p a n y ’ s s t a t u t e s . The la w s a n d d e c r e e s r e la t in g t o p r i v a t e r a ilw a y s a lo n e , in p a r t ic u la r t o t h e ir c o n c e s s io n , o p e r a t io n o r s u p e r v is io n , s h a ll n o t b e a p p lic a b le t o th e c o m p a n y . ( 2 ) f o r m e r l y ( 1 ). N o c h a n g e . (3 ) f o r m e r l y ( 2 ). N o c h a n g e . > (4 ) T h e c o m p a n y s h a ll b e e n t it le d t o c la im f o r it s e lf a n d it e p e r s o n n e l th e b e n e f it o f th e p r o v i s io n w h i c h e x is t s in f a v o r o f th e d e p a r t m e n t s o r u n d e r t a k in g s o f th e R e i c h a n d t h e ir p e r s o n n e l in th e m a t t e r o f th e V e r s ic h e r u n g s -, W ir t s c h a f t s - , A r b e i t s - , F iir s o r g e -, a n d W o h n u n g s r e c h t (in s u r a n c e , e c o n o m i c , la b o r , p e n s io n s , a n d h o u s in g le g is l a t io n ) . T h e r ig h t t o s u c h b e n e fit w ill b e a c q u ir e d b y a d e c la r a t io n t o th e G o v e r n m e n t o f t h e R e i c h . W h ere a s p e c ia l d e c r e e is r e q u ir e d t o e s t a b lis h th e c o m p a n y ’ s p r iv ile g e d p o s it io n u n d e r t h e la w s c o n c e r n e d , s u c h d e c r e e s h a ll b e is s u e d b y t h e m in is te r o f th e R e i c h r e s p o n s ib le f o r th e c o n t r o l o f th e r a ilw a y s . T h e p o w e r s e x e r c is e d b y th e su p rem e a u th o r ity o f th e R e ic h (O b e r s t e R e i c h s b e h o r d e n ) in th e s e m a t t e r s s h a ll, u n le s s o t h e r w is e s t ip u la t e d in th e la w s , b e e x e r c is e d b y th e d ir e c t o r g e n e r a l. (5 ) a n d ( 6 ). N o c h a n g e . E xe m p tio n fr o m ta xa tio n S e c t i o n 17 .— C om pany officials n ot State officials N o change. C o n trib u tio n s to w ard the ad m in is tra tiv e expenditure o f the communes S e c t i o n 15 ( n e w ) .— I n d is c h a r g e o f c la im s t o a c o n t r i b u t i o n t o w a r d a d m in is t r a t iv e e x p e n d i t u r e p u t f o r w a r d b y c o m m u n e s in w h i c h a r e la t iv e l y la r g e p r o p o r t i o n o f r a ilw a y s t a ff is d o m ic i le d , t h e c o m p a n y s h a ll p a y a n n u a lly t o t h e G o v e r n m e n t o f t h e R e i c h t h e fix e d s u m o f 5 ,0 0 0 ,0 0 0 r e ic h s m a r k s a g r e e d o n w it h t h e G o v e r n m e n t , w h i c h w ill l a y d o w n t h e p r in c ip le s o f d is t r ib u t i o n a m o n g th e c o m m u n e s c o n c e r n e d . S h o u ld c ir c u m s t a n c e s a lte r in t h e f u t u r e , t h e a m o u n t p a y a b le b y t h e c o m p a n y s h a ll b e fix e d b y a n e w a g r e e m e n t b e t w e e n th e G o v e r n m e n t a n d th e com pan y. T h e a u t h o r it ie s o f th e c o m p a n y s h a ll n o t b e a u t h o r it ie s o r o ffic ia l o r g a n s o f t h e R e i c h . T h e y h a v e , h o w e v e r , th e s a m e s t a n d in g u n d e r p u b l i c la w a n d th e d u t ie s c o n n e c t e d t h e r e w it h as th e D e u t s c h e R e i c h s b a h n u n d e r t a k in g p r io r t o t h e c r e a t io n o f t h e c o m p a n y . T h e com p a n y s h a ll b e e n t it le d t o u se a s e a l d is p la y in g t h e G e r m a n e a g le . S e c t io n 1 8 .— R epresentation o f the com pany N o change. S e c t io n 1 9 .— Leg al p o s itio n o f the personnel ( 1) T h e c o m p a n y s h a ll d r a w u p s t a ff r e g u la t io n s (P e r s o n a lo r d n u n g ) in c o n f o r m i t y w it h a n d s u b j e c t t o t h e f o llo w in g p r o v i s io n s . The r e g u la t io n s s h a ll d e fin e t h e r ig h t s , c o n d i t io ns S e c t i o n 15 ( f o r m e r ) . — T ra n sp o rt tax o f s e r v ic e , a n d s a la r ie s o f t h e r a ilw a y o ffic ia ls (B e a m t e n ) o n lin e s s im ila r t o t h o s e g o v e r n i n g O m it t e d . th e p r o v i s io n s in r e s p e c t o f o ffic ia ls o f th e W h e r e th e c o m p a n y b e lie v e s t h a t th e S e c t i o n 1 6 .— Other la w s; th e ir a p p lic a tio n to R e i c h . s p e c ia l c ir c u m s t a n c e s o f th e r a ilw a y n e c e s s it a t e the com pany a d e v ia t io n in it s o w n r e g u la t io n s f r o m th e (1 ) T h e c o m p a n y s h a ll b e s u b j e c t t o g e n e r apl r o v i s io n s a p p lic a b le t o o ffic ia ls o f t h e R e i c h , le g is la t io n , in s o f a r as i t d o e s n o t e n j o y a p r i v th e c o m p a n y s h a ll in f o r m a n d d is c u s s it s in t e n A pril, 1030 191 F E D E R A L R E S ER V E B U L L E T IN t io n s w it h t h e G o v e r n m e n t o f t h e R e i c h . If n o a g r e e m e n t c a n b e r e a c h e d , t h e fin a l d e c is io n s h a ll r e s t w it h t h e r a ilw a y c o u r t . (S e c . 4 4 .) U n t il t h e r a ilw a y c o u r t ta k e s a d e c is io n , th e e x is t in g r e g u la t io n s s h a ll r e m a in in fo r c e . w o r k in g h o u r s o f w ork ers. (4 ) and (5 ), ch a n ge. S e c t i o n 2 0 .— o ffic ia ls fo r m e rly to e m p lo y e e s (3 ) and and (4 ) No P rotection o f existing rights T ra n s itio n a l p ro v is io n N o ch an ge. T h e r e g u la t io n s g o v e r n i n g th e r ig h t s , c o n d it io n s o f s e r v ic e a n d s a la r ie s o f r a ilw a y o ffic ia ls S e c t i o n 2 1 . — L o ca l em ploym ent o f s ta ff o n O c t o b e r 1 , 1 9 2 9 , s h a ll b e c o n s id e r e d as N o ch an ge. h a v in g b e e n is s u e d in a g r e e m e n t w it h th e G o v e r n m e n t o f th e R e ich . S e c t i o n 2 2 . — S ta ff regulations ( 2) T h e s t a ff r e g u la t io n s m a y c o n t a in p r o v i s io n s in r e s p e c t o f t h e r ig h t s a n d c o n d i t io n s o f T h e s t a ff r e g u la t io n s t o b e d r a w n u p b y th e s e r v ic e o f e m p lo y e e s a n d w o r k e r s , w h e r e s u c h c o m p a n y s h a ll in p a r t ic u la r d e t e r m in e th e r ig h t s a n d c o n d i t i o n s o f s e r v ic e a re n o t t h e f o l l o w i n g m a t t e r s , s u b j e c t a lw a y s t o th e p r o s u b je c t o f a g re e m e n ts b a se d o n r e c o g n iz e d v is io n s o f t h is la w : g e n e r a l p r in c ip le (w a g e a g r e e m e n t s , w o r k in g (a ) T h e c o n d i t io n s o f a p p o in t m e n t a n d p r o a g r e e m e n t s , in d iv id u a l c o n t r a c t s ) . m o t i o n o f o ffic ia ls . (ib) T h e i r c la s s ific a t io n . T ra n s itio n a l p ro v is io n (c ) S a la r ie s , r e t a in in g p a y , a n d all o t h e r a llo w a n c e s t o o ffic ia ls , as a lso th e p e n s io n s c a le M a t t e r s r e g u la t e d o n O ctob er 1, 1 9 2 9 , u n d e r s e c t i o n s 3 t o 3 2 o f th e s t a ff r e g u la t io n s a n d a llo w a n c e s t o s u r v iv in g d e p e n d a n t s . ( d ) H o u r s o f w o r k (h o u r s o n a n d o f f d u t y ) o f o r e n t r u s t e d t o t h e d ir e c t o r g e n e r a l f o r s e t t le m e n t in v ir t u e o f t h e s t a ff r e g u la t io n s s h a ll b e o ffic ia ls . (e) C o n d i t i o n s o f e m p l o y m e n t a n d a p p o i n t c o n s id e r e d t o b e m a t t e r s w h ic h m a y b e d e c id e d m e n t o f c a n d id a t e s e n t it le d t o c i v i l e m p l o y b y t h e s t a ff r e g u la t io n s , s a v e in s o f a r as o t h e r m e n t. w is e p r o v i d e d u n d e r s e c t i o n 19, p a r a g r a p h 3. . (3 ) S a v e in s o f a r as o t h e r w is e p r o v i d e d in S e c t i o n 2 3 .— D u tie s o f officials ( Beam ten ) t h e p r e s e n t la w o r in t h e c o m p a n y ’s s t a t u t e s , t h e g e n e r a l la w s a n d o r d in a n c e s g o v e r n i n g (1 ) N o c h a n g e . la b o r , p e n s io n s , a n d in s u r a n c e s h a ll a p p l y t o ( 2) I n c a s e o f b r e a c h o f d u t y th e r a ilw a y t h e o ffic ia ls , e m p lo y e e s , a n d w o r k e r s o f th e o ffic ia l s h a ll b e s u b j e c t t o th e s a m e d is c i p lin a r y com pany. I n p a r t ic u la r , le g is l a t io n o n th e p r o c e d u r e , w it h th e n e c e s s a r y c h a n g e s , as is w o r k in g h o u r s o f e m p lo y e e s a n d w o r k e r s s h a ll p r o v i d e d f o r a t th e t im e in q u e s t io n in th e c a s e a p p l y t o t h e e m p lo y e e s a n d w o r k e r s o f th e o f o ffic ia ls o f th e R e i c h . I n a n y s u c h c a s e , th e com pany. I n t h o s e b r a n c h e s o f th e s e r v ic e , d i r e c t o r g e n e r a l o r h is a u t h o r iz e d r e p r e s e n t a h o w e v e r , in w h i c h th e s p e c ia l c o n d i t i o n s o f th e t iv e s s h a ll p o s s e s s t h e p o w e r s o f th e s u p r e m e r a ilw a y s y s t e m o r t h e c o l l a b o r a t i o n o f o ffic ia ls , a u t h o r it y o f th e R e i c h (O b e r s t e R e i c h s b e e m p lo y e e s , a n d w o r k e r s c a lls f o r a u n ifo r m h o r d e n ) . r e g u la t io n o f w o r k in g h o u r s , t h e c o m p a n y m a y (3 ) N o c h a n g e . s e c u r e s u c h u n i f o r m i t y b y a p p ly i n g t h e s e r v ic e r e g u la t io n s f o r o ffic ia ls t o th e w o r k in g h o u r s o f S e c t i o n 2 4 .— R etirem ent on re ta in in g p a y e m p lo y e e s a n d w o r k e r s . T h ose bran ches o f T h e c o m p a n y c a n p la c e it s o ffic ia ls t e m p o t h e s e r v ic e in w h ic h t h e s e r v ic e r e g u la t io n s f o r o ffic ia ls m a y b e g iv e n g e n e r a l a p p lic a t io n r a r ily o n t h e r e t ir e d lis t w it h r e t a in in g p a y . a r e e n u m e r a t e d u n d e r s e c t io n A o f A n n e x I I T h e p r in c ip le s g o v e r n i n g t e m p o r a r y r e t ir e m e n t t o th e p r e s e n t la w ; u n d e r s e c t i o n B a re a n d t h e le g a l m e a n s o f r e d r e s s o f o ffic ia ls e n u m e r a t e d t h o s e b r a n c h e s o f t h e s e r v ic e in a g a in s t s u c h a m e a s u r e s h a ll b e la id d o w n in T h e p r o v i s io n s o f th e w h i c h s u c h g e n e r a l a p p lic a t io n is n o t p e r m is th e s t a ff r e g u la t io n s . s ib le . I n th e c a s e o f b r a n c h e s o f th e s e r v ic e s t a ff r e g u la t io n s in f o r c e o n O c t o b e r 1 , 1 9 2 9 , n o t in c l u d e d u n d e r e it h e r A o r B , th e r e g u la r e la t in g t o t e m p o r a r y r e t ir e m e n t , le g a l m e a n s t i o n o f w o r k in g h o u r s b y g e n e r a l a g r e e m e n t , o f r e d r e s s , a n d th e p a r t ic i p a t i o n o f r e p r e s e n t a in p a r t ic u la r b y w a g e a g r e e m e n t , s h a ll t a k e t i v e s o f th e o ffic ia ls in t h e d e c is io n s o n le g a l i n t o c o n s id e r a t i o n t h e p r in c ip le e s t a b lis h e d in m e a n s o f r e d r e s s , c a n n o t b e a m e n d e d w i t h o u t s e n t e n c e 3 in r e s p e c t o f th e a p p lic a t io n o f th e th e a s s e n t o f th e G o v e r n m e n t o f th e R e i c h . 192 F E D E R A L R E S ER V E B U L L E T IN S e c t i o n 2 5 .— Persons entitled to c iv il em ploy m ent N o ch an ge. S e c t i o n 2 6 .— Reservations as to salaries ( 1 ) I n fix in g th e p a y a n d p e r m a n e n t a llo w a n c e s o f r a ilw a y o ffic ia ls o t h e r t h a n s u p e r io r o ffic ia ls (le it e n d e B e a m t e n ) th e c o m p a n y s h a ll a c t in c o n f o r m i t y w it h th e p r o v i s io n s o f s e c t i o n 19. ( 2 ) f o r m e r l y (3 ). T h is p r o v i s io n s h a ll n o t a f f e c t th e r ig h t o f th e c o m p a n y t o g r a n t b o n u s e s o n g e n e r a l p r in c ip le s f o r s e r v ic e in p a r t ic u la r ly r e s p o n s ib le p o s t s o r u n d e r p a r t ic u la r ly d iffic u lt c ir c u m s t a n c e s , as w e ll as f o r e x c e p t io n a l s e r v ic e s r e n d e r e d , p r o v i d e d th a t th e t o t a l o f s u c h b o n u s e s d o e s n o t e x c e e d 4 p e r c e n t o f th e t o t a l e x p e n d it u r e o n th e p a y o f o ffic ia ls . T h e p r in c ip le s in q u e s t io n s h a ll b e e s t a b lis h e d a n d p u b lis h e d a ft e r c o n s u l t a t i o n w it h th e o ffic ia ls ’ c o u n c i l o r w it h th e r e p r e s e n t a t iv e o r g a n iz a t i o n t a k in g it s p la c e in v ir t u e o f s u b s e q u e n t le g is la t io n . (3 ) f o r m e r l y (4 ) . T h e c o m p a n y s h a ll b e fr e e t o fix th e e m o lu m e n t s o f s u p e r io r o ffic ia ls . T h e s e o ffic ia ls w ill b e d e s ig n a t e d b y th e b o a r d o f m a n a gem en t. S h o u ld th e ir n u m b e r e x c e e d o n e - h a l f p e r m ille o f th e t o t a l p e r m a n e n t s t a ff, th e a s s e n t o f th e G o v e r n m e n t o f th e R e i c h m u s t b e o b t a in e d . S e c t i o n 2 7 .— U n ity o j the u n d e rta kin g N o change. S e c t i o n 2 8 .— D o m ic ile o f the com pany N o ch an ge. S e c t i o n 2 9 .— A cco untancy N o ch an ge. S e c t io n 3 0 .— Balance sheet, p ro fit a n d loss account (1 ) N o c h a n g e . (2 ) T h e G o v e r n m e n t s h a ll h a v e th e r ig h t t o e x a m in e th e c o m p a n y ’ s b a la n c e s h e e t a n d p r o f it a n d lo s s a c c o u n t a t a n y tim e , t o in s p e c t a ll s u c h b o o k s o f a c c o u n t c o n c e r n in g th e b a l a n c e s h e e t a n d p r o f it a n d lo s s a c c o u n t as a re k e p t a t th e h e a d o ffic e o f th e c o m p a n y , a n d t o c a ll f o r all n e c e s s a r y i n f o r m a t io n , p r o v i d e d t h a t n o u n n e c e s s a r y e x p e n d i t u r e is t h e r e b y e n t a ile d o n th e c o m p a n y . . (3 ) N o c h a n g e . S e c t i o n 3 1 .— A pril, 1930 Government supe rvision T h e G o v e r n m e n t re se rv e s o v e r th e c o m p a n y t h e r ig h t s f o l l o w i n g : (1 ) T h e r ig h t t o in s u r e t h a t t h e r a ilw a y s o f th e R e i c h a re a d m in is t e r e d in c o n f o r m i t y w it h th e la w s a n d in a c c o r d a n c e w it h t h e r e q u ir e m e n t s o f t r a ffic a n d o f th e G e r m a n e c o n o m y , s u b j e c t , a t t h e s a m e tim e , t o t h e o b s e r v a n c e o f t h e s p e c ia l r ig h t s a n d d u t ie s a r is in g in r e s p e c t o f th e m a n a g e m e n t o f t h e c o m p a n y o u t o f th e p r o v i s io n s o f th e p r e s e n t la w a n d t h e c o m p a n y ’s sta tu tes. (2 ) T h e r ig h t t o in s u r e t h a t t h e r a ilw a y s o f t h e R e i c h , t o g e t h e r w it h a ll th e ir w o r k s , r o llin g s t o c k , p la n t , a n d m a t e r ia l, a re m a in t a i n e d a n d o p e r a t e d in a m a n n e r c o n s is t e n t w it h s a f e t y a n d p u b lic co n v e n ie n c e . (3 ) T h e r ig h t t o a p p r o v e — (а) T h e p e r m a n e n t c lo s in g f o r t r a ffic o f a lin e o r o f a n i m p o r t a n t s t a t io n . W h e r e th e c o m p a n y in t e n d s t o c lo s e d o w n a la r g e w o r k s h o p , i t is s u ffic ie n t i f s ix m o n t h s ’ n o t i c e is g iv e n t o th e G o v e r n m e n t o f t h e R e i c h . (б ) T h e g e n e r a l f u n d a m e n t a l r e n e w a l o r a lt e r a t io n o f t e c h n ic a l in s t a lla t io n s , in p a r t i c u la r th e r ig h t t o a p p r o v e t h e e x t e n s io n o r r e s t r ic t io n o f e le c t r ic t r a c t i o n o r c h a n g e s in th e s y s t e m o f s a f e t y a p p lia n c e s ; th e c o m p a n y s h a ll r e m a in s o l e ly r e s p o n s ib le f o r t h e t e c h n ic a l d e t a ils o f c o n s t r u c t io n . (4 ) T h e r ig h t t o a p p r o v e th e f o i m d a t i o n o r a c q u is it i o n o f o t h e r u n d e r t a k in g s o r p a r t ic i p a t io n in o t h e r u n d e r t a k in g s . (5 ) S u c h p a r t ic i p a t i o n in fix in g ta r iffs as is s p e c ifie d in s e c t i o n 3 3 . (6 ) S u c h p a r t ic i p a t i o n in fix in g p a s s e n g e r tr a in s e r v ic e s as is s p e c ifie d in s e c t i o n 3 5 . (7 ) T h e r ig h t t o a p p r o v e th e a b o lit io n o f a n y o f th e e x is t in g c la s s e s in p a s s e n g e r t r a ffic . (8 ) T h e r ig h t t o s u p e r v is e th e m a in t e n a n c e o f e m e r g e n c y s e r v ic e s . S e c t i o n 3 2 .— Government’s rig h t to in fo rm a tio n (1 ) T h e G o v e r n m e n t m a y r e q u ir e th e c o m p a n y t o fu r n is h a ll in f o r m a t io n o f a fin a n c ia l n a t u r e , t o g e t h e r w it h a ll in f o r m a t io n r e q u ir e d in th e e x e r c is e o f it s r ig h t o f s u p e r v is io n . No u n n e c e s s a r y e x p e n s e is t h e r e b y t o b e c a u s e d t o th e c o m p a n y . (2 ) T h e m in is t e r o f th e R e i c h r e s p o n s ib le f o r th e c o n t r o l o f th e r a ilw a y s is e n t it le d t o i n s p e c t a ll p la n t a n d s e r v ic e d e p a r t m e n t s t h r o u g h o u t th e e n t ir e s y s t e m , o r t o c a u s e th e s a m e t o b e i n s p e c t e d b y h is o ffic ia ls . H e is e n t it le d , t o g e t h e r w it h t h o s e o f h is o ffic ia ls in t r u s t e d A pril, 1930 193 F E D E R A L R E S E R V E B U L L E T IN w ith r a ilw a y m a t t e r s o f th e R e i c h , t o tr a v e l fr e e o f c h a r g e o n th e c o m p a n y ’s s y s t e m . (3 ) T h e G o v e r n m e n t o f th e R e i c h is e n t it le d to s e n d o n e r e p r e s e n t a t iv e t o th e m e e t in g s o f t h e b o a r d o f m a n a g e m e n t in a c c o r d a n c e w ith s e c t io n 16 o f th e c o m p a n y ’ s s t a t u t e s . (4 ) T h e c o m p a n y s h a ll in fo r m th e m in is t e r o f th e R e i c h r e s p o n s ib le f o r th e c o n t r o l o f th e r a ilw a y s o f all im p o r t a n t m e a s u r e s o f a g e n e r a ! n a tu r e . (5 ) O ffic ia ls in t r u s t e d w it h th e s u p e r v is io n o f th e r a ilw a y s s h a ll b e b o u n d t o s e c r e c y in m a t t e r s o f a c o n fid e n t ia l n a tu r e c o n c e r n in g th e com p a n y. S e c t i o n 3 3 .— T a riffs (1 ) N o c h a n g e . (2 ) N o c h a n g e . (3 ) T h e a p p r o v a l o f t h e G o v e r n m e n t s h a ll b e h e ld t o h a v e b e e n g iv e n i f th e c o m p a n y h a s n o t ^ r e c e iv e d a r e p ly f r o m th e m in is t e r o f th e R e ic h r e s p o n s ib le f o r t h e c o n t r o l o f th e r a ilw a y s w it h in t w e n t y d a y s o f a n a p p lic a t io n b y th e c o m p a n y f o r a p p r o v a l. T h e d e fin it e d e c is io n o f t h e G o v e r n m e n t o n a n y ta r iff p r o p o s a l s u b m i t t e d b y th e c o m p a n y s h a ll a lw a y s b e g iv e n w it h th e le a s t p o s s ib le d e la y . W h ere n o d e fin it e d e c is io n is p r o n o u n c e d w it h in s ix m o n t h s , o r w h e r e a p p r o v a l is w it h h e ld a l t o g e t h e r o r in p a r t , th e c o m p a n y m a y a p p e a l t o th e r a ilw a y c o u r t . (S e c . 4 4 .) In th is e v e n t t h e e x is t in g ta r iffs s h a ll r e m a in in f o r c e u n t il th e r a ilw a y c o u r t h a s m a d e it s a w a r d . (4 ) N o c h a n g e . (5 ) T h e G o v e r n m e n t o f t h e R e i c h m a y , in a d d it i o n , c a ll f o r s u c h t a r iff c h a n g e s as i t c o n s id e r s n e c e s s a r y . I n th e e v e n t o f d iffe r e n c e s b e t w e e n th e G o v e r n m e n t a n d t h e c o m p a n y th e d e c is i o n r e s ts w it h th e r a ilw a y c o u r t (s e c . 4 4 ) . P ro tection o f the re p a ra tio n tax an d o f interest an d s in k in g f u n d S e c t i o n 3 4 .— S e c t i o n 3 6 .— N o change. S e c t i o n 3 7 .— S e c t i o n 3 5 .— N o ch an ge. T im e tables N e w works (1 ) N o c h a n g e . ( 2 ) W h e r e n e w w o r k s o r th e m o d if ic a t i o n o f e x is t in g r a ilw a y w o r k s c o m e w it h in th e a d m in is t r a t iv e s p h e r e o f t h e p o l i c e o f a p a r t ic u la r G e r m a n S t a t e , th e c o m p a n y s h a ll c o n s u lt t h e a u t h o r it ie s o f th e S t a t e in q u e s t io n b e f o r e d e fin it e ly fix in g it s p la n s . W h ere new w o r k s o r m o d if ic a t i o n s c o m e w it h in t h e a d m i n is t r a t iv e s p h e r e o f a u t h o r it ie s o f t h e R e i c h , w h i c h h a v e t a k e n o v e r d u t ie s o f t h e p o l i c e o f t h e S t a t e in q u e s t io n , s u c h a u t h o r it ie s o f t h e R e i c h s h a ll a ls o b e h e a r d . W h e r e t h e h e a r in g le a d s t o d iffe r e n c e s b e t w e e n t h e c o m p a n y a n d th e S t a t e o r R e i c h a u t h o r it ie s c o n c e r n e d , th e p la n s s h a ll b e fin a lly d e c id e d u p o n b y th e G o v e r n m e n t o f th e R e ic h . T h e p la n s f o r n e w lin e s o f t h e c o m p a n y s h a ll a lw a y s b e d e c i d e d u p o n b y th e G o v e r n m e n t o f th e R e ic h . In b o t h c a s e s t h e c o m p a n y s h a ll s u b m it t h e p la n s , t o g e t h e r w it h t h e m e m o r a n d a , w h e r e s u c h h a v e b e e n d r a w n u p b y t h e a u t h o r it ie s c o n c e r n e d , t o t h e m in is t e r o f t h e R e i c h r e s p o n s ib le f o r t h e c o n t r o l o f t h e r a ilw a y s . T h e fix a t io n o f t h e p la n c o m p r is e s t h e fin a l d e c is i o n in r e s p e c t o f a ll m a t t e r s a ffe c t e d b y t h e d r a f t i n g o f t h e p la n . (3 ) t o (5 ) N o c h a n g e . S e c t i o n 3 8 .— C om pulsory ta k in g o f lands ( 1) a n d ( 2) N o c h a n g e . (3 ) T h e e x p r o p r ia t io n o r r e s t r ic t io n o f o w n e r s h ip o f p a r t s o f t h e p r o p e r t y o f t h e r a ilw a y a n d o f la n d s ite s o w n e d b y t h e c o m p a n y s h a ll r e q u ir e th e p r e v i o u s a s s e n t o f t h e G o v e r n m e n t o f th e R e ic h . S e c t i o n 3 9 .— T h e r ig h t s o f s u p e r v i s io n a n d c o n t r o l o f th e o p e r a t i o n a n d ta r iffs o f t h e c o m p a n y r e s e r v e d t o t h e G o v e r n m e n t b y t h e p r e s e n t la w s h a ll b e e x e r c is e d in s u c h a w a y a s t o s e c u r e t h e p a y m e n t s in r e s p e c t o f t h e r e p a r a t io n t a x , th e in t e r e s t a n d s in k in g f u n d f o r t h e b o n d s , th e p r e fe r e n c e d iv id e n d , a n d t h e p r o v i s i o n o f fu n d s f o r th e r e d e m p t io n o f t h e p r e fe r e n c e s h a r e s . N egotiations w ith fo re ig n Govern ments Respective rig h ts o f road a n d r a il W h e n , a t a n y p o i n t w h e r e a r a ilw a y c r o s s e s a p u b l i c r o a d , t h e g r o w t h o f tr a ffic o r a n y o t h e r c h a n g e o f c ir c u m s t a n c e s r e n d e r s n e c e s s a r y a n a l t e r a t io n e it h e r o f t h e r a ilw a y , o r o f t h e p u b lic r o a d , o r o f b o t h r a ilw a y a n d r o a d , t h e c o s t s s h a ll b e b o r n e b y t h e c o m p a n y i f th e a l t e r a t io n is r e q u ir e d e x c lu s i v e ly t o m e e t t h e n e e d s o f th e r a ilw a y s e r v i c e ; t h e y s h a ll b e b o r n e b y th e r o a d a u t h o r it y i f th e a lt e r a t io n is r e q u ir e d e x c lu s i v e ly t o m e e t t h e n e e d s o f r o a d t r a ffi c ; in e v e r y c a s e t h e o t h e r p a r t y s h a ll b e a r a 194 A pril, 1930 F E D E R A L R E S ER V E B U L L E T IN s h a r e o f t h e c o s t s p r o p o r t i o n a t e t o t h e fin a n c ia l a d v a n t a g e s a c c r u in g t o i t as a r e s u lt o f t h e a lt e r a t io n s u n d e r t a k e n . T h e c o s t s s h a ll b e d i v i d e d e q u i t a b l y b e t w e e n t h e t w o p a r t ie s , if t h e a lt e r a t io n is r e q u ir e d t o m e e t t h e n e e d s o f b o t h p a r t ie s . I n c a s e o f d is a g r e e m e n t as t o t h e d iv is io n o f th e c o s t s , t h e q u e s t io n s h a ll b e d e c id e d w d th o u t a p p e a l b y t h e M i n i s t e r o f t h e R e i c h r e s p o n s ib le f o r t h e c o n t r o l o f th e r a ilw a y s , e x c e p t in c a s e s w h e r e s u c h d e c is io n h a s t o b e g iv e n b y a n a d m in is t r a t iv e t r ib u n a l. S e c t i o n 4 4 .— B a ilw a y court ( 1) D is p u t e s b e t w e e n t h e G o v e r n m e n t a n d th e c o m p a n y in r e s p e c t o f th e in t e r p r e t a t io n o f th e p r o v i s io n s o f th is la w a n d o f th e c o m p a n y ’ s s t a t u t e s , o r in r e s p e c t o f m e a s u r e s u n d e r th e la w o r th e s t a t u t e s , in p a r t ic u la r t a r iff m a t t e r s , s h a ll b e r e fe r r e d t o a s p e c ia l t r ib u n a l (r a ilw a y c o u r t ) . ( 2 ) T h e r a ilw a y c o u r t w ill b e c o n s titu te d ^ a t t h e c o u r t o f a d m in is t r a t io n o f t h e R e i c h (R e i c h s v e r w a l t u n g s g e r i c h t ) as s o o n as t h e T h e r a ilw a y c o u r t s h a ll S e c t i o n 4 0 .— T ra n sfe r o f duties in cum bent upo n la t t e r is e s t a b lis h e d . c o m p r is e t h e c h a ir m a n a n d t w o m e m b e r s o f the tra n sp o rt a d m in is tra tio n a c h a m b e r o f t h e c o u r t o f a d m in is t r a t io n a p T h e G o v e r n m e n t o f th e R e i c h m a y , in a g r e e p o i n t e d o n c e f o r all b y t h e p r e s id e n t o f t h e I n d is p u t e s o n m e n t w it h t h e c o m p a n y , in t r u s t in d iv id u a l s a id c o u r t o f a d m in is t r a t io n . d e p a r t m e n t s o r o ffic ia ls o f t h e c o m p a n y , in t a r iff m a t t e r s t w o fu r t h e r m e m b e r s w ill b e p a r t ic u la r th e d ir e c t o r a t e s ( R e i c h s b a h n d i r e k - a d d e d , t h e o n e b e i n g a p p o in t e d o n th e p r o p o s a l t i o n e n ) , w it h th e s u p e r v is io n o n b e h a l f o f th e o f th e G o v e r n m e n t a n d th e o t h e r o n th e p r o R e i c h o f r a ilw a y s n o t o p e r a t e d b y th e c o m p a n y p o s a l o f th e c o m p a n y in e a c h c a s e a fr e s h b y (a r t. 95 o f th e c o n s t i t u t i o n ) a n d w it h o t h e r th e p r e s id e n t o f t h e c o u r t o f a d m in is t r a t io n . d u t ie s o f t r a n s p o r t a d m in is t r a t io n . S u c h d u t ie s U n t il th e c o u r t o f a d m in is t r a t io n is e s t a b lis h e d , a re t o b e fu lfille d in a c c o r d a n c e w it h th e i n s t r u c th e r a ilw a y c o u r t s h a ll h a v e it s s e a t a t t h e t io n s o f th e G o v e r n m e n t a n d f o r th e a c c o u n t o f S u p r e m e C o u r t o f t h e R e i c h (R e i c h s g e r i c h t ) t h e s a m e . R a i l w a y o ffic ia ls in t r u s t e d w it h s u c h a n d s h a ll c o m p r is e th r e e p e r m a n e n t m e m b e r s d u t ie s a re t o b e s p e c ia lly s w o r n in f o r th e s e a n d t w o m e m b e r s a p p o in t e d a fr e s h in e a c h case. T h e p e r m a n e n t m e m b e r s , t o g e t h e r w it h f u n c t io n s . t w o r e p la c in g m e m b e r s , s h a ll b e a p p o in t e d b y t h e p r e s id e n t o f t h e S t a a t s g e r ic h t s h o f a n d s h a ll S e c t i o n 4 1 .— E x p ira tio n o f the concession b e ju d g e s w it h s p e c ia l e x p e r ie n c e in m a t t e r s o f ( 1) A s f r o m th e e x p ir a t io n o f it s c o n c e s s io n p u b l i c la w . O n e o f th e p e r m a n e n t m e m b e r s th e c o m p a n y s h a ll h a n d b a c k t o th e G o v e r n s h a ll b e a p p o in t e d as c h a ir m a n a n d a n o t h e r a s m e n t in g o o d c o n d i t i o n a n d fr e e o f all c o s t th e v ic e c h a ir m a n b y th e p r e s id e n t o f th e S t a a t s u n d e r t a k in g a n d e v e r y t h in g a t t a c h e d t h e r e t o , g e r ic h t s h o f. O f th e tw o m e m b e rs to b e a p t o g e t h e r w it h a n a d e q u a t e s u p p l y o f s t o c k s a n d p o in t e d a fr e s h in e a c h s e p a r a t e c a s e th e o n e s t o r e s a n d a ll s u b s id ia r y w o r k s a n d u n d e r s h a ll b e a p p o in t e d o n t h e p r o p o s a l o f th e t a k in g s , s u b j e c t t o s u c h a g r e e m e n ts as m a y h a v e G o v e r n m e n t a n d t h e o t h e r o n th e p r o p o s a l o f b e e n c o n c l u d e d b e t w e e n th e c o m p a n y a n d th e th e c o m p a n y b y th e p r e s id e n t o f th e S t a a t s G o v e r n m e n t u n d e r s e c t io n 8 , t o g e t h e r w it h all g e r ic h t s h o f. T h e p r o v i s io n s o f s e c t i o n 19, s e n h o ld in g s in o t h e r u n d e r t a k in g s . On s u c h t e n c e s 2 a n d 3 ; s e c t io n s 2 0 t o 2 2 , s e c t io n s 2 4 r e t r a n s fe r th e R e i c h s h a ll b e h e ld t o t a k e o v e r t o 2 6 , s e c t io n 2 8 , p a r a g r a p h 1 ; s e c t i o n 2 9 , all th e r ig h t s a n d o b l ig a t i o n s c o n n e c t e d w it h p a r a g r a p h 1 a n d p a r a g r a p h 2 , s e n t e n c e 1 , a n d th e c o m p a n y 's o p e r a t io n . s e c t i o n 3 0 o f th e la w r e la t in g t o th e S t a a t s (2 ) N o c h a n g e . g e r ic h t s h o f ( R e i c h s g e s e t z b la t t 1 9 2 1 , p . 9 0 5 ) a p p ly m u t a t is m u t a n d is . T h e d e t a ile d p r o v i S e c t i o n 4 2 .— L iq u id a tio n s io n s g o v e r n i n g p r o c e d u r e s h a ll b e fix e d b y r e g u la t io n s t o b e is s u e d b y th e p r e s id e n t o f N o change. th e c o u r t o f a d m in is t r a t io n , o r u n t il th e c o n s t it u t i o n o f th is c o u r t , b y th e p r e s id e n t o f t h e S e c t i o n 4 3 .— Staatsvertrag S t a a t s g e r ic h t s h o f, a n d p u b lis h e d in th e R e i c h s g e s e t z b la t t . T h e s a id r e g u la t io n s s h a ll in s u r e (1 ) N o c h a n g e . th e p r o n o u n c e m e n t o f a d e c is io n b y th e r a ilw a y ( 2 ) D iffe r e n c e s as t o th e in t e r p r e t a t io n o r c o u r t w it h th e m i n im u m o f d e la y . a p p lic a t io n o f th e p r o v i s io n s o f p a r a g r a p h 1 , (3 ) a n d (4 ) o m i t t e d . s o fa r as t h e y a re a p p lic a b le t o th e c o m p a n y , s h a ll b e d e t e r m in e d e x c lu s i v e ly b y th e r a ilw a y S e c t i o n 4 5 .— A rb itra to r c o u r t (s e c . 4 4 ) . I n a n y s u c h p r o c e e d i n g s th e O m it t e d . S t a t e s s h a ll b e r e p r e s e n t e d b y th e R e i c h . 195 F E D E R A L R E S ER V E B U L L E T IN A pril, 1930 Gold m a rk t h e p r e fe r e n c e s h a r e s o f G r o u p A in a c c o r d a n c e w it h t h e p r o v i s io n s o f s e c t i o n 2 5 b e l o w . O m it t e d . ( 2) N o c h a n g e . (3 ) A n y s e r ie s o f p r e fe r e n c e s h a r e s m a y b e S e c t i o n 4 7 .— T e m p o ra ry p ro v is io n s r e d e e m e d a t a n y t im e in w h o l e o r in p a r t , s u b j e c t t o t h e s p e c ia l p r o v i s io n s o f s e c t i o n 2 6 O m it t e d . in r e g a r d t o t h e p r e fe r e n c e s h a r e s o f G r o u p A , S e r ie s I t o V . A n n e x I to t h e G e r m a n R a il w a y L a w (4 ) N o c h a n g e . (5 ) N o c h a n g e . ( 6) T h e p r e fe r e n c e s h a r e s s h a ll b e r e d e e m e d , B . R egulations o f the G erm an R a ilw a y C om pany s u b j e c t t o t h e s p e c ia l p r o v i s io n s in s e c t i o n 26 f o r t h e p r e fe r e n c e s h a r e s o f G r o u p A , S e r ie s I S e c t i o n 1. — N am e o f the com pany t o V , a t r a t e s t o b e d e t e r m in e d b y t h e c o m p a n y a t t h e t im e o f is s u e . W h e r e t h e r a t e is fix e d ( 1) N o c h a n g e . ( 2 ) I t s le g a l s t a t u s is fix e d b y th e D e u t s c h e a t m o r e t h a n 10 p e r c e n t a b o v e p a r , t h e a s s e n t R e ic h s b a h n g e s e l ls c h a f t la w o f A u g u s t 3 0 ,1 9 2 4 , o f t h e G o v e r n m e n t o f t h e R e i c h is r e q u ir e d . (7 ) S u b je c t t o t h e a b o v e p r o v i s io n s , t h e as a m e n d e d b y th e la w o f ------------- a n d b y th e s e r e g u la t io n s w h i c h f o r m a n in t e g r a l p a r t G o v e r n m e n t m a y c a ll u p o n t h e c o m p a n y t o o f th e la w . T h e h e a d o ffic e s o f th e c o m p a n y e x e r c is e it s r ig h t o f a n t i c i p a t o r y r e d e m p t io n , p r o v i d e d t h a t t h e R e i c h p la c e s t h e n e c e s s a r y s h a ll b e in B e r lin . ( 3 ) T h e c o m p a n y ’ s fin a n c ia l y e a r s h a ll b e g in fu n d s a t t h e d is p o s a l o f t h e c o m p a n y . o n J a n u a r y 1 a n d s h a ll e n d o n D e c e m b e r 31 o f each y ear. S e c t i o n 5 .— D iv is io n o f proceeds fro m the sale S e c t i o n 4 6 .— o f preference shares S e c t i o n 2 .— Objects o f the u n d e rta kin g N o ch a n ge. S e c t i o n 3 .— O rig in a l ca p ita l ( 1 ) T h e c o m p a n y ’ s o r ig in a l c a p it a l s h a ll c o n s is t o f 1 5 ,0 0 0 ,0 0 0 ,0 0 0 r e ic h s m a r k s d iv i d e d in t o 2 , 000, 000,000 r e ic h s m a r k s o f p r e fe r e n c e s h a r e s ( G r o u p A ) a n d 1 3 ,0 0 0 ,0 0 0 ,0 0 0 r e ic h s m a r k s o f o r d in a r y s h a r e s . T h e p r o v i s io n s o f s e c t i o n 2 6 in r e g a r d t o th e p r e fe r e n c e s h a r e s o f G r o u p A , S e r ie s I to Y , r e m a in u n c h a n g e d . ( 2 ) F u r t h e r p r e fe r e n c e s h a r e s ( G r o u p B ) to in c r e a s e it s c a p it a l m a y b e is s u e d b y th e c o m p a n y in c o n f o r m i t y w it h th e p r o v i s io n s o f s e c t i o n 3, p a r a g r a p h 2 , o f th e la w in v ir t u e o f a d e c is i o n b y th e b o a r d o f m a n a g e m e n t . S e c t i o n 4 .— Preference shares ( 1) T h e p r e fe r e n c e s h a r e s s h a ll b e is s u e d as p a y a b le t o b e a r e r a n d b e t r a n s fe r a b le b y d e li v e r y . T h e y w ill c a r r y w it h t h e m a r ig h t t o t h e r e p a y m e n t o f c a p it a l o n o r b e f o r e t h e t e r m i n a t io n o f t h e c o n c e s s io n a n d t h e r ig h t t o a p r e fe r e n t ia l d iv id e n d . S h o u ld t h e p r e fe r e n t ia l d iv i d e n d n o t b e f u l l y p a id in a n y y e a r i t s h a ll b e p a id o u t o f t h e p r o fit s o f s u b s e q u e n t years. I f a d iv i d e n d is p a id o n t h e o r d in a r y s h a r e s a n a d d it i o n a l d iv i d e n d s h a ll b e p a id o n ( 1) O n e - f o u r t h o f t h e t o t a l p r o c e e d s f r o m t h e is su e o f t h e p r e fe r e n c e s h a r e s o f G r o u p A s h a ll b e t h e p r o p e r t y o f t h e R e i c h a n d t h r e e fo u r th s th e p r o p e r t y o f th e c o m p a n y . N ot w it h s t a n d in g , t h e p r o c e e d s f r o m i n d iv id u a l is s u e s m a y b y a g r e e m e n t b e t w e e n t h e G o v e r n m e n t a n d t h e c o m p a n y b e d iv i d e d d iffe r e n t ly , p r o v i d e d t h a t t h e t o t a l s h a ll b e d i v i d e d as se t fo r th a b o v e . ( 2 ) D u r i n g t h e fir s t t w o y e a r s a ft e r th e c o m m e n c e m e n t o f t h e c o n c e s s io n t h e c o m p a n y s h a ll s e ll p r e fe r e n c e s h a r e s t o t h e n o m in a l v a lu e o f 5 0 0 ,0 0 0 ,0 0 0 r e ic h s m a r k s . The G ov e r n m e n t m a y c la im t h a t th e w h o le o f t h e p r o c e e d s o f th is s a le s h a ll b e a s s ig n e d t o it . S e c t i o n 6 .— O rd in a ry shares N o ch a n ge. S e c t i o n 7 .— F o rm a nd w o rd in g o f the certificates N o ch a n ge. S e c t io n 8 .— R e p a ra tio n bonds O m it t e d . S e c t io n 9 .— O m it t e d . Other bonds 196 F E D E R A L R E S E R V E B U L L E T IN S e c t i o n 1 0 .— O rg a n iza tio n o j the com pany N o change S e c t i o n 11 —B o a rd oj management A pril, i »3o w h i c h t e r m o f o ffic e in c o n f o r m i t y w it h th e a b o v e r e g u la t io n e n d s o n D e c e m b e r 31 o f th e y ea rs 1930, 1931, o r 1932. (2 ) a n d (3 ) N o c h a n g e . S e c t i o n 1 4 .— P resident o j the board o j m anage m ent ( 1) T h e b o a r d o f m a n a g e m e n t s h a ll c o n s is t o f 18 m e m b e r s , w h o m u s t b e o f G e r m a n n a t i o n a lit y . ( 2 ) f o r m e r l y ( 2 ) a n d (3 ) T h e m e m b e r s o f t h e b o a r d s h a ll b e a p p o in t e d b y t h e G o v e r n m e n t o f th e R e ic h . I f p r e fe r e n c e s h a r e s o f G r o u p A h a v e b e e n is s u e d , 4 o f th e 18 s e a ts o n t h e b o a r d s h a ll b e a s s ig n e d t o t h e h o ld e r s o f p r e fe r e n c e s h a r e s in s u c h a m a n n e r t h a t f o r e a c h 5 0 0 ,0 0 0 ,0 0 0 r e ic h s m a r k s o f s h a r e s is s u e d , o n e r e p r e s e n t a t iv e o f s u c h s h a r e s s h a ll b e e n t it le d t o a s e a t o n th e b o a r d . (3 ) f o r m e r l y (4 ) N o c h a n g e . (4 ) f o r m e r l y (5 ) N o c h a n g e . ( 1) T h e b o a r d o f m a n a g e m e n t s h a ll e le c t a p r e s id e n t e a c h y e a r a t t h e b e g in n in g o f t h e fin a n c ia l y e a r . H e s h a ll b e e lig ib le f o r r e e le c t io n . T h e e le c t io n r e q u ir e s c o n f ir m a t io n b y th e p r e s id e n t o f t h e R e i c h . W h e n th e h o ld e r s o f p r e fe r e n c e sh a r e s o f G r o u p A a re r e p r e s e n t e d b y th r e e m e m b e r s o n t h e b o a r d , t h e p r e s id e n t s h a ll b e c h o s e n f r o m a m o n g t h e ir n um ber. ( 2 ) T h e b o a r d s h a ll e a c h y e a r e le c t o n e o r t w o v i c e p r e s id e n t s , w h o s h a ll b e e lig ib le f o r r e e le c t io n . S e c t i o n 1 2 .— S e c t i o n 1 5 .— Q u a lifica tio n s o j the members o j the board N o change. S e c t i o n 1 3 .— Replacement o f members o j the board ( 1) A s f r o m D e c e m b e r 3 1 , 1 9 3 0 , s ix m e m b e r s o f th e b o a r d s h a ll r e t ir e e a c h y e a r ; s u b s e q u e n t ly e a c h m e m b e r s h a ll r e m a in in o ffic e f o r th r e e years. A r e t ir in g m e m b e r s h a ll b e e lig ib le f o r r e e le c t io n . T h e a p p o in t m e n t o f n e w m e m b e r s o r r e a p p o i n t m e n t o f r e t ir in g m e m b e r s m u s t t a k e p la c e b e f o r e th e b e g in n in g o f th e f o llo w in g fin a n c ia l y e a r . T ra n s itio n a l p ro v is io n T h e t e r m o f o ffic e o f th e p r e s e n t m e m b e r s o f t h e b o a r d o f m a n a g e m e n t s h a ll e x p ir e : O n D e c e m b e r 3 1 , 1 9 3 0 , in t h e c a s e o f m e m b e r s d u e in a n y e v e n t t o r e t ir e o n t h a t d a t e u n d e r th e p r o v i s io n s h it h e r t o in f o r c e . O n D e c e m b e r 3 1 , 1 9 3 1 , in th e c a s e o f m e m b e r s d u e t o r e t ir e o n D e c e m b e r 3 1 , 1 9 3 2 , u n d e r th e p r o v i s io n s h it h e r t o in f o r c e . O n D e c e m b e r 3 1 , 1 9 3 2 , in th e c a s e o f m e m b e r s d u e t o r e t ir e o n D e c e m b e r 3 1 , 1 9 3 4 , u n d e r th e p r o v i s io n s h it h e r t o in f o r c e . T h e i r s u c c e s s o r s w ill b e a p p o in t e d f o r th r e e years. I n d e v ia t io n f r o m th is p r o v i s io n , th e f o u r f o r e ig n m e m b e r s r e t ir e u p o n th e c o m i n g in t o f o r c e o f t h e p r e s e n t la w . T h e i r s u c c e s s o r s w ill b e a p p o in t e d a t th e s a m e d a t e b y th e G o v e r n m e n t o f th e R e i c h f o r th e r e m a in d e r o n l y o f th e t e r m o f o ffic e o f t h e f o r e ig n m e m b e r s , F u n ctio n s o j the board o j m anage m ent ( 1) T h e b o a r d o f m a n a g e m e n t s h a ll c o n t r o l th e m a n a g e m e n t o f t h e c o m p a n y a n d s h a ll d e c id e o n a ll q u e s t io n s o f i m p o r t a n c e o r o f p r in c ip le , o r o f g e n e r a l a p p lic a t io n , a n d m o r e e s p e c ia lly o n s u c h q u e s t io n s a n d m a t t e r s as a re set o u t b e lo w : T h e a p p o in t m e n t o f t h e d ir e c t o r g e n e r a l a n d o f th e s u p e r io r o ffic e r s o n t h e r e c o m m e n d a t i o n o f th e d ir e c t o r g e n e r a l; T h e b u d g e t p r o p o s a ls ; T h e b a la n c e s h e e t a n d t h e p r o f it a n d lo s s a cco u n t; T h e d is t r ib u t i o n o f p r o f it s ; T h e a p p lic a t io n o f t h e liq u id r e s o u r c e s o f th e com pany; T h e a u t h o r it y t o t a k e u p lo a n s a n d c r e d it s a t th e c h a r g e o f t h e c o m p a n y , a n d t o g iv e m o r t g a g e s e c u r it y f o r t h e s a m e ; T h e a p p r o v a l o f a n y e x p e n d it u r e o n c a p it a l a c c o u n t b e y o n d s u c h lim it as m a y b e fix e d b y th e b o a r d ; T h e a p p r o v a l o f t h e g e n e r a l r e g u la t io n s g o v e r n in g t h e le g a l s t a t u s a n d c o n d i t i o n s o f s e r v ic e a n d o f p a y o f t h e e m p lo y e e s , in c l u d i n g t h e g e n e r a l r e g u la t io n o f s a la r ie s a n d w a g e s . ( 2) a n d (3 ) . N o c h a n g e . S e c t i o n 1 6 .— M eetings o j the board o j m anage m ent ( 1) T h e b o a r d s h a ll h o l d o r d in a r y m e e t in g s a t le a s t e v e r y t w o m o n t h s . I t s h a ll h o ld a n e x t r a o r d in a r y m e e t in g w h e n e v e r a t le a s t s ix m e m b e r s , o r t h e p r e s id e n t , o r t h e G o v e r n m e n t o f th e R e i c h , s h a ll s o r e q u ir e in w r it in g . A pril, 1930 ( 2 ) a n d (3 ) . N o c h a n g e . (4 ) D e c is io n s s h a ll b e t a k e n b y a s im p le m a jo r i t y o f m e m b e r s v o t i n g . T h e p r e s id e n t s h a ll h a v e a c a s t in g v o t e . (5 ) T h e G o v e r n m e n t o f t h e R e i c h m a y a p p o i n t o n e p e r m a n e n t r e p r e s e n t a t iv e , w h o is e n t it le d t o t a k e p a r t w i t h o u t v o t e in th e m e e t in g s o f t h e b o a r d o f m a n a g e m e n t a n d o f it s co m m itte e s . I f h e is p r e v e n t e d f r o m a t t e n d in g , h is p e r m a n e n t d e p u t y m a y t a k e p a r t in th e m e e t in g s . T h e r e p r e s e n t a t iv e o f th e R e i c h a n d h is d e p u t y s h a ll b e a p p o in t e d a t th e b e g in n in g o f e a c h fin a n c ia l y e a r . S e c t io n 1 7 .— P erm anent committee ( 1) T h e b o a r d o f m a n a g e m e n t m a y d e le g a t e it s p o w e r , so f a r as it t h in k s fit , t o a p e r m a n e n t c o m m i t t e e c o n s is t in g o f s ix m e m b e r s . O ne of t h e m e m b e r s s h a ll b e c h o s e n f r o m t h e r e p r e s e n t a t iv e s o f t h e p r e fe r e n c e s h a r e h o ld e r s o f G r o u p A , i f t h e y s o r e q u ir e . • ( 2 ) a n d (3 ) . N o c h a n g e . S e c t io n 1 8 .— R em un era tion o j members o j the board N o ch a n ge. S e c t io n 197 F E D E R A L R E S E R V E B U L L E T IN 1 9 .— D irectorate ( V o rs ta n d ) com pany o j the ( 1 ) a n d ( 2 ). N o ch a n ge. (3 ) T h e d ir e c t o r g e n e r a l s h a ll b e a p p o in t e d f o r a p e r io d o f th r e e y e a r s b y th e b o a r d o f m a n a g e m e n t , w h ic h s h a ll fir s t c o n f e r w it h th e G o v e r n m e n t o f th e R e i c h ; h e s h a ll b e e lig ib le f o r r e a p p o in t m e n t . T h e d ir e c t o r s s h a ll b e a p p o in t e d b y th e b o a r d o n th e r e c o m m e n d a t i o n o f th e d ir e c t o r g e n e r a l. (4 ) N o c h a n g e . (5 ) T h e b o a r d m a y a t a n y t im e r e m o v e th e d ir e c t o r g e n e r a l. T h e r e m o v a l o f th e d ir e c t o r g e n e r a l s h a ll n o t a ffe c t th e r ig h t s t o s a la r y a n d a llo w a n c e s v Th ic h h e m a y p o s s e s s u n d e r h is c o n t r a c t o f a p p o in t m e n t . ( 6 ) W h e r e th e G o v e r n m e n t o f th e R e i c h is o f o p i n i o n t h a t th e d ir e c t o r g e n e r a l h a s v i o l a t e d th e c o m p a n y ’ s s t a t u t e s , i t m a y r e q u ir e th e b o a r d o f m a n a g e m e n t t o t a k e a d e c is i o n o n th e d is c h a r g e o f th e d i r e c t o r g e n e r a l. S e c t i o n 2 0 .— F u n ctio n s o j the directorate N o ch an ge. S e c t io n O m it t e d . 2 1 .— R a ilw a y com m issioner S e c t io n 2 2 .— F u n ctio n s o j the com m issioner O m it t e d . S e c t i o n 2 3 .— S ta jf and expenses o j the com m is sio ner’s ojjice O m it t e d . S e c t io n 2 4 .— E xce p tio n a l powers o j the com m issioner O m it t e d . S e c t io n 2 5 .— F in a n c ia l m anagement o j the com pany ( 1 ) A t th e c lo s e o f e a c h fin a n c ia l y e a r th e c o m p a n y s h a ll d r a w u p a b a la n c e s h e e t a n d p r o f it a n d lo s s a c c o u n t . ( 2 ) T h e n e t o p e r a t in g in c o m e , a ft e r p a y in g th e r e p a r a t io n t a x a n d c o v e r i n g th e o p e r a t in g p a y m e n t s o u t o f o p e r a t in g r e c e ip t s in a c c o r d a n c e w i t h th e p r o v i s io n s o f s e c t i o n 4 o f th e la w , s h a ll b e a p p lie d as f o l l o w s : 1 . I n th e fir s t p la c e p r o v i s i o n s h a ll b e m a d e f o r th e s e r v ic e o f in t e r e s t o n th e b o n d s a n d lo a n s o f th e c o m p a n y a n d f o r th e s u m s r e q u ir in g t o b e w r it t e n o ff. 2 . A s c o v e r f o r a n y o p e r a t in g d e fic it o f th e c o m p a n y a n d as s e c u r it y f o r th e p r o m p t p a y m e n t o f th e r e p a r a t io n t a x a n d th e p r o m p t s e t t le m e n t o f th e in t e r e s t a n d a m o r t iz a t io n p a y m e n t s o n th e b o n d s a n d lo a n s o f th e c o m p a n y , a r e s e r v e (a d ju s t m e n t s r e s e r v e ) s h a ll t h e n b e e s t a b lis h e d . T w o p e r c e n t o f th e g r o s s r e c e ip t s f r o m th e o p e r a t io n o f th e r a ilw a y s s h a ll b e p a id i n t o th is r e s e r v e f u n d e a c h y e a r , u n t il i t a m o u n t s t o th e m a x i m u m t o t a l o f 4 5 0 ,0 0 0 ,0 0 0 r e ic h s m a r k s . W h e n th e a d ju s t m e n t s r e s e r v e h a s r e a c h e d th e b e f o r e - m e n t i o n e d m a x i m u m a m o u n t , a fu r t h e r r e s e r v e ( d iv id e n d r e s e r v e ) s h a ll i m m e d ia t e ly b e f o r m e d as s e c u r it y f o r th e p a y m e n t o f th e p r e fe r e n c e d iv id e n d o n th e p r e fe r e n c e sh ares. O n e p e r c e n t o f t h e g r o s s r e c e ip t s f r o m th e o p e r a t io n o f th e r a ilw a y s s h a ll b e c a r r ie d t o th is f u n d , u n t il i t a m o u n t s t o th e m a x i m u m t o t a l o f 5 0 ,0 0 0 ,0 0 0 r e ic h s m a r k s . A p p r o p r ia t io n s f r o m th e n e t o p e r a t in g in c o m e t o th e a d ju s t m e n t s a n d d iv id e n d r e s e r v e s m a y n o t , h o w e v e r , in a n y o n e fin a n c ia l y e a r t o g e t h e r e x c e e d 2 p e r c e n t o f th e g r o s s o p e r a t io n r e c e ip t s . T h e p r o v i s i o n o f s e c t i o n 4 , p a r a g r a p h 2, s e n t e n c e 1 o f th e la w a p p lie s t o th e d iv id e n d r e s e r v e as w e ll as t o a ll o t h e r r e s e r v e s . I f s u m s h a v e t o b e w it h d r a w n f r o m th e r e s e r v e s a ft e r th e m a x i m u m a m o u n t s h a v e b e e n r e a c h e d , th e a n n u a l a p p r o p r ia t io n s f o r th e ir r e p le n is h m e n t s h a ll i m m e d ia t e ly b e r e s u m e d in c o n f o r m i t y w it h th e a b o v e p r o v i s io n s . 198 F E D E R A L R E S E R V E B U L L E T IN (3 ) T h e n e t p r o fit s r e m a in in g a ft e r th e f o r e g o in g p a y m e n t s o u t o f th e o p e r a t in g i n c o m e h a v e b e e n m a d e s h a ll b e e m p l o y e d as in th e f o llo w in g o r d e r : 1. A r r e a r s o f d iv id e n d o n th e p r e fe r e n c e s h a r e s o f G r o u p A , i f a n y , s h a ll fir s t b e p a id in fu ll. T h e c u r r e n t d iv id e n d o n th e s a id sh a r e s s h a ll t h e n b e p a id . 2. A r r e a r s o f d iv id e n d o n t h e p r e fe r e n c e s h a r e s o f G r o u p B , i f a n y , s h a ll fir s t b e p a id in fu ll. T h e c u r r e n t d iv id e n d o n t h e s a id sh a r e s s h a ll t h e n b e p a id . 3. A n y s u m s w h i c h th e G o v e r n m e n t o f th e R e i c h m a y h a v e p a id u n d e r s e c t i o n 4 , p a r a g r a p h 4 , o f t h e la w w it h a v ie w t o g u a r a n t e e in g th e r e p a r a t io n t a x s h a ll b e r e fu n d e d t o it. 4. T h e b o a r d , a c t i n g in a g r e e m e n t w it h th e G o v e r n m e n t o f th e R e i c h , s h a ll d e c id e o n th e e m p l o y m e n t o f th e r e m a in d e r o f t h e n e t p r o fit s in a c c o r d a n c e w it h th e f o llo w in g p r i n c i p l e s : I n th e fir s t p la c e a t le a s t 2 5 p e r c e n t o f th e r e m a in d e r , n o t in c l u d i n g th e b a la n c e b r o u g h t fo r w a r d f r o m th e p r e v i o u s y e a r , s h a ll b e c a r r ie d t o th e d iv id e n d r e s e r v e u p t o a n a m o u n t n o t e x c e e d in g 1 0 0 ,0 0 0 ,0 0 0 r e ic h s m a r k s . I f th e s u m s h a v e t o b e w it h d r a w n f r o m t h e d iv id e n d r e s e r v e a ft e r t h e m a x i m u m lim it h a s b e e n r e a c h e d , a p p r o p r ia t io n s f o r it s r e p le n is h m e n t s h a ll b e r e s u m e d in c o n f o r m i t y w it h th e a b o v e p r o v i s io n s . S p e c ia l r e s e r v e s m a y a lso b e e s t a b lis h e d . A s p e c ia l p r e fe r e n c e s h a r e r e d e m p t io n r e s e r v e s h a ll b e e s t a b lis h e d as f r o m th e y e a r 1 9 3 5 a n d m a y b e e s t a b lis h e d a t a n e a r lie r d a t e . No r e s e r v e s h a ll b e e s t a b lis h e d f o r th e r e d e m p t io n o f th e o r d in a r y sh a r e s. I f th e b o a r d d e c id e s t o d is t r ib u t e a n y r e m a in in g p r o fit s , t h e y s h a ll b e a p p lie d : A s t o o n e - t h ir d as a s u p p l e m e n t a r y d iv id e n d f o r th e p r e fe r e n c e s h a r e s o f G r o u p A , a n d as t o t w o t h ir d s as a d iv id e n d o n th e o r d in a r y sh a r e s. P rovided, however, T h a t i f p r e fe r e n c e sh a r e s o f G r o u p A are n o t o u t s t a n d in g t o t h e fu ll a m o u n t o f 2 ,0 0 0 ,0 0 0 ,0 0 0 r e ic h s m a r k s , s u c h a p o r t i o n o f th e r e m a in in g p r o fit s as w o u l d h a v e b e l o n g e d t o t h o s e p r e fe r e n c e sh a r e s w h i c h are n o t o u t s t a n d in g s h a ll b e l o n g t o t h e o r d in a r y sh ares. (4 ) F r o m th e r e s e r v e c o n s t i t u t e d u n d e r s e c t i o n 2 5 , p a r a g r a p h 2 , p o i n t 3, o f th e c o m p a n y ’ s s t a t u t e s a p p e n d e d t o th e r a ilw a y la w o f A u g u s t 3 0 , 1 9 2 4 , 4 5 0 ,0 0 0 ,0 0 0 r e ic h s m a r k s s h a ll b e c a r r ie d t o th e a d ju s t m e n t s r e s e r v e . A n y b a la n c e th e n r e m a in in g s h a ll b e tr a n s fe r r e d t o th e d iv id e n d r e s e r v e . A pril, 1930 S pecial provisions f o r series I to V o f preference shares, G roup A S e c t i o n 2 6 .— F o r th e p r e fe r e n c e s h a r e s o f G r o u p A , S e r ie s I t o V , th e f o llo w in g p r o v i s io n s a p p l y : 1 . T h e p r e fe r e n c e s h a r e s a re e x p r e s s e d in g o ld m a rk s. P r e fe r e n c e a n d s u p p l e m e n t a r y d iv id e n d s , to g eth er w it h th e r e d e m p t io n a m o u n t o f t h e p r e fe r e n c e s h a r e s , a re p a y a b l e in g o l d m a r k s o r t h e ir e q u iv a l e n t in r e ic h s m a rk s. O n e g o l d m a r k w it h in th e m e a n in g o f th e p r e s e n t p r o v i s io n s h a ll b e e q u a l in v a lu e t o )'i790 k ilo g r a m o f fin e g o ld . T h is v a lu e s h a ll b e c a lc u l a t e d o n t h e p r ic e f o r g o l d in L o n d o n o ffic ia lly n o t ifie d o n t h e t h ir d w o r k in g d a y b e fo r e th e a c c e p t a n c e o f th e b a la n c e s h e e t b y th e b o a r d o f m a n a g e m e n t , a n d o n th e m e a n r a te f o r t e le g r a p h ic tr a n s fe r s o n L o n d o n o ffi c ia ll y q u o t e d o n t h a t d a y o n th e B e r lin B o u r s e . I n c a s e s w h e r e o n th e t h ir d w o r k in g d a y b e f o r e th e a c c e p t a n c e o f t h e b a la n c e s h e e t n o o ffic ia l p r ic e f o r g o ld is p u b lis h e d , th e c a lc u l a t i o n s h a ll b e b a s e d o n t h e la s t L o n d o n p r ic e f o r g o ld o ffic ia l ly n o t if ie d b e f o r e t h a t d a y . I f th e p r ic e p e r k ilo g r a m o f fin e g o ld w o r k s o u t a t n o t m o r e t h e n 2 ,8 2 0 a n d n o t le s s t h a n 2 ,7 6 0 r e ic h s m a r k s , 1 r e ic h s m a r k in le g a l t e n d e r s h a ll b e p a id f o r e a ch g o ld m a rk o w e d . I n r e s p e c t o f th e d iv id e n d o n e a c h p r e fe r e n c e s h a r e o f S e r ie s I V a n d V o f G r o u p A , a n in s t a ll m e n t in r e ic h s m a r k s w ill b e p a id o n J a n u a r y 2 o f e a c h y e a r , in c o n f o r m i t y w it h th e t e r m s o f is su e . U p o n th e r e d e m p t io n o f p r e fe r e n c e s h a r e s w h ic h h a v e b e e n c a lle d in , g o ld m a r k s w ill b e c o n v e r t e d in t o r e ic h s m a r k s in th e m a n n e r p r o v i d e d f o r th e d iv id e n d p a y m e n t s , th e c a l c u la t io n b e i n g b a s e d o n th e q u o t a t i o n s o f th e t h ir d w o r k in g d a y b e f o r e r e d e m p t io n . 2 . T h e p r e fe r e n c e s h a r e s m a y n o t b e r e d e e m e d in w h o l e o r in p a r t u n t il th e c o m m e n c e m e n t o f t h e s ix t e e n t h y e a r f r o m th e d a t e o f is su e . N o t w i t h s t a n d in g , i f th e l ia b i lit y o f th e c o m p a n y t o p a y t h e r e p a r a t io n t a x la p s e s a t a n e a r lie r d a t e , th e c o m p a n y s h a ll b e a t li b e r t y t o r e d e e m t h e p r e fe r e n c e s h a r e s f r o m th e d a t e o n w h i c h t h e s a id l i a b i l i t y la p s e s . 3. T h e r e d e m p t io n r a t e o f th e p r e fe r e n c e s h a r e s , t o g e t h e r w it h c u r r e n t d iv id e n d s a n d d iv id e n d a r r e a r s, s h a ll b e d e t e r m in e d as f o l l o w s : U p o n r e d e m p t io n b e f o r e th e e x p ir a t i o n o f th e t w e n t y - f if t h y e a r f r o m th e tr a n s fe r o f th e c o n c e s s io n t o t h e c o m p a n y , t h e r e d e m p t io n r a t e s h a ll b e 2 0 p e r c e n t a b o v e p a r , u p o n r e d e m p t io n f r o m th e t w e n t y - s ix t h t o th e t h ir t y - f if t h y e a r , F E D E R A L R E S E R V E B U L L E T IN A pril, 1930 199 in c lu s iv e , i t s h a ll b e 10 p e r c e n t a b o v e p a r . V . — S ta ff accom panying passenger a nd goods tra in s A f t e r th e t h ir t y - f if t h y e a r r e d e m p t io n w ill ta k e p la c e a t p a r . V I . — T ra c tio n service 4. T h e p r e fe r e n c e s h a r e s c a r r y a c la im t o r e p a y m e n t o f th e c a p it a l b y D e c e m b e r 3 1 , 1. I n s p e c t i o n s t a ff. 1 9 6 4 , a t th e la t e s t . 2. A c c o u n t a n t s a n d c le r k s . 3. S t a ff o f l o c o m o t i v e s a n d s e l f-p r o p e l lin g A n n e x I I to t h e G e r m a n R a il w a y L a w v e h ic le s . ( A ) U n d e r s e c t io n 19, p a r a g r a p h (3 ) o f th e la w , th e c o m p a n y m a y a p p ly th e w o r k in g h o u r s o f o ffic ia ls t o e m p lo y e e s a n d w o r k e r s ir th e f o llo w in g b r a n c h e s o f th e s e r v ic e : I I I .— 1. 2. 3. 4. .— P erm anent w ay in spection service 1. G a t e k e e p e r s (m e n a n d w o m e n ) . 2. F la g m e n . 3. O t h e r s t a ff e n g a g e d in p e r m a n e n t in s p e c t io n . w ay Service o f block signalm en on the open lin e I I I .— S ta tio n service 1. A d m in is t r a t iv e s t a ff (in c lu d in g h e a d s o f d e p a rtm e n ts ). 2 . A c c o u n t a n t s a n d c le r k s . 3. C i r c u l a t i o n o f tr a in s a n d in s p e c t i o n s e r v ic e w it h in th e m e a n in g o f s e c t io n 9 o f th e F a h r d ie n s t v o r s h r ift e n (tr a in s e r v ic e r e g u la t io n s ). 4 . T r a n s m is s io n o f t e le g r a p h a n d t e le p h o n e m essages. 5. P o in t s in s ig n a l c a b in s o r o p e r a t e d b y h a n d . 6. S h u n t in g . 7. T i c k e t c o lle c t o r s (in c lu d in g o ffic ia ls s u p p ly in g in f o r m a t io n t o th e p u b l i c ) . 8. W a t c h m e n a n d m e s s e n g e r s . 9. O t h e r s t a t io n s e r v ic e s , w h e r e th e s t a ff in q u e s t io n is p a r t ly e m p l o y e d in o t h e r b r a n c h e s in d ic a t e d u n d e r A . IV V II. — S h ip p in g in in la n d a n d coastal w aters, not in c lu d in g ch a in tugs on the M a in D e c k s t a ff. E n g i n e - r o o m s t a ff. D o c k s t a ff. O t h e r s t a ff. Office s ta ff o f the central a d m in is tra tio n , the Reichsbahn directorates, a n d the in spection departm ents V III. — (B ) T h e c o m p a n y is n o t a u t h o r iz e d t o a p p ly th e w o r k in g h o u r s o f o ffic ia ls t o e m p lo y e e s a n d w o r k e r s in th e f o llo w in g b r a n c h e s : I . U p k e e p o f p e r m a n e n t w a y a n d t e le g r a p h lin e s , s t o r e h o u s e s f o r s u p e r -s t r u c t u r e m a t e r ia ls , s t a t io n a n d o t h e r b u ild in g s , s t o n e q u a r r ie s , b a lla s t w o r k s , g r a v e l p it s , t i m b e r im p r e g n a t i o n w o r k s , h o r t ic u lt u r e , fo r e s t r y , a n d a g r ic u lt u r e . I I . R e i c h s b a h n r e p a ir s h o p s a n d e x p l o i t a t io n s r u n in c o n n e c t i o n t h e r e w it h , s u c h as p o w e r s t a t io n s , g a s w o r k s , a n d la b o r a t o r ie s . I I I . T e le g r a p h w o r k s h o p s . I V . L a u n d r ie s . V . W o r k s h o p s o f th e r a ilw a y d e p o t s . V I . S t a ff e m p l o y e d e x c lu s i v e ly as w a r e h o u s e w o r k e r s o n w a r e h o u s e p la t f o r m s o r in t r a n s h ip p in g s h e d s w h e r e m o r e th a n 2 5 o f s u c h w o r k e r s a re u s u a lly e m p lo y e d . A N N E X VI a .— Cash an d dispatch service (unless otherwise Procedure to be fo llo w e d in the event o f a n y subse provid ed und er B , Section V I ) quent m o d ifica tio n o f the ra ilw a y la w a nd 1. A d m in is t r a t iv e s t a ff (in c lu d in g h e a d s o f regulations d e p a rtm e n ts ). F o r t h e d u r a t io n o f t h e c o n c e s s io n o f th e 2 . A c c o u n t a n t s , c le r k s , a n d c a s h ie r s . c o m p a n y , t h e R e i c h m a y — in c o n f o r m i t y w it h 3. T i c k e t o ffic e s (in c lu d in g in q u ir y o ffic e s ). t h e p r o c e d u r e o u t lin e d h e r e a ft e r — i n t r o d u c e in 4 . D i s p a t c h o f lu g g a g e a n d e x p r e s s g o o d s . 5. D i s p a t c h o f g o o d s b y fa s t o r s lo w tr a in t o t h e r a ilw a y la w a n d r e g u la t io n s m o d i f i c a t i o n s w h i c h m a y a p p e a r ju s t if ie d b y c h a n g e d c ir c u m a n d o f liv e s to ck . 6. R e c e p t i o n , d e li v e r y a n d lo a d in g o f lu g s t a n c e s , o r t h e r e a l u t i l i t y o f w h i c h h a s b e e n r e v e a le d b y p a s t e x p e r ie n c e , p r o v i d e d t h a t s u c h gage and goods. 7. R a i l w a y c a r s s e r v ic e a n d s e r v ic e f o r th e m o d if ic a t i o n s r e s p e c t th e p r o v i s io n s r e la t in g t o t h e r e p a r a t io n p a y m e n t s a n d t h e p le d g e s d is p a t c h o f tr a in s . p r o v i d e d t h e r e fo r a n d t h e in d e p e n d e n t c h a r 8. W a tc h m e n a n d m essen gers. 9. O t h e r s t a ff e m p l o y e d in th e c a s h a n d d is a c t e r o f t h e c o m p a n y w it h it s a u t o n o m o u s I a d m in is t r a t io n . p a t c h s e r v ic e . 103025— 30---- 5 200 F E D E R A L R E S E R V E B U L L E T IN T h e p r o p o s e d m o d if ic a t i o n s t o th e la w s h a ll b e d is c u s s e d in a p e r m a n e n t c o m m i t t e e o f fo u r m e m b e r s , w h ic h s h a ll d e c id e w h e t h e r th e s a id m o d if ic a t i o n s c o n f o r m t o th e p r o v i s io n s o f p a r a g ra p h 1 or n ot. W h e n a d e c is io n o f th e c o m m i t t e e (w h e t h e r a ffir m a t iv e o r n e g a t iv e ) is t a k e n u n a n im o u s ly s u c h d e c is io n s h a ll b e fin a l. S h o u ld t h e c o m m i t t e e n o t a r r iv e a t a u n a n i m o u s d e c is io n , e x is t in g c o n d i t io n s w ill b e m a i n - ' t a in e d . T h e q u e s t io n m a y , h o w e v e r , b e s u b m i t t e d f o r d e c is io n t o t h e t r ib u n a l, f o r w h ic h p r o v i s io n is m a d e in T h e H a g u e a g r e e m e n t o f J a n u a r y , 1 9 3 0 , w it h G e r m a n y , a t th e r e q u e s t o f a n y m e m b e r o f th e c o m m i t t e e . T h e d e c is io n m a y a ls o b e in t r u s t e d t o a s in g le a r b it r a t o r , in t h e p e r s o n o f th e c h a ir m a n o r o n e o f th e m e m b e r s o f th e C o u r t o f I n t e r p r e t a t io n a n d A r b i t r a t i o n , u p o n th e u n a n im o u s d e s ir e o f th e c o m m i t t e e . T h e c o m m i t t e e w ill t a k e its d e c is io n w it h in a p e r io d o f t w o m o n t h s f r o m th e d a t e o n w h ic h th e f o u r m e m b e r s o f th e c o m m i t t e e a re n o t ifie d o f th e p r o p o s e d m o d ific a t i o n s . T h e m e m b e r s o f th e p e r m a n e n t c o m m i t t e e m u s t b e e x p e r t s , c o m p e t e n t o n th e q u e s t io n s t r e a t e d in th e r a ilw a y la w . T h e y a re t o b e a p p o in t e d f o r fiv e y e a r s f r o m th e c o m i n g in t o f o r c e o f th e n e w r a ilw a y la w . T w o m em bers w ill b e n o m in a t e d b y th e G o v e r n m e n t o f th e R e i c h a n d t w o b y th e G o v e r n m e n t s o f th e o t h e r p o w e r s w h i c h is s u e d th e in v i t a t io n s t o T h e H a g u e c o n fe r e n c e . S h o u ld a m e m b e r o f th e c o m m i t t e e b e p r e v e n t e d f r o m a t t e n d in g in a n y p a r t ic u la r c a s e , th e G o v e r n m e n t o f w h i c h h e is a n a t io n a l w ill a p p o in t a d e p u t y f o r th is p a r t ic u la r c a s e . T h e G o v e r n m e n t o f th e R e i c h w ill n o t i f y th e m e m b e rs o f th e c o m m itte e o f th e p r o p o s e d m o d if ic a t i o n s . T h e G e r m a n m e m b e r s a r e to c o m e t o a n a g r e e m e n t w it h t h e o t h e r m e m b e r s as t o th e d a t e a n d p la c e o f m e e t in g o f th e c o m m it t e e . T h e e x p e n s e s o f t h e c o m m i t t e e w ill b e b o r n e b y t h e G o v e r n m e n t o f th e R e i c h . I n d e v ia t io n f r o m th e p r e c e d i n g p r o v i s io n s , th e R e i c h m a y m o d i f y i n d e p e n d e n t ly , a ft e r h e a r in g t h e b o a r d o f m a n a g e m e n t , a r t ic le s 11, 2 0 , 2 1 , 2 5 , 2 8 , 3 5 , 3 6 , 3 7 , 3 8 a n d 4 0 o f th e la w , w h ic h d e a l w it h m a t t e r s t h a t are o f m i n o r im p o r t a n c e f r o m t h e p o i n t o f v ie w o f t h e a g r e e m e n t. S u c h m o d if ic a t i o n s , h o w e v e r , s h a ll n o t e n t a il fr e s h c h a r g e s f o r t h e c o m p a n y ; f u r t h e r m o r e , t h e y m u s t r e s p e c t t h e p r o v i s io n s c o n c e r n in g r e p a r a t io n p a y m e n t s a n d th e p le d g e s p r o v i d e d t h e r e fo r a n d t h e in d e p e n d e n t c h a r a c t e r o f th e c o m p a n y w it h it s a u t o n o m o u s a d m in is t r a t io n . A pril, 1930 ANNEX V II Assignm ent by w ay o f collateral guarantee o j cer ta in revenues o j the Reich 1. T h e G e r m a n G o v e r n m e n t a s sig n s, s u b j e c t t o th e c h a r g e in f a v o r o f th e t r u s te e s f o r th e G e r m a n e x t e r n a l lo a n , 1 9 2 4 , th e p r o c e e d s o f th e c u s t o m s , o f th e t o b a c c o ta x e s , th e b e e r ta x , a n d th e t a x o n s p ir its (a d m in is t r a t io n o f th e m o n o p o l y ) f o r th e s e r v ic e o f th e c e r t ific a t e r e p r e s e n t in g th e a n n u itie s p a y a b le b y G e r m a n y , in c lu d in g th e s e r v ic e o f a n y b o n d s w h ic h m a y b e is s u e d u n d e r th e p r o v i s io n s o f th e n e w p la n . T o th is e n d , th e R e i c h , w i t h o u t p r e ju d ic e t o it s g e n e r a l r e s p o n s ib ili t y f o r th e p a y m e n t o f th e a n n u itie s a n d it s e n tir e d is c r e t io n t o e f f e c t th e s e p a y m e n t s o u t o f g e n e r a l r e v e n u e s , w ill s e c u r e o u t o f th e r e c e ip t s f r o m th e a b o v e r e v e n u e s b y w a y o f c o lla t e r a l g u a r a n t e e th e s u m s n e c e s s a r y t o c o v e r th e a n n u itie s as e ls e w h e r e d e t e r m in e d . T h e a s s ig n m e n t c o n s t it u t e s a n e g a t iv e p le d g e a n d is r u le d b y th e fo llo w in g c o n d i t i o n s : 2. T h e R e i c h w ill n o t c r e a t e a n y c h a r g e o n th e a s s ig n e d r e v e n u e s f o r a n y o t h e r lo a n o r c r e d i t w it h o u t th e c o n s e n t o f th e B a n k f o r I n t e r n a t io n a l S e t t le m e n t s . I f a n y s u c h c h a r g e is c r e a t e d o n th e a s s ig n e d r e v e n u e s w it h th e c o n s e n t o f th e b a n k , th e c h a r g e f o r th e a n n u i tie s p a y a b le b y G e r m a n y w ill r a n k a h e a d o f a n y su ch o th e r ch a rge. . 3. I f a t a n y t im e th e t o t a l y ie ld o f th e a s s ig n e d r e v e n u e s s h o u ld fa ll b e l o w 150 p e r c e n t o f th e h ig h e s t b u d g e t a r y c o n t r ib u t io n p a y a b le b y G e f m a n y u n d e r th e n e w p la n , th e b a n k m a y r e q u ir e t h a t a d d it io n a l r e v e n u e s s u F c i e n t t o a s su re th e im m e d ia t e r e s t o r a t io n o f th e y ie ld t o th e a b o v e p e r c e n t a g e b e a s s ig n e d a n d th e G e r m a n G o v e r n m e n t w ill fo r t h w it h c o m p l y w it h t h a t r e q u ir e m e n t a c c o r d i n g ly . 4 . S h o u ld th e G e r m a n G o v e r n m e n t c h a n g e th e s y s t e m o f c o lle c t in g a n y o f th e a s s ig n e d r e v e n u e s , th e n th e r e c e ip t s s e c u r e d t o th e R e i c h b y th e n e w s y s t e m w ill b e a s s ig n e d in s u b s t it u t io n f o r th e o r ig in a l ta x . 5. T h e p r o v i s io n s o f th is a n n e x s h a ll ta k e e f f e c t in s u b s t i t u t io n f o r th e p r o v i s io n s o f th e p r o t o c o l c o n c e r n in g th e c o n t r ib u t io n s t o b e m a d e b y th e G e r m a n G o v e r n m e n t a n d th e in s t it u t i o n o f c o n t r o l o v e r th e r e v e n u e s fr o m th e c u s t o m s a n d f r o m th e ta x e s o n s p ir its , b e e r , t o b a c c o , a n d s u g a r , w h i c h is A n n e x I t o th e a g r e e m e n t b e t w e e n th e R e p a r a t io n C o m m is s io n a n d th e G e r m a n G o v e r n m e n t f o r th e c a r r y in g o u t o f th e r e p o r t o f th e fir st c o m m i t t e e o f A pril, 1930 201 F E D E R A L R E S ER V E B U L L E T IN e x p e r t s , L o n d o n , A u g u s t 9, 1 9 2 4 , a n d t h a t p r o t o c o l sh a ll c e a s e t o h a v e e f f e c t a c c o r d i n g ly . ANNEX V III F o rm o j tru st agreement E n t e r e d in t o t h i s -------------d a y o f -------------- 19 3 0 , b e t w e e n th e G o v e r n m e n t s o f -------------e t c e t e r a (h e r e in a ft e r c a lle d th e c r e d i t o r G o v e r n m e n t s ) , o f th e o n e p a r t , a n d th e B a n k f o r I n t e r n a t io n a l S e t t le m e n t s (h e r e in a ft e r c a lle d t r u s t e e ), o f th e secon d pa rt, W it n e s s e t h : W h e r e a s th e c r e d i t o r G o v e r n m e n t s in c o n n e c t io n w it h th e c a r r y in g o u t o f th e n e w p la n as d e fin e d in T h e H a g u e a g r e e m e n t o f J a n u a r y , 19 3 0 (h e r e in a ft e r c a lle d th e p la n ) d e s ir e j o i n t l y t o a p p o in t t h e B a n k f o r I n t e r n a t io n a l S e t t le m e n t s t h e ir j o i n t a n d s o le t r u s te e t o r e c e iv e , m a n a g e , a n d d is t r ib u t e th e a n n u itie s p a y a b l e b y G e r m a n y , a n d t o p e r f o r m o t h e r f u n c t io n s w it h r e s p e c t t h e r e t o , all as p r o v i d e d b y th e p la n ; a n d , w it h in th e lim it s o f th e s t a t u t e s o f th e b a n k . W h e r e a s th e B a n k f o r I n t e r n a t io n a l S e t t le m e n t s h a s t a k e n n o t e o f th e p r o v i s io n s o f th e p la n a n d is p r e p a r e d t o a c c e p t t h e a p p o in t m e n t as s u c h t r u s t e e ; T h e r e f o r e , i t is a g r e e d b e t w e e n th e p a r t ie s h e r e t o t h a t t h e d e s c r ip t io n , th e c o n d i t io n s a n d t h e lim it a t i o n s o f th e fu n c t io n s o f t h e t r u s t e e w it h r e s p e c t t h e r e t o a n d o f t h e r e la t io n s , o b l i g a t io n s , a n d r ig h t s o f th e p a r t ie s a re t h o s e s e t f o r t h as f o l l o w s : A r t ic l e I T h e c r e d i t o r G o v e r n m e n t s j o i n t l y a p p o in t th e B a n k f o r I n t e r n a t io n a l S e t t le m e n t s th e ir j o i n t a n d s o le t r u s te e s f o r th e p u r p o s e s h e r e in d e fin e d . T h e b a n k a c c e p t s th e a p p o in t m e n t a n d a g r e e s t o c a r r y o u t th e t r u s t o n th e c o n d i t io n s h e r e in s t a t e d . A r t ic l e II T h e t r u s t e e is e m p o w e r e d a n d a g r e e s — (а ) T o r e c e iv e a n y b a la n c e s t r a n s fe r r e d b y th e a g e n t g e n e r a l f o r r e p a r a t io n p a y m e n t s o n th e w in d in g u p o f h is a c c o u n t s , s u b j e c t t o th e r ig h t s o f th e d iffe r e n t c r e d i t o r G o v e r n m e n t s in th e d is t r ib u t i o n o f s u c h b a la n c e s a n d t o a n y c la im s a n d c o m m i t m e n t s t h e r e o n w h i c h m a y b e o u t s t a n d in g a t th e t im e o f t r a n s fe r , a ll o f w h ic h , as s h o w n b y th e r e c o r d s o f th e a g e n t g e n e r a l f o r r e p a r a t io n p a y m e n t s , w ill b e r e p o r t e d t o t h e tr u s t e e w h e n th e t r a n s fe r is m a d e ; (б ) T o h o ld in s a fe -k e e p in g , as tr u s te e , u n t il th e s a m e s h a ll b e d u l y d is c h a r g e d , th e c e r t ific a t e o f d e b t , w it h c o u p o n s a t t a c h e d , is s u e d a n d d e liv e r e d b y th e G e r m a n G o v e r n m e n t p u r s u a n t t o th e t e r m s o f th e p la n , th e r e c e ip t o f w h ic h th e t r u s t e e a c k n o w le d g e s a n d a c o p y o f w h ic h is a t t a c h e d h e r e t o as E x h i b i t A ; (c ) T o h o ld in s a fe -k e e p in g as tr u s t e e , u n t il th e s a m e s h a ll b e d u l y d is c h a r g e d , t h e c e r t ific a t e is s u e d a n d d e liv e r e d b y t h e G e r m a n R a i l w a y C o m p a n y in a c k n o w le d g m e n t o f it s lia b i lit y , p u r s u a n t t o t h e t e r m s o f th e p la n , t h e r e c e ip t o f w h i c h th e t r u s t e e a c k n o w le d g e s a n d a c o p y o f w h i c h is a t t a c h e d h e r e t o as E x h i b i t B ; (<d ) C o m m e n c i n g -------------, 1 9 3 0 , t o r e c e iv e in t r u s t e a c h m o n t h f r o m th e G e r m a n R e i c h f o r th e a c c o u n t o f th e c r e d i t o r G o v e r n m e n t s s ig n a t o r y h e r e t o a n d f o r th e a c c o u n t o f th e t r u s te e s o f th e G e r m a n e x t e r n a l lo a n , 1 9 2 4 , all p a y m e n t s t h e r e a ft e r t o b e m a d e b y G e r m a n y u n d e r th e p la n a n d th e a b o v e - m e n t io n e d c e r t ific a t e o f d e b t r e p r e s e n t in g th e s e r v ic e o f th e s a id lo a n o r th e p a y m e n t o f th e s u m s a t t r ib u t a b le t o th e s a id c r e d i t o r G o v e r n m e n t s o n a c c o u n t o f th e n o n p o s t p o n a b l e a n n u itie s a n d th e p o s t p o n a b le a n n u itie s as d e fin e d a n d s p e c ifie d in t h e p la n . A c e r t ifie d s c h e d u le s t a t in g th e m o n t h l y a n d a n n u a l s h a r e d u r in g th e w h o le p e r io d o f th e a n n u it ie s o f e a c h c r e d i t o r G o v e r n m e n t s ig n a t o r y h e r e t o in t h e n o n p o s t p o n a b l e a n d p o s t p o n a b le p o r t i o n s a n d in th e t o t a l o f th e G e r m a n a n n u it y is a t t a c h e d h e r e t o as E x h i b i t C . A r t ic l e III E x c e p t d u r in g a p e r io d w h e n th e t r a n s fe r o f th e p o s t p o n a b l e a n n u i t y is s u s p e n d e d , a s p r o v i d e d f o r in A r t i c le X I b e l o w , th e t r u s t e e w ill a c c e p t o n l y c u r r e n c ie s o t h e r t h a n r e ic h s m a r k s in p a y m e n t o f th e m o n t h l y in s t a llm e n t s o f th e a n n u it ie s p a y a b le b y G e r m a n y , s u b j e c t a lw a y s t o t h e p r o v i s o t h a t th e t r u s t e e m a y a c c e p t r e ic h s m a r k s , in e a c h m o n t h o f a g iv e n a n n u i t y y e a r , f o r a n a m o u n t e q u a l t o o n e - t w e l f t h o f th e to ta l o f a n y c u rre n t an n u a l p r o g r a m fo r p a y m e n t s u n d e r d e li v e r y in k in d a n d r e p a r a t io n r e c o v e r y a c t p r o c e d u r e s f o r th e y e a r in q u e s t io n . I n a r r a n g in g f o r th e r e c e ip t o f c u r r e n c ie s o t h e r t h a n r e ic h s m a r k s th e tr u s t e e , a ft e r h a v in g b e e n n o t if ie d o f th e r e q u ir e m e n t s o f th e c r e d i t o r G o v e r n m e n t s , w ill in f o r m t h e G e r m a n G o v e r n m e n t a n d , a t t h e s a m e t im e , t h e R e i c h s b a n k , a t le a s t o n e m o n t h in a d v a n c e o f th e d u e d a t e s f o r p a y m e n t , o f it s p r e fe r e n c e s r e la t iv e t o th e c u r r e n c ie s w h i c h i t d e s ir e s t o h a v e p a id in t o it s a c c o u n t . I f th e s e p r e fe r e n c e s a re n o t c o m p l i e d w it h , th e t r u s t e e is a u t h o r iz e d t o a c c e p t p a y m e n t f r o m G e r m a n y e n t ir e ly in th e c u r r e n c ie s o f th e c r e d i t o r c o u n t r ie s w h o s e n a t io n a ls w e r e m e m b e r s o f th e c o m m i t t e e o f e x - 202 F E D E R A L R E S ER V E B U L L E T IN p e r t s a n d as n e a r ly a s m a y b e in p r o p o r t i o n t o th e r e s p e c t iv e s h a r e s o f th e s e c o u n t r ie s , i t b e in g u n d e r s t o o d t h a t p a y m e n t s in c u r r e n c ie s o t h e r t h a n r e ic h s m a r k s w h i c h a re n o t b a s e d u p o n th e g o l d o r g o l d e x c h a n g e s t a n d a r d w ill o n ly b e m a d e w it h th e c o n s e n t o f th e tr u s te e . T h e t r u s t e e w ill g iv e r e c e ip t s t o th e G e r m a n G o v e r n m e n t f o r a ll s u m s w h i c h i t p a y s o r c a u s e s t o b e p a id b o t h o n a c c o u n t o f th e p o s t p o n a b le a n d o n a c c o u n t o f th e n o n p o s t p o n a b le a n n u it y . T h e s e r e c e ip t s w ill s h o w t h e c u r r e n c i e s r e c e iv e d as w e ll as th e e q u iv a l e n t v a lu e in r e ic h s m a r k s , w it h w h i c h th e G e r m a n G o v e r n m e n t w ill b e c r e d it e d . A t th e e n d o f e a c h a n n u it y y e a r , w h e n th e t r u s t e e h a s r e c e iv e d f r o m th e G e r m a n G o v e r n m e n t t h e s u m s d u e f o r t h a t y e a r , in a c c o r d a n c e w it h th e p la n , th e t r u s t e e s h a ll s u r r e n d e r t o th e G e r m a n G o v e r n m e n t th e c o u p o n o f th e c e r t i fic a t e o f th e G e r m a n G o v e r n m e n t w h ic h c o r r e s p o n d s t o th e p a y m e n t s o f th e y e a r in q u e s t io n . T h e t r u s te e t a k e s n o t e o f th e u n d e r t a k in g g iv e n b y th e G e r m a n G o v e r n m e n t t h a t th e r e ic h s m a r k s h a ll h a v e a n d s h a ll r e t a in it s c o n v e r t i b i l i t y in g o ld o r fo r e ig n e x c h a n g e as p r o v i d e d in s e c t io n 31 o f th e la w o f A u g u s t 3 0 , 1 9 2 4 , a n d t h a t , in a ll c ir c u m s t a n c e s , f o r th e g e n e r a l p u r p o s e s o f th e p la n , t h e r e ic h s m a r k s h a ll h a v e a n d s h a ll r e t a in a m i n t p a r i t y o f ^790 k ilo g r a m o f fin e g o ld , a s d e fin e d in th e G e r m a n c o in a g e la w o f A u g u s t 3 0 , 1 9 2 4 . T h e s u m s p a id in c u r r e n c ie s o t h e r t h a n r e ic h s m a r k s in t o th e a n n u it y t r u s t a c c o u n t s h a ll b e c a lc u l a t e d in r e ic h s m a r k s , s u b j e c t t o th e p r o v is io n s o f th e a b o v e u n d e r t a k in g , a t th e a v e r a g e o f th e m e a n r a te s ( M it t e lk u r s ) p r e v a ilin g o n th e B e r lin B o u r s e d u r in g th e p e r io d o f 15 d a y s p r e c e d i n g th e d a t e o f p a y m e n t . T h e s u m s in r e ic h s m a r k s p a id b y th e G e r m a n R a i l w a y C o m p a n y t o th e a c c o u n t o f th e t r u s te e a t th e R e i c h s b a n k u n d e r th e t e r m s o f th e a b o v e m e n t i o n e d c e r t ific a t e o f l ia b i lit y d e li v e r e d b y t h a t c o m p a n y , f o r a n a m o u n t o f 5 5 ,0 0 0 ,0 0 0 r e ic h s m a r k s o n th e fir s t d a y o f e a c li m o n t h in r e s p e c t o f th e p r e v i o u s m o n t h , s h a ll, u n t il th e d u e d is c h a r g e o f th e c e r t ific a t e b e p la c e d e a c h m o n t h a t th e d is p o s a l o f th e G e r m a n G o v e r n m e n t b y th e tr u s t e e a s s o o n a s t h e y h a v e b e e n r e c e iv e d , p r o v i d e d t h a t t h e in s t a llm e n t o f th e a n n u it y p a y a b le b y th e G e r m a n G o v e r n m e n t o n th e 1 5 th d a y o f th e p r e c e d i n g m o n t h h a s b e e n d u l y r e c e iv e d . A pril, 1930 r e c e iv e d in t o a n a n n u it y t r u s t a c c o u n t . A ll th e s u m s p a id b y G e r m a n y o n a c c o u n t o f th e a n n u it ie s s h a ll b e m a n a g e d b y th e tr u s te e a n d s h a ll b e e m p l o y e d a n d d is t r ib u t e d e a c h m o n t h u p o n r e c e ip t as fo llo w s , o n th e u n d e r s t a n d in g t h a t th e o b l ig a t i o n s o f th e t r u s te e in r e g a r d t o th e s a id s u m s s h a ll b e o n l y th o s e n o r m a lly in c u m b e n t u p o n a b a n k e r f o r th e e x e c u t io n o f a t r u s t a g r e e m e n t , a n d in n o c a s e s h a ll th e tr u s t e e p e r m it th e a c c o u n t s o r c r e d it s o f a n y cre d ito r G o v e r n m e n t to b e o v e rd ra w n . (а) I n th e fir s t p la c e , th e s u m s r e q u ir e d m o n t h l y f o r th e s e r v ic e o f th e G e r m a n e x t e r n a l lo a n , 1 9 2 4 , s h a ll b e t r a n s fe r r e d t o th e a c c o u n t o r o r d e r o f th e t r u s te e s o f th e s a id lo a n , in c o n f o r m i t y w it h th e te r m s o f th e g e n e r a l b o n d s e c u r in g it , o n th e u n d e r s t a n d in g t h a t th is a p p r o p r ia t io n s h a ll h a v e p r io r it y o v e r all o t h e r s . T h i s s e r v ic e c o n s t it u t e s a fir s t c h a r g e , e x p r e s s ly p r o v i d e d f o r as s u c h , o n th e G e r m a n a n n u itie s , w h e t h e r n o n p o s t p o n a b le o r p o s t p o n a b le . ( б) O n e - t w e l ft h o f th e s h a r e o f e a c h c r e d i t o r G o v e r n m e n t in th e n o n p o s t p o n a b le a n n u it y s h a ll b e f o r t h w i t h a l lo c a t e d in th e b o o k s o f th e t r u s te e t o t h a t G o v e r n m e n t w it h in th e a n n u it y t r u s t a c c o u n t in c u r r e n c ie s o t h e r t h a n r e ic h s m a r k s . I f o n e o f th e G o v e r n m e n t s h a s m o b i liz e d a p a r t o f th e n o n p o s t p o n a b le a n n u it y a l lo t t e d t o it , th e r e s h a ll b e r e t a in e d e v e r y m o n t h , o u t o f th e s h a r e d u e t o t h a t G o v e r n m e n t in v ir t u e o f th e p r e s e n t p a r a g r a p h , _th e s u m s r e q u ir e d f o r th e s e r v ic e o f th e o b l ig a t i o n s is s u e d a n d o u t s t a n d in g , in c o n f o r m i t y w it h th e c o n d i t io n s o f th e c o n t r a c t s m a d e o n th e o c c a s io n o f s u c h is s u e s ; th e s e s u m s , d e d u c t e d f r o m th e s h a r e o f e a c h o f th e G o v e r n m e n t s c o n c e r n e d in th e is s u e s , s h a ll b e tr a n s fe r r e d e a c h m o n t h t o a tr u s t e e a c c o u n t r e la t in g t o th e lo a n th u s is s u e d a n d s h a ll r e m a in th e r e u n t il th e m o m e n t w h e n p a y m e n t s h a v e t o b e m a d e f o r th e in t e r e s t s e r v ic e a n d a m o r t iz a t io n o f th e o b l ig a t i o n s , in a c c o r d a n c e w it h th e t e r m s o f th e r e s p e c t iv e lo a n a g r e e m e n ts . (c ) O n e - t w e l ft h o f th e s h a r e d u e t o e a c h G o v e r n m e n t f o r s e t t li n g th e q u o t a o f d e liv e r ie s in k in d a l lo t t e d t o i t in a g iv e n y e a r s h a ll b e f o r t h w i t h a l lo c a t e d in th e b o o k s o f t h e t r u s te e t o t h a t G o v e r n m e n t w it h in th e a n n u i t y t r u s t a c c o u n t in r e ic h s m a r k s , i f n o o t h e r p r o v i s i o n h a s b e e n m a d e b y th e G o v e r n m e n t s c o n c e r n e d , in c l u d i n g G e r m a n y , f o r th e s e t t le m e n t o f th is q u o ta . A r t ic l e IV A l l th e s u m s t r a n s fe r r e d f r o m th e a c c o u n t o f th e a g e n t g e n e r a l f o r r e p a r a t io n s o r p a id o n a c c o u n t o f th e G e r m a n a n n u itie s s h a ll b e (d) O n e - t w e l ft h o f th e s u m d u e t o e a c h G o v e r n m e n t in e a c h a n n u i t y , a ft e r th e a l lo c a t io n s p r o v i d e d in p a r a g r a p h s ( b ) a n d ( c ), s h a ll b e f o r t h w i t h a l lo c a t e d in th e b o o k s o f th e t r u s t e e t o t h a t G o v e r n m e n t w it h in t h e a n n u i t y A pril, 1930 203 F E D E R A L R E S E R V E B U L L E T IN t r u s t a c c o u n t in c u r r e n c ie s o t h e r t h a n r e ic h s A r t ic l e V I I m a rk s. T h e t r u s t e e is a u t h o r iz e d a n d a g r e e s in (e) I n a p p lic a t io n o f a r t ic le 88 o f th e a n n e x e s c o n n e c t i o n w it h d e li v e r y in k in d , r e p a r a t io n t o th e e x p e r t s ’ r e p o r t o f J u n e 7, 19 2 9 (h e r e in r e c o v e r y a c t , a n d o t h e r s im ila r s y s t e m s t o a ft e r c a lle d t h e “ e x p e r t s ’ r e p o r t ” ), th e s u m s a l lo c a t e d as p r o v i d e d in t h e p r e c e d i n g p a r a p a y in r e ic h s m a r k s u p t o t h e a m o u n t o f th e g r a p h s w ill r e m a in w i t h o u t in t e r e s t in th e m o n t h l y r e ic h s m a r k b a la n c e s a v a i la b le t o th e r e s p e c t iv e c r e d i t o r G o v e r n m e n t s o n c h e q u e s , n a t i o n a l s u b d iv i s io n s o f th e a n n u i t y tr u s t d r a ft s , o r o r d e r s d u ly e x e c u t e d b y t h e a u t h o r a c c o u n t u p t o th e e q u iv a l e n t o f t h e f o llo w in g iz e d r e p r e s e n t a t iv e o f a n y s u c h c r e d i t o r G o v m i n im u m a m o u n t s : T h e cre d ito r G o v e r n m e n ts re sp e c Reichsmarks e r n m e n t . 68, 037, 500 t i v e l y a g r e e t o k e e p t h e t r u s t e e a d v is e d o f th e France_____ Great Britain 26, 587, 500 i d e n t i t y a n d a u t h o r it y o f s u c h r e p r e s e n t a t iv e s 13, 887, 500 a n d to s u p p l y i t w it h t h e ir s p e c im e n s ig n a t u r e s . Italy---------- 7, 512, 500 1, 312, 500 5, 462, 500 450,000 862, 500 862, 500 25, 000 Belgium___ Rumania___ Yugoslavia__ Greece_____ Portugal___ Japan______ Poland_____ A r t ic l e V III P a y m e n t b y th e t r u s t e e in c o m p li a n c e w it h th e d o c u m e n t s r e fe r r e d t o in th e p r e c e d i n g a r t ic le s h a ll c o n s t it u t e fu ll d is c h a r g e t o th e t r u s te e f o r t h e r e ic h s m a r k p a y m e n t s m a d e . 125, 000, 000 P a y m e n t s in c u r r e n c ie s o t h e r t h a n r e ic lim a r k s A l l s u m s s t a n d in g in th e n a t i o n a l s u b d iv i s io n s m a d e o r tr a n s fe r r e d o u t o f th e a n n u it y t r u s t o f th e a n n u i t y t r u s t a c c o u n t in e x c e s s o f th e a c c o u n t u p o n th e o r d e r o f a c r e d i t o r G o v e r n a b o v e m i n im u m n o n in t e r e s t - b e a r in g d e p o s it s , m e n t o r e f f e c t e d u n d e r th e a u t h o r iz a t io n s m a y b e fr e e ly w it h d r a w n f r o m th e s a id a c c o u n t c o n t a in e d in A r t i c le I V a b o v e , s h a ll c o n s t it u t e b y t h e c r e d i t o r G o v e r n m e n t s , in a c c o r d a n c e a fu ll d is c h a r g e t o th e t r u s t e e f o r th e p a y m e n t s w it h t h e f o l l o w i n g p a r a g r a p h : m ade. I n a d d it i o n , as s o o n as p o s s ib le a ft e r (f) S u b j e c t t o t h e f o r e g o i n g a n d in a c c o r d a n cth e e c lo s e o f e a c h a n n u i t y y e a r w h e n t h e r e s p e c w it h th e p r o v i s io n s o f t h e p la n , t h e t r u s t e e is t i v e c r e d i t o r G o v e r n m e n t s s h a ll h a v e r e c e iv e d a u t h o r iz e d a n d a g r e e s t o t r a n s fe r a t s u c h d a t e s th e a n n u a l a c c o u n t a n d a u d i t o r ’ s r e p o r t r e fe r r e d as m a y b e in d i c a t e d a n y s u m a l lo c a t e d t o a n y t o in A r t i c le X V I I h e r e o f, th e c o m p e t e n t G o v e r n m e n t w it h in t h e a n n u i t y t r u s t a c c o u n t a u t h o r it y o f e a c h c r e d i t o r G o v e r n m e n t s h a ll t o a n y in t e r e s t -b e a r in g a c c o u n t in t h e B a n k f o r g iv e t h e t r u s t e e a fin a l g lo b a l q u it t a n c e a n d I n t e r n a t io n a l S e t t le m e n t s o r t o a n y o t h e r b a n k r e le a s e f o r th e a c t u a l p a y m e n t s m a d e , d u r in g o r b a n k e r , o r o t h e r w is e t o d is p o s e o f i t as th e th e a n n u it y y e a r in q u e s t io n , t o o r u p o n th e in t e r e s t e d c r e d i t o r G o v e r n m e n t m a y d i r e c t ; o r d e r o f th e c r e d i t o r G o v e r n m e n t c o n c e r n e d , b u t in n o c a s e w ill t h e t r u s t e e p e r m it t h e a c as d is c l o s e d b y t h e s a id a c c o u n t s . c o u n ts o r cre d its o f a n y c r e d ito r G o v e r n m e n t to A r t ic l e I X be overd raw n . A r t ic l e V T h e t r u s t e e s h a ll n o t b e b o u n d t o p a y a n y in t e r e s t o n b a la n c e s in t h e a n n u i t y t r u s t a cco u n t. A r t ic l e VI A n y e x c h a n g e p r o f it o r lo s s a r is in g f r o m t r a n s a c t io n s c a r r ie d o u t b y t h e t r u s t e e f o r a c c o u n t o f c r e d i t o r G o v e r n m e n t s in c o n n e c t i o n w i t h t h e m a n a g e m e n t o f t h e G e r m a n a n n u it ie s sh a ll, u n le s s o t h e r w is e s e t t le d , b e c r e d i t e d o r c h a r g e d q u a r t e r ly b y t h e t r u s t e e t o t h e a c c o u n t s o f t h e G o v e r n m e n t s c o n c e r n e d , in p r o p o r t i o n t o t h e ir r e s p e c t iv e s h a r e s in t h e p r in c ip a l m o n e y s i n v o l v e d , s u b j e c t t o t h e p r o v i s io n s o f A r tic le I V . T h e t r u s te e d e c la r e s t h a t i t h a s t a k e n n o t e t h a t th e G e r m a n G o v e r n m e n t u n d e r t a k e s d u r in g th e p e r i o d u p t o M a r c h 3 1 , 1 9 6 6 , t o m a in t a in a t th e b a n k a n o n in t e r e s t -b e a r in g d e p o s it e q u iv a l e n t t o 5 0 p e r c e n t o f t h e a v e r a g e d e p o s it r e m a in in g in th e a n n u i t y t r u s t a c c o u n t , b u t n o t e x c e e d i n g 100, 000,000 r e ic h s m a r k s . T h e b a n k s h a ll t o th is e n d c e r t i f y t o th e G e r m a n G o v e r n m e n t a n d t o th e c r e d i t o r G o v e r n m e n t s e v e r y m o n t h th e a v e r a g e o f th e b a la n c e s a t th e c lo s e o f e a c h w o r k in g d a y le f t b y th e c r e d i t o r G o v e r n m e n t s o n d e p o s it w i t h o u t in t e r e s t d u r in g t h a t m o n t h , in r e s p e c t o f th e s u m s a r is in g f r o m t h e G e r m a n p a y m e n t s u n d e r th e D a w e s p la n o r u n d e r th e p r e s e n t p la n u p t o th e t im e w h e n t h e y a re d r a w n o u t b y th e c r e d ito r G o v e r n m e n ts . 204 F E D E R A L R E S E R V E B U L L E T IN T h e fir s t d e p o s it w ill b e p a id b y t h e G e r m a n G o v e r n m e n t t o t h e b a n k 15 d a y s a ft e r th e c o m in g in t o f o r c e o f th e n e w p la n , th e a m o u n t o f t h e d e p o s it b e i n g c a lc u l a t e d o n t h e a v e r a g e o f th e d a ily b a la n c e s a b o v e m e n t i o n e d le ft w it h t h e a g e n t g e n e r a l o r t h e b a n k d u r in g th e m o n t h e n d in g t w o w o r k in g d a y s p r io r t o th e d a t e o f d e p o s it , e x c lu d in g s u m s r e t u r n a b le t o th e G e r m a n G o v e r n m e n t u n d e r A n n e x I I I o f T h e H a g u e p r o to c o l o f A u g u st 31, 1929, or a n y s u p p l e m e n t a r y a r r a n g e m e n t . T h e d e p o s it s h a ll b e m a in t a in e d a t th e a m o u n t s o c a lc u l a t e d d u r in g o n e m o n t h . A t th e e n d o f th is p e r io d th e d e p o s it w ill b e a d ju s t e d b y a fu r t h e r d e p o s it o r b y th e w it h d r a w a l o f p a r t o f th e e x is t in g d e p o s it o n t h e b a s is o f t h e a v e r a g e o f th e d a ily b a la n c e s r e fe r r e d t o a b o v e d u r in g t h e m o n t h e n d in g t w o w o r k in g d a y s b e f o r e t h e d a t e o f th e a d ju s t m e n t . A s im ila r a d ju s t m e n t w ill t a k e p la c e a t th e e n d o f th e s e c o n d m o n t h f r o m th e d a t e o f th e fir s t d e p o s it . A t th e e n d o f th e t h ir d m o n t h , a n d t h e r e a ft e r a t in t e r v a ls o f th r e e m o n t h s , t h e d e p o s i t s h a ll b e a d ju s t e d o n th e b a s is o f t h e a v e r a g e o f th e d a ily b a la n c e s r e fe r r e d t o a b o v e d u r in g t h e th r e e m o n t h s e n d in g t w o w o r k in g d a y s b e f o r e th e d a t e o f e a c h s u c h a d ju s t m e n t . T h e in t e r v a ls r e fe r r e d t o in th is p a r a g r a p h m a y b e c h a n g e d b y a g r e e m e n t b e t w e e n th e G o v e r n m e n t s c o n c e r n e d w it h th e c o n c u r r e n c e o f th e tr u s te e . T h e t r u s te e w ill a c c e p t th is d e p o s it u n d e r th e c o n d i t io n s s e t o u t in th is a r tic le . A pril, 1930 A r t ic l e XI I m m e d ia t e ly o n r e c e iv in g f r o m th e G e r m a n G o v e r n m e n t in c o n f o r m i t y w it h th e p la n n o t if ic a t io n o f s u s p e n s io n o f t r a n s fe r o f th e w h o le o r p a r t o f th e p o s t p o n a b le a n n u i t y th e tr u s te e s h a ll in f o r m th e c r e d i t o r G o v e r n m e n t s a c c o r d i n g ly . (a) A s s o o n as th is s u s p e n s io n b e c o m e s e ffe c t iv e : (1 ) T h e tr u s te e s h a ll c o n t in u e t o tr a n s fe r e a c h m o n t h th e s u m s n e c e s s a r y f o r a s s u r in g th e s e r v ic e o f t h e e x t e r n a l lo a n o f 19 2 4 in a c c o r d a n c e w it h p a r a g r a p h (a ) o f A r t i c le I V o f th is c o n t r a c t ; (2 ) T h e t r u s t e e s h a ll c o n t in u e t o c r e d i t o r t r a n s fe r e a c h m o n t h in a c c o r d a n c e w ith th e p r o v i s io n s o f p a r a g r a p h (6 ) o f A r t i c le I V o f th is c o n t r a c t th e s u m s p a id b y th e G e r m a n G o v e r n m e n t in r e s p e c t o f th e n o n p o s t p o n a b l e a n n u i t y ; (3 ) I n th e e v e n t o f a p a r t ia l p o s t p o n e m e n t , in a n y y e a r , o f t r a n s fe r o r o f p a y m e n t o f th e p o s t p o n a b le a n n u itie s , th e tr u s te e s h a ll d is t r ib u t e th e p a r t o f th e p o s t p o n a b l e a n n u itie s a c t u a l ly p a id a n d t r a n s fe r r e d in t h a t y e a r in s u c h a m a n n e r as t o in s u r e , s o fa r as m a y b e p o s s ib le , t h a t th e r e c e ip t s o f th e s e v e r a l c r e d i t o r G o v e r n m e n t s o u t o f th e a g g r e g a t e p a y m e n t s a c t u a lly t r a n s fe r r e d b y G e r m a n y (w h e t h e r o n a c c o u n t o f th e u n c o n d it io n a l o r o f th e p o s t p o n a b le a n n u it ie s ) s h a ll b e p r o p o r t i o n a t e t o th e ir r e s p e c t iv e s h a r e s in th e t o t a l a n n u itie s d u e b y G e r m a n y u n d e r th e p la n in r e s p e c t o f t h a t y e a r , p r o v i d e d a lw a y s t h a t th e c r e d i t o r A r t ic l e X G o v e r n m e n t s e n t it le d t o a n a l lo c a t i o n o u t o f T h e t r u s te e d e c la r e s t h a t it h a s t a k e n n o t e th e u n c o n d it io n a l a n n u itie s s h a ll in n o c a s e o f th e p r o v i s io n s o f th e p la n w it h r e s p e c t t o r e c e iv e le s s t h a n t h e a llo c a t io n s d u e t o t h e m , th e f u n c t i o n s a s s ig n e d t o th e B a n k f o r I n t e r r e s p e c t iv e ly , o u t o f t h o s e a n n u it ie s ; n a t io n a l S e t t le m e n t s in c o n n e c t i o n w it h a n y (4 ) S h o u ld th e a m o u n t o f th e p o s t p o n a b l e d e c la r a t io n o f th e G e r m a n G o v e r n m e n t r e q u ir a n n u it ie s p a id a n d t r a n s fe r r e d b y G e r m a n y b e in g th e c o n v e n i n g o f th e s p e c ia l a d v is o r y c o m in s u ffic ie n t t o p r o v i d e in fu ll t o e a c h o f th e m it t e e , a n d th e t r u s te e a g r e e s a n d th e c r e d i t o r c r e d i t o r G o v e r n m e n t s it s d u e s h a r e o f th e G o v e r n m e n t s c o n fir m t h a t th e tr u s t e e s h a ll t o t a l G e r m a n p a y m e n t s t r a n s fe r r e d , h a v in g c a r r y o u t t h e f u n c t io n s a s s ig n e d t o i t in t h a t r e g a r d t o th e a l lo c a t i o n s o u t o f th e u n c o n d i r e s p e c t a n d in th e m a n n e r d e s c r ib e d in th e p la n . t io n a l a n n u i t y r e fe r r e d t o in t h e p r e v i o u s T h e t r u s t e e t a k e s n o t e t h a t , in a p p lic a t io n o f p a r a g r a p h , t h e t r u s t e e s h a ll, in a c c o r d a n c e a r t ic le 124 o f t h e e x p e r t s ’ r e p o r t , a n y r e c o m w it h th e p r o v i s io n s o f p a r a g r a p h 2 0 2 o f th e m e n d a t io n o f th e a d v i s o r y c o m m i t t e e a ffe c t in g a n n e x e s t o th e e x p e r t s ’ r e p o r t w it h d r a w f r o m th e r ig h t s o f th e c r e d i t o r G o v e r n m e n t s s h a ll n o t th e g u a r a n t e e f u n d , t o b e c o n s t i t u t e d b y th e b i n d t h o s e G o v e r n m e n t s u n le s s i t is a c c e p t e d F r e n c h G o v e r n m e n t , th e s u m s n e c e s s a r y t o a n d c o n f ir m e d b y t h e c r e d i t o r G o v e r n m e n t s m a k e u p th e d e f ic ie n c y t o e a c h o f t h e c r e d i t o r w h ic h p a r t ic i p a t e d in th e d e c is i o n o f S e p t e m b e r G o v e r n m e n t s c o n c e r n e d . T h e su m s so w ith 16, 1 9 2 8 , t o s e t u p th e c o m m i t t e e o f e x p e r t s ; d r a w n f r o m th e g u a r a n t e e f u n d s h a ll b e r e p a id a n d t h a t s im ila r ly a n y r e c o m m e n d a t i o n a f f e c t t o t h a t f u n d in a c c o r d a n c e w it h th e p la n a t in g th e r ig h t s o f t h e G e r m a n G o v e r n m e n t s h a ll th e e n d o f t h e p e r io d o f p o s t p o n e m e n t . ( b ) D u r i n g t h e c o u r s e o f a p a r t ia l o r t o t a l n o t b in d t h a t G o v e r n m e n t u n le s s i t is a c c e p t e d a n d c o n fir m e d b y t h a t G o v e r n m e n t . p o s t p o n e m e n t o f tr a n s fe r th e tr u s t e e m a y A pril, 1930 F E D E R A L R E S E R V E B U L L E T IN 205 I f , a ft e r e x a m in a t io n , a n d in c a s e s o t h e r th a n a c c e p t f r o m G e r m a n y p a y m e n t s in r e ic h s m a r k s in r e s p e c t o f th e a m o u n t s o f w h ic h t h a t d e a lt w it h in th e s e c o n d p a r t o f p a r a tr a n s fe r h a s b e e n p o s t p o n e d a n d o f w h ic h g r a p h ( b ) b e l o w , th e t r u s t e e c o n s id e r s s u c h a n p a y m e n t h a s n o t b e e n p o s t p o n e d u n d e r th e o p e r a t io n in o p p o r t u n e , it s h a ll in d ic a t e t o th e p la n . T h e t r u s t e e is a u t h o r iz e d t o g i v e t o th e G o v e r n m e n t s c o n c e r n e d th e r e a s o n s f o r th is G e r m a n G o v e r n m e n t r e c e ip t s f o r s u c h p a y o p in io n . (6 ) I f o n e o r m o r e o f th e G o v e r n m e n t s c o n m e n t s w h i c h w ill b e in th e n a t u r e o f t e m p o r a r y a c k n o w le d g m e n t s . T h ese a c k n o w le d g m e n t s c e r n e d in t e n d t h e m s e lv e s t o p r o c e e d in t h e ir w ill b e c o n v e r t e d in t o fin a l r e c e ip t s p r o ta n t o o w n m a r k e t s w it h a n is s u e , th e t r u s te e s h a ll fix o n t h e tr a n s fe r o f th e a m o u n t s p o s t p o n e d , o r th e m i m im u m c o n d i t io n s o f is su e a t th e t im e . o n th e u t ili z a t io n o f th e r e is c h s m a r k s a c c e p t e d o f th e o p e r a t io n . I f , h o w e v e r , s u c h a n o p e r a t io n is in t e n d e d in b y th e t r u s t e e u n d e r th is p a r a g r a p h f o r p a y m e n t s in r e s p e c t o f d e liv e r ie s in k in d o r in c o n n e c t i o n w it h in t e r n a l c o n v e r s io n o p e r a t io n s , r e s p e c t o f r e p a r a t io n r e c o v e r y a c t s a n d s im ila r th e G o v e r n m e n t c o n c e r n e d w ill b e fr e e t o o ffe r p r o c e d u r e s u n d e r th e s p e c ia l p r o g r a m s r e fe r r e d th e b o n d s o n it s o w n m a r k e t o n w h a t e v e r c o n d i t io n s i t m a y b e a b le t o o b t a in , w it h o u t t o in A n n e x I V o f th e e x p e r t s ’ r e p o r t . (c) A n y s u m s a c c e p t e d in r e ic h s m a r k s b yit s b e i n g n e c e s s a r y f o r th e t r u s t e e t o c o n s id e r th e t r u s t e e u n d e r p a r a g r a p h ( b ) a b o v e w ill w h e t h e r t h e c r e a t io n o f t h e b o n d s is o p p o r t u n e , b e d is t r ib u t e d in t h e f o r m o f c r e d i t s in th e a n d o n t h e u n d e r s t a n d in g t h a t th e b o n d s w ill t r u s t e e ’ s b o o k s in s u c h a w a y as t o c o m p l e t e o n l y b e q u o t e d o n th e m a r k e t o f is su e . th e c r e d i t s d u e t o e a c h c r e d i t o r G o v e r n m e n t f o r (c ) I f o n e o r m o r e o f th e G o v e r n m e n t s c o n t h e y e a r in q u e s t io n u n d e r th e p la n , a n d th e c e r n e d p r o p o s e a n in t e r n a t io n a l is s u e o n o t h e r g u a r a n t e e f u n d in s o f a r as i t h a s b e e n d r a w n m a r k e t s t h a n t h e ir o w n r e s p e c t iv e m a r k e t s , upon. T h e s e r e ic h s m a r k s w ill b e a d m in is t e r e d th e t r u s t e e sh a ll a t t h e ir r e q u e s t , if i t c o n s id e r s b y th e t r u s t e e in th e m a n n e r p r o v i d e d in th e o n e x a m in a t io n t h a t c o n d i t io n s o n th e s e m a r k e t s p e r m it s u c h a n o p e r a t io n , t a k e s t e p s t o p r o c e e d p la n . (<d ) T h e p a r t ie s t o th is c o n t r a c t a g r e e t h a t w it h th is is s u e , a n d d e t e r m in e , a ft e r m a k in g a ll i n v e s t m e n t s o f s u c h r e ic h s m a r k fu n d s su r e t h a t th e c e n t r a l b a n k s c o n c e r n e d h a v e n o e ff e c t e d b y th e tr u s t e e s h a ll b e m a d e f o r th e o b j e c t i o n , th e m a r k e t s o n w h ic h s u c h o ffe r s in d iv id u a l a c c o u n t o f th e c r e d i t o r G o v e r n m a y b e m a d e . m e n t s , as t h e ir in t e r e s t s r e q u ir e , f o r th e ir I n th e c a s e o f s u c h is s u e s , t h e v a r io u s G o v e r n a d v a n t a g e a n d a t th e ir r is k . I n p a r t ic u la r m e n t s h a v in g a s h a r e n o t y e t m o b ili z e d in th e th e p r o c e e d s o f i n v e s t m e n t o f r e ic h s m a r k s n o n p o s t p o n a b le p o r t i o n o f t h e a n n u it y s h a ll c r e d i t e d t o th e g u r a r a n t e e fu n d w ill b e a s s ig n e d b e g iv e n t h e r ig h t t o p a r t ic i p a t e in p r o p o r t i o n t o th e F r e n c h G o v e r n m e n t . t o t h e f o llo w in g fig u r e s : F r a n c e 5 0 0 , G r e a t B r it a in 8 4 , I t a l y 4 2 , J a p a n 6 .6 , Y u g o s l a v i a 6, A r t ic l e X I I P o r t u g a l 2 .4 . N o is s u e o f a n in t e r n a t io n a l c h a r a c t e r m a y , T h e c r e d i t o r G o v e r n m e n t s a n d th e tr u s te e h o w e v e r , b e m a d e in t h e m a r k e t o f a n y o f th e a g r e e t h a t t h e t r u s t e e s h a ll h a v e e x c lu s iv e c o u n t r ie s t h e G o v e r n m e n t o f w h i c h h a s s ig n e d a u t h o r i t y t o a c t as a g e n t o f th e c r e d i t o r th is t r u s t a g r e e m e n t , w i t h o u t t h e a p p r o v a l o f G o v e r n m e n t s , o r a n y o n e o f t h e m , s o f a r as t h a t G o v e r n m e n t b o t h as r e g a r d s t h e a m o u n t c o n c e r n s t h e o p e r a t io n s r e la t in g t o t h e m o b i l i o f t h e is s u e a n d as r e g a r d s t h e c o n d i t i o n s o n z a t io n o f t h e G e r m a n a n n u itie s , a n d t h a t ir w h i c h i t s h a ll b e a u t h o r iz e d . th e d is c h a r g e o f t h e f u n c t io n s a n d in t h e use (d) I f i t is d e c id e d t o p r o c e e d w it h a n is s u e o f t h e a u t h o r it y in t r u s t e d t o i t as a g e n t in th is a n d i f o n e o r m o r e o f t h e c r e d i t o r G o v e r n m e n t s m a t t e r , t h e t r u s t e e w ill b e g u id e d b y t h e p r o s o r e q u e s t , t h e tr u s t e e s h a ll a r r a n g e , in a g r e e v is io n s o f t h e p la n w h ic h g o v e r n m o b ili z a t i o n . m e n t w it h t h o s e G o v e r n m e n t s a n d w it h th e I n p a r t ic u la r th e t r u s te e w ill a b id e b y th e is s u in g b a n k e r s , th e d e t a ile d c o n d i t io n s o n f o llo w in g p r o v i s i o n s : w h ic h t h e b o n d s sh a ll b e is s u e d . (a) W h e n i t a p p e a r s t o t h e t r u s t e e p r a c t ic a l ly ( e) T h e tr u s t e e s h a ll a p p ly t o t h e G e r m a n p o s s ib le t o p r o c e e d w it h a n is s u e o f b o n d s r e p r e G o v e r n m e n t , as p r o v i d e d in t h e p la n , f o r th e s e n t i n g t h e c a p it a li z a t io n o f a p a r t o f t h e a n c r e a t io n o f is s u a b le b o n d s . n u i t y , t h e t r u s t e e w ill in f o r m th e c r e d i t o r G o v (f) T h e t r u s t e e d e c la r e s it s w illin g n e s s t o a c t ern m en ts. T h e p o s s ib ilit y o f p r o c e e d i n g w it h as t r u s t e e o r r e p r e s e n t a t iv e o f th e b o n d h o ld e r s , s u c h a n o p e r a t io n s h a ll a ls o b e c o n s id e r e d b y o r as a g e n t f o r all is s u e s o f b o n d s m a d e in th e t r u s t e e w h e n e v e r s o r e q u ir e d b y o n e o r p u r s u a n c e o f t h e p r o v i s io n s o f t h e p la n r e la t iv e m o re o f th e c r e d ito r G o v e r n m e n ts . t o m o b ili z a t i o n , t o t h e e x t e n t p r o v i d e d in th e 206 A pril, 1930 F E D E R A L R E S E R V E B U L L E T IN ' lo an c o n tra c t to be concluded betw een th e tru s te e an d th e G overnm ents concerned on th e occasion of an issue of such obligations. (g ) T h e expenses and com m issions to be received b y th e tru ste e b o th for th e creation of bonds and for th eir issue shall be determ ined betw een th e tru ste e and th e G overnm ents concerned w ith reg ard to th e im p o rtan ce of th e functions w hich m ay be a ttrib u te d to i t on th e occasion of each operation. declares th a t it tak es n o te of th e arran g em en ts regarding deliveries in k ind and re p a ra tio n re covery acts contained in th e re le v a n t annexes to T h e H ag u e agreem ent of J a n u a ry , 1 9 3 0 , an d agrees to observe th e sam e as far as lies w ith in its province an d pow ers as a b an k as set fo rth in th e s ta tu te s . A rticle X V I The trustee is authorized and agrees with respect to the assigned revenues of the Reich A rticle X I I I to exercise the discretions referred to in sec T h e tru ste e will cred it to a special tru s t tion 3 of Annex I I I of the experts’ report. account th e deposits w hich th e F ren c h G overn A rticle X V II m en t has u n d e rta k e n to m ake, in th e circum stances co n tem p lated in th e plan , up to an T h e tru ste e shall furnish to each cred ito r am o u n t of 5 0 0 ,0 0 0 ,0 0 0 reichsm arks, in cu r rencies o th er th a n reichsm arks based upon G ov ern m en t a t th e close of each m o n th an account show ing all th e receipts an d p ay m en ts th e gold or gold exchange sta n d a rd . The trustee undertakes to administer these of th e tru ste e durin g th a t period in respect of funds in such a way that the sums deposited th e a n n u ity received from G erm any. T h e shall be available in currencies other than tru ste e shall also furnish to each cred ito r G ov reichsmarks, based upon the gold or gold ern m e n t as soon as m ay be afte r M a rc h 3 1 , in exchange standard, in order to equalize the th e y ea r 1 9 3 1 , and every succeeding y ea r, a short payments to the other creditors during a copy of th e account as approved by th e au d i tors of th e B an k for In te rn a tio n a l S ettlem en ts period of transfer postponement. S u b ject to the provisions of A rticle X I (c) of all its o p erations in respect of th e whole of an d ( d ), th e tru ste e will p a y in te re st to the th e G erm an an n u ities, including th e service of F ren ch G ov ern m en t, a t th e m axim um c u rren t th e G erm an external loan, 1 9 2 4 , since th e close ra te p aid for long-term deposits, on th e am o u n t of th e la st preceding y early account or, in th e stan d in g in th is acco u n t in currencies o th er case of th e first acco u n t, since th e com m ence m en t of th e operations of th e b an k , an d of any th a n reichsm arks. If it is agreed th a t this deposit shall rem ain re p o rt th a t m ay be m ad e b y th e au d ito rs on for m ore th a n five y ears, th e F ren c h G overn such accounts. ‘ T h e b an k shall also furnish to m en t shall be e n title d to p a rtic ip a te in the each cred ito r G o v ern m en t a copy of its annual profits of th e b a n k in resp ect of this deposit general re p o rt as soon as published. on th e term s laid dow n in article 53 ( e ) (1 ) of A rticle X V III its s ta tu te s . I t shall be resto red to th e F rench G o v ern m en t in th e circum stances co n tem F ro m th e d a te of com ing in to force of th e p lated in th e plan. p resen t c o n tra c t u n til its com pletion, th e cred A rticle X IV If th e G erm an G ov ern m en t elects to m ake th e lo n g -term deposit, up to 4 0 0 ,0 0 0 ,0 0 0 reichs m ark s, provided for in th e plan , th e tru stee . agrees to receive an d ad m in ister this deposit an d to ta k e th e consequent m easures for allo catio n an d u tiliza tio n of its profits according to th e provision of article 53 (e) of th e s ta tu te s of th e b an k . A rticle X V ito r G overnm ents, in ad d itio n to m ain tain in g th e deposits referred to in A rticle IV ( e ), agree to p ay to th e tru ste e a com m ission of 1 per m ille on th e ac tu a l p ay m en ts received from th e G erm an G o v ern m en t on th e ir behalf, in resp ect of th e re m u n e ratio n pro v id ed in article 8 4 of th e annexes to th e e x p e rts’ re p o rt. T h is p a y m e n t will form a p rio r charge in favor of th e tru ste e in accordance w ith th e p lan , on th e sum s received b y i t on behalf of th e cred ito r G o v ern m en ts w ith in th e a n n u ity tr u s t ac co u n t. . . . . The provisions of this article will remain in In ad d itio n to m aking disbursem ents and keeping accounts in connection w ith deliveries force failing any new arrangement; such new in k in d , re p a ra tio n recovery acts, and o th er arrangement may be made at the end of the sim ilar system s as above provided, th e tru stee first or of any one of the first five financial F E D E R A L R E S ER V E B U L L E T IN APRIL, 1930 y ea rs, a t th e re q u est of one of th e sig n ato ry pow ers or of th e tru ste e . A rticle X I X 207 ANNEXES TO THE REGULATIONS AnneX Annex Annex T h e tru ste e is au th o rized an d agrees to no tify fo rth w ith to th e cred ito r G o v ern m en t any Annex difficulty w hich m ay arise betw een it an d the G erm an G o v ern m en t rela tiv e to th e in te rp re ta tio n or th e ap p licatio n of th e p lan . I.—Table showing the distribution of deliver ies in kind among the creditor powers. II.—List of excluded commodities (list A). III.—List of rationed commodities (list B) (to be drawn up at a later date if neces sary.) IV.—List of commodities which can only be partially paid for out of the funds for deliveries in kind (list C ). A rticle I .— D e fin itio n o f the com m odities^ a n d A rticle X X T h e cred ito r G o v ern m en ts an d th e tru ste e agree th a t, if an y d isp u te shall arise betw een th em or an y of th em w ith re g ard to th e m eaning or ap p licatio n of th e provisions of th is tru s t agreem en t, th e d isp u te shall be referred for final decision to th e trib u n a l p ro v id ed for by T h e H ag u e ag reem en t of J a n u a ry , 1 9 3 0 , unless th e p a rtie s to th e d isp u te shall elect to refer th e sam e to th e p re sid e n t of th e trib u n a l or a m em ber thereof selected as sole a rb itra to r. A rticle X X I T h e p re sen t c o n tra c t shall com e in to force betw een th e tru s te e an d th e cred ito r G o v ern m e n ts w hose re p re se n ta tiv e s h av e signed it as soon as th e p lan h as been p u t in to ap p licatio n an d th is c o n tra c t h as been signed on b ehalf of th e tru s te e an d of fo u r of th e following p o w e rs: B elgium , F ra n c e , G re a t B rita in , Ita ly and Jap an . . T h e F ren c h te x t is alone au th e n tic . A N N E X IX R e g u la tio n s j o r d eliv eries i n k in d SUMMARY T ex t o f the regu la tio n s f o r d eliveries i n k in d Article Article Article Article Article Article Article Article Article Article Article Article Article Article I.—Definition of the commodities and services which may be supplied as deliveries in kind. II.—Utilization of the quota allotted to each of the creditor powers for deliveries in kind. III.—General provisions concerning the execution of contracts for deliveries in kind. IV.—Organization. V.—Preparation and revision of lists. VI.—Direct payments. VII.—Approval of contracts. VIII.—Payments. IX.—Prohibition concerning reexportation. X.—Infractions and frauds. XI.—Arbitration. XII.*—Temporary provisions. X III.—Revision of the regulations. XIV.—Authenticity of texts. 103025— 30-------- 6 services w h ich m a y be s u p p lie d a s deliv eries i n k in d 1. D eliveries in k in d w ith in th e m eaning of th e p re sen t reg u latio n s are com m odities and services pro d u ced by th e G erm an econom ic sy stem an d supplied to a pow er w hich is a cred ito r of G erm an y , th e p a y m e n t in resp ect of su ch com m odities an d services being effected w holly o r in p a r t b y m eans of funds reserved for th is purpose in execution of th e e x p e rts’ p lan of Ju n e 7 , 1 9 2 9 , according to th e d is tri b u tio n of these fu nds as show n in th e appen d ed tab le. (A nnex I .) 2 . T h e com m odities an d services w hich m ay form th e su b je c t m a tte r of a c o n tra c t for d e liveries in k in d are, su b ject to th e provisions of th e p re sen t reg u latio n s, all com m odities w hich are of G erm an origin o r m an u fa ctu red in G erm an y an d all services of a com m ercial n a tu re perform ed b y th e G erm an econom ic sy s tem , such as tra n s p o rt b y lan d in G erm an y ; tra n s p o rt b y riv er, sea, o r air u n d e r th e G er m an flag; p lans for public w orks an d p re p a ra tion of schem es for w orks to be executed o u t side G erm an y ; sales of G erm an licenses or p a te n ts to be utilized o u tside G erm an y ; in su r ance c o n tra cts u n d e rw ritte n b y G erm an com panies. 3 . T h e com m odities show n on list A (A nnex I I ) are described as “ ex c lu d e d ” com m odities an d can only be p aid for as a delivery in k in d in th e case m en tio n ed in p ara g ra p h 4 5 h ereafter. 4 . T h e com m odities w hich m ay be ev e n tu a lly included in list B (A nnex I I I ) are described as “ ra tio n e d ” com m odities an d can only be s u p plied as a delivery in k in d w ith in th e lim it of th e ra tio n existing a t th e tim e w hen th e co n tra c t for such com m odities is m ade an d su b je c t to th e provisions of p arag ra p h s 6 9 and 7 0 here afte r. 5. T h e com m odities show n in list C (A nnex IV ) can only be su p p lied as deliveries in k in d on co n d itio n th a t th e b u y er p ay s a p a r t of th eir valu e d irec t to th e seller according to th e con ditions laid dow n in A rticle V I of th e p re sen t reg u latio n s an d su b je c t to th e provisions of p arag ra p h s 6 9 an d 7 0 h ereafte r. 208 F E D E R A L R E S ER V E B U L L E T IN A pril, 1930 6. N o c o n tra c t th e value of w hich is less th a n pow er in question for deliveries in kind durin g 3 ,0 0 0 reichsm arks can be approved as a con th e th ree m o n th s following th e period of th ree tra c t for deliveries in kind unless it is a rid er m o n th s in w hich th e sum s available h av e been so increased. to a c o n tra c t previously approved. A t th e end of each m o n th th e position shall A rticle I I .— U tiliz a tio n o f the q u o ta allo tte d to be ad ju sted on th e basis of th e am o u n t of each o j the c re d ito r p o w ers j o r d eliv eries i n cred its blocked a t th a t tim e. 11. If, owing to th e ad o p tio n of th e foregoing k in d procedure, th e p a y m e n ts to be m ade to su p 7 . E a c h cred ito r pow er is responsible for the pliers of deliveries in k ind for th e acco u n t of a u tiliza tio n of its q u o ta for deliveries in k in d . cred ito r pow er exceed th e sum s available to In principle and su b je c t to th e provisions of t h a t pow er for th is purpose, th e necessary p arag ra p h s 8 and 14 h ereafte r, each pow er is am o u n ts shall be advanced by th e pow er in req u ired to o b ta in approval for co n tra cts p ro question. T hese advances m ay be draw n from viding for p ay m en ts of w hich th e to ta l is an y funds belonging to th e pow er w hich th e sufficient in an y given y e a r to absorb th e q u o ta la tte r m ay select. T h e sum s in question will of th a t pow er for deliveries in kind. be refunded to th e pow er durin g th e th ree 8. E ac h powder m ay carry forw ard a p a rt, m o n th s following th e period of th ree m o n th s n o t exceeding 4 0 per ce n t, of its q u o ta for a in w hich th e advances were m ade. T h e refund given y ea r, to th e following y ear. T h e p a r t will be effected o u t of th e cred its available th u s carried forw ard will n o t be co u n ted as p a rt for deliveries in k in d , so t h a t th e to ta l a m o u n t of th e cred it for th e following y e a r for purposes of such cred its allo tte d to th e pow er in th e of calcu latin g th e p a r t of th e q u o ta for th a t a tta c h e d tab le (A nnex I ) shall n o t be increased. y ea r w hich m ay be carried forw ard. 9. C o n tra c ts covering th e to ta l credits p ro A rticle III. — G en e ra l p r o v is io n s c o n c e rn in g the vided for deliveries in kind shall be passed ex ecu tio n o j c o n tra c ts J o r d eliv eries i n k in d before A ugust 3 1 , 1 9 3 9 , b u t these co n tracts 12. T h e G erm an G o v ern m en t u n d erta k es to shall n o t provide for an y p a y m e n t to be effected fa cilitate as fa r as possible th e conclusion, afte r th a t d a te . A ny credits w hich m ay be available a t th a t w ith in th e scope of th e p resen t regulations, of d a te as a re su lt of a cancellation of co n tra cts com m ercial c o n tra c ts u n d er o rd in ary com m er shall be utilized su b ject to agreem ent betw een cial conditions b y n o t ta k in g or p e rm ittin g to th e cred ito r G ov ern m en t concerned an d th e be ta k e n any m easure w hich w ould re su lt in G erm an G o v ern m en t for new c o n tra c ts for deliveries being u n o b tain ab le u n d er ordin ary com m ercial conditions. deliveries in kind. 13. If a cred ito r G o v ern m en t considers th a t N o d elivery shall be m ade and no p a y m e n t effected in resp ect of deliveries in k in d afte r th e G erm an G o v ern m en t has n o t fulfilled th is u n d erta k in g , an d th a t ow ing to this fa c t it has M arch 3 1 , 1 9 4 0 . 10. In view of th e delays w hich norm ally been u nable to absorb in accordance w ith th e occur in th e execution of certain c o n tra c ts, each p resen t regulations its q u o ta of th e cred its set c red ito r pow er m ay , upon its own responsi aside for deliveries in k ind as defined in th e b ility , an d on th e u n d ersta n d in g th a t p ay m en ts appended tab le (A nnex I ) it m ay su b m it th e for w hich provision h as already been m ade question to th e a rb itra l trib u n a l for w hich p ro shall n o t be th ere b y delayed, su b m it co n tra c ts vision is m ade in article 15 of T h e H ag u e A gree for ap p ro v al w hich involve p ay m en ts in excess m en t of J a n u a ry , 1 9 3 0 . 14. If th e trib u n a l considers th e com plain t of th e cred its allo tte d to th a t pow er for deliver to be w'holly or p a rtia lly founded i t will fix th e ies in k ind w ith in a given m o n th . T h e authorized am o u n t of such excess shall sum w hich th e G o v ern m en t m aking th e com p la in t has been unable for th is reason to utilize be calcu lated as follows: Of th e cred its w hich are blocked in the for deliveries in kind, and will cause such sum acco u n ts of a pow er as a re su lt of delay in th e to be placed a t th e free disposal of th e said execution of co n tra c ts approved for th a t pow er, G o v ern m en t. T h e obligation of th e G ov ern an a m o u n t n o t exceeding 3 0 p er ce n t m ay , if m en t to utilize a p a r t of its credit for deliveries th e pow er so req u ests, be added to th e cred its in k in d shall th ere b y be reduced b y an eq u iv a av ailable to it for deliveries in kind durin g th e le n t am o u n t. 15. If on its own responsibility th e G o v ern following th ree m o n th s. T he a m o u n t of these ad d itio n al cred its m ay n ever exceed th a t of m en t m aking th e co m p lain t s o ‘req u ests, th e th e cred its still rem aining available to the trib u n a l m ay, in accordance w ith p a ra g ra p h 4 A pril, 1930 F E D E R A L R E S E R V E B U L L E T IN of article 15 of T h e H ag u e A greem ent of J a n u ary , 1 9 3 0 , b y an in te rlo c u to ry o rd er cause a p a r t or th e w hole of th e su m wdiich th e G o v ern m en t h as s ta te d th a t i t h as been u n ab le to u tilize for deliveries in k in d , to be placed a t th e disposal of th e said G o v ern m en t. 16. I n such a case th e trib u n a l shall, w hen delivering its aw ard , fix th e co n d itio n s u n d er w hich th e p a y m e n t is to be reckoned ag ain st th e sum s to be p aid u n d e r th e aw ard , or th e conditions u n d er wrhich deliveries in k in d shall be ta k e n to m ake good th e su m p aid . A rticle IV .— O rg a n iz a tio n 17. T h e m an ag em en t of deliveries in k in a includes twTo se p a ra te p a rts , n am ely , th e ap p ro v al of co n tra c ts and th e h an d lin g of the funds reserv ed for deliveries in k in d . T h e cred ito r G o v ern m en ts concerned and th e G er m an G o v ern m en t rem ain responsible for th e ap p ro v al of co n tra c ts an d e n tru s t th e m an ag e m en t of th e fu nds reserved for deliveries in k ind to th e B an k for In te rn a tio n a l S ettle m e n ts. 18. A c o n tra c t is ap p ro v ed if th e re is agree m en t w ith reg ard to it betw een th e cred ito r G o v e rn m en t concerned and th e G erm an G ov ern m e n t. 19. E a c h c red ito r G o v ern m en t concerned in deliveries in k ind an d th e G erm an G o v ern m en t shall a p p o in t an ag en t, wrhose d u ty it shall be to deal w ith all m a tte rs concerning deliveries in k in d and to fulfill all fu n ctio n s devolving upo n him u n d er th e p re sen t reg u latio n s. E a c h ag en t shall rem ain responsible to his G o v e rn m en t for th e s tric t ap p lication of th e provisions of these reg u latio n s. T h e ag en ts of th e G erm an , B elgian, B ritish , F ren c h , Ita lia n , Jap a n ese, an d Y ugoslav G ov ern m e n ts shall assem ble w h en ev er a G o v ern m e n t concerned in deliveries in k in d considers a m eetin g to be n ecessary. T h e m eetin g shall be called by th e ag en t of th e G o v e rn m en t w hich proposes it. T h e sam e ag en ts shall m eet every y ea r, in principle d u rin g th e second fo rtn ig h t in M a y , in o rd er to reviewr th e general situ a tio n as show n b y th e s ta tistic a l do cu m en ts supplied b y th e B a n k for In te rn a tio n a l S ettle m e n ts. 2 0 . T h e ag en t of th e G erm an G o v ern m en t will be in p e rm a n e n t residence a t P aris, wrhere th e ag en ts will m eet in all th e cases for w hich provision is m ade in th e p re se n t reg u latio n s. T h e ag en ts of th e c red ito r powrers are u n d er no o b ligation to h av e a fixed place of residence. 2 1 . T h e B an k for In te rn a tio n a l S ettle m e n ts can in cu r no resp o n sib ility except w ith regarc 209 to th e d u ties arising from th e m a n d a te w ith w hich it is e n tru ste d . 2 2 . T h e B a n k for In te rn a tio n a l S ettle m e n ts will effect th e p a y m e n ts to be m ad e in v irtu e of d u ly ap p ro v ed co n tra c ts w hich are tra n s m itte d to i t b y th e ag e n t of th e G erm an G o v e rn m en t or are sen t by th e agent of th e c red ito r pow er concerned in execution of a decision of th e a rb itra to r in v irtu e of A rticle V II h ereafte r. 2 3 . T h e b a n k will keep all acco u n ts an d s ta tis tic s , an d will exercise all supervision in re sp ect of these p ay m en ts. 2 4 . T h e b a n k is also a t lib e rty , in accordance w ith p a ra g ra p h 2 8 of A nnex I to th e e x p e rts’ p lan of J u n e 7, 1 9 2 9 , to a p p o in t an advisory co m m itte e, th e o b ject of w hich w ould be to n fo rm g en erally th e b a n k of th e progress of ’• deliveries in k in d . T h is co m m ittee m ay , if i t th in k s fit, convoke those agents of th e G o v ern m en ts who do n o t form p a r t of th e co m m ittee. A rticle V .— P r e p a r a t i o n a n d re v isio n o f lis ts 2 5 . T h e coefficients of list C re p resen t the p ro p o rtio n in term s of v alue w hich th e raw m ateria ls of foreign origin in clu d ed in a com m o d ity b e a r to th e sale price of th e co m m o d ity , delivery ta k e n a t th e fa c to ry o r w arehouse of th e seller. T h e coefficients are based on a d etailed co st ing of th e sale price of th e article. 2 6 . T h e sam e m eth o d s of d eterm in in g the coefficients shall be applied w h en ev er list C is revised. L is t C shall include afte r each revision com m odities th e coefficient of w hich d eterm in ed as described above is equal to or m ore th a n 2 5 per ce n t. _ . 2 7 . E x cep tio n s, how ever, w hich are ad m itte d reg u larly in accordance w ith A rticle V II h ere a fte r, m ay be tak en in to co n sid eratio n wrhen th e list is d raw n up. 2 8 . L ists A an d C (A nnexes I I and IV ) m ay be revised every tw o y ears, th e first revision tak in g effect as from A pril 1, 1 9 3 2 . 2 9 . If one of th e G o v ern m en ts concerned washes th a t such revision should be m ade, its ag e n t shall inform th e ag en ts of th e o th e r G o v ern m en ts to th is effect before F e b ru a ry 1 of th e y e a r fixed for revision, an d shall suggest a d a te for th e co n sid eratio n of its re q u est. H e wrill in fo rm ^th em of th e m odifications w hich he proposes to m ake. 3 0 . U pon receip t of this re q u e st each ag en t shall anno u n ce w h e th e r he in ten d s to propose o th e r m odifications. 210 F E D E R A L R E S E R V E B U L L E T IN T h e revision com m ittee, consisting of th e G erm an , B elgian, B ritish , F ren c h , Ita lia n , Jap a n ese, an d Y ugoslav agents, will m eet in P aris. _ 3 1 . If th e agents p re sen t a t th e m eeting agree, th e y shall fix th e lists for th e period of tw o y ears from A pril 1, n e x t following. 3 2 . In case of d isag reem en t th e question shall be su b m itte d to th e a r b itra to r whose fu n ctio n s are defined in p a ra g ra p h 1 0 8 h ere after. A fter hearing th e p arties concerned th e arb i tra to r shall d raw up th e lists for th e period of tw o y ears as from A pril 1 n ex t following. 3 3 . T h e sam e procedure shall ap p ly , if nec essary, to th e fixing of th e ra tio n s of list B . (A nnex I I I .) I f th e G erm an G o v ern m en t de sires th a t such ra tio n s shall be fixed, its agent shall su b m it a re q u est to this effect to th e agents of th e cred ito r Pow ers a t least tw o m onths before th e d a te on w hich these program s com e in to force. A rticle V I .— D ire c t 'p ay m en ts 3 4 . T h e p ay m en ts to be m ade b y th e p u r chaser d irect to th e seller w ith o u t an y e n try being m ade to an account for deliveries in kind are governed by the rules set fo rth h ereafter. 3 5 . In respect of an y com m odity delivered w hich appears in list C , th e p u rc h aser shall p ay d irect to th e seller th a t p a r t of th e price w hich corresponds to th e coefficient fixed for this co m m o dity in accordance w ith p a ra g ra p h 2 5 of th e p resen t regulations an d su b je c t to th e provisions of A rticle V II. 3 6 . If a c o n tra c t m akes th e seller responsible for th e tra n sp o rt of th e com m odity, an d if th e tra n s p o rt is n o t carried o u t en tirely by G erm an m eans a d irect p a y m e n t shall be due w henever th e cost of th e tra n sp o rt exceeds 4 0 0 reichs m ark s. 3 7 . If th e cost of tra n s p o rt carried o u t by n o n -G erm an m eans exceeds 4 0 0 reichsm arks, th e p u rc h aser shall p ay th e en tire cost d irect to th e seller, unless th ere is a special agreem ent betw een th e ag en t of th e cred ito r G o v ern m en t concerned an d th e ag en t of th e G erm an G o v ern m en t. 3 8 . T ra n sp o rt by G erm an m eans in or o u t side G erm an y of com m odities ordered as a delivery in kind shall n o t give rise to an y d irect p a y m e n t. # 3 9 . T ra n sp o rt un d er G erm an flag b y riv er, sea, or air m ay of itself form th e su b ject m a tte r of a c o n tra c t for deliveries in k in d w henever it is effected betw een a G erm an p o rt an d a p o rt situ a te d in th e te rrito ry of a cred ito r pow er or A pril, 1930 in one of its colonies, dependencies, or m a n d a te d territo ries, or vice versa. 4 0 . If a c o n tra c t stip u la te s th a t the seller shall be responsible for erection outside G er m an y , such erection, w h e th e r carried o u t p a rtly or w holly b y m eans of G erm an resources, shall n o t give rise to a d irect p a y m e n t unless its value exceeds 1 ,0 0 0 reichsm arks. 4 1 . E re ctio n w ith in th e m eaning of th e p re sen t regulations does n o t com prise fo u n d a tions and m asonry, b u t covers th e in stalla tio n and assem bling of m achines and p la n t th e p a rts of w hich have been finished w holly or m ainly a t th e facto ry . 4 2 . If th e cost of erection carried o u t outside G erm an y , eith er w holly or p a rtly b y m eans of G erm an resources, exceeds 1 ,0 0 0 reichsm ark s, it shall be su b ject to a d irect p a y m e n t of 50 p er cen t of such cost, su b ject to th e following lim i tatio n s : (a) T en p er cen t of th e value of th e o rder for co n tra cts of an a m o u n t less th a n 2 0 0 ,0 0 0 reichs m ark s. _ (b ) T en p er cen t of th e first in stallm e n t of 2 0 0 ,0 0 0 reichsm arks and 5 p er cen t of the balance for co n tra cts exceeding 2 0 0 ,0 0 0 reichs m arks. 4 3 . If th e to ta l value of erection ou tside Germ an}7 exceeds these lim its, the en tire am o u n t of th e excess shall be added to th e d irect p a y m e n t to be m ade b y th e p u rch aser to th e seller. __ 4 4 . T h e foregoing provisions do n o t ap p ly to th e em ploym ent of G erm an personnel outside G erm any, w hich is governed by th e provisions of p a rag ra p h s 4 7 and 4 8 h ereafter. 4 5 . If a c o n tra c t for th e su p p ly of a com posite o b ject provides for th e delivery as p a r t of such o b ject of (a) com m odities co n tain ed in list C , (6) e q u ip m en t of a specialized ty p e n o t c u rre n tly m a n u fa c tu re d in G erm an y , (c) com m odities m entioned in fo o tn o te 3 of list A, p rovided th a t th e y are finished p ro d u c ts, the delivery of these com m odities shall n o t give rise to a d irect p a y m e n t unless th e ir to ta l v alu e, delivered eith er by or to the seller a t his fa c to ry or w arehouse, exceeds 10 p er ce n t of th e to ta l value of the c o n tra c t. t . A com posite o b ject w ith in the m eaning of the p re sen t regu latio n s is one for w hich the o rd er is placed w ith a single supplier, is executed b y him acting alone or w ith th e assistance of sub co n tra c to rs, an d m akes him responsible fox the w orking or o u tp u t of the o b ject supplied (m ach in ery , fa c to ry p la n t, ship, e tc .). 4 6 . If th e value defined in th e preceding p a ra g ra p h exceeds 10 p er cent of the to ta l price of th e c o n tra c t, p a y m e n t shall be m ade by the A pril, 1930 F E D E R A L R E S ER V E B U L L E T IN p u rc h aser d irect to th e seller in resp ect of the com m odities co n tain ed in list C , according to th e rules applicable to such com m odities u n d er p a ra g ra p h 3 5 of th e p re se n t reg u latio n s, an d for th e en tire v alue of th e com m odities m en tio n ed u n d e r headings (6) an d (c) of th e p reced ing p a ra g ra p h . .. , , 4 7 . If a c o n tra c t p ro vides for th e em ploy m en t of G erm an personnel ou tsid e G erm an y , 4 0 p er cen t of th e to ta l wages an d salaries of such personnel shall be p aid b y th e p u rch aser d irec t to the seller. 4 8 . If, how ever, th e food of th e personnel th u s em ployed com es from G erm an y , or if th e personnel is p ro v id ed w ith living accom m oda tio n in G erm an y while th e w ork is being carried o u t, or if special arran g e m e n ts for housing and feeding are m ade locally b y th e p u rc h aser an d the seller, th e percen tag e shall be red u ced by ag reem en t b etw een th e ag en t of th e cred ito r pow er concerned an d the G erm an ag en t. I ail ' ing such ag reem en t, th e a rb itra to r for w hom provision is m ade in p a ra g ra p h 1 0 8 h ereafte r shall decide. 4 9 . If th e co m m o d ity o rd ered u n d er a con tr a c t is th e su b je c t of a m o rtg ag e, a lien or an y o th e r charge in fav o r of a n o n -G erm an cred ito r, an d if i t is to be delivered free of an y such charge th e p a y m e n ts req u ired to p a y off an y such charge shall be m ad e b y th e p u rch aser d irec t to th e seller. 50. N o d irec t p a y m e n t shall be m ad e if the c o n tra c t m akes th e seller responsible for— (а ) T h e cu sto m ary in sp ectio n an d su p er vision of com m odities o r of th e m a n u fa c tu re of com m odities in G erm an y b y persons em ployed b y th e b u y e r or b y in sp ecto rs belonging to recognized in sp ectio n agencies, p ro v id ed th a t these agencies, w hich need n o t necessarily be G erm an , are estab lish ed in G erm an y . (б ) T h e tra n ssh ip m e n t o r h an d lin g of com m o d ities b y n o n -G erm an m ean s o r lab o r. (c) T h e sum s req u ired to cover te m p o ra ry ad v an ces for custom s dues or sim ilar n o n G erm an charges. t . (d ) T h e costs of g u a ra n ty d eposits in n o n G erm an cu rren cy . . 5 1 . A d irec t p a y m e n t shall be m ad e in re spect of an y c o n tra c t for in su ran ce w hich is n o t accessory to a d eliv ery o r to w ork to be executed as a d eliv ery in k in d , b u t w hich form s of itself a c o n tra c t for such d elivery. T h e a m o u n t of th is p a y m e n t will be fixed for each in d iv id u al case by d irect ag reem en t betw een th e ag en t of th e cred ito r pow er concerned an d th e G erm an ag en t. 211 A rticle V I I .— A p p ro v a l o f c o n tra c ts 5 2 . N o p a y m e n t shall be m ad e b y m ean s of th e fu n d s reserv ed for deliveries in k in d , unless in execution of a com m ercial c o n tra c t p re v i ously ap p ro v ed by ag reem en t betw een th e cred ito r G o v ern m en t concerned and th e G er m an G o v e rn m en t. . 5 3 . E v e ry c o n tra c t shall co n tain a clause in d icatin g t h a t i t is to be p aid for o u t of the funds reserv ed for deliveries in k in d . _ 5 4 . B y a c o n tra c t w ith in th e m eaning of the p re sen t reg u latio n s is u n d ersto o d — (a ) A d o cu m en t signed by th e seller an d the bu y er. (b ) A firm offer, w ith or w ith o u t specifica tio n , accep ted w ith o u t reserve by th e b u y e r by le tte r or b y teleg ram . (c) A firm o rd er accep ted w ith o u t reserve by th e seller b y le tte r or b y teleg ram . 5 5 . I n th e first place th e co n tra c ts m u s t be accepted b y th e cred ito r pow er concerned, w hich shall ascertain a t th e o u tse t t h a t th e y are in co n fo rm ity w ith th e reg u latio n s an d th a t sufficient fu n d s s ta n d to its cred it to m eet th e p a y m e n ts for w hich th e c o n tra c t p ro vides w hen th e y fall due. 5 6 . T w o copies of th e co n tra c ts will th e n be tra n s m itte d to th e ag en t of th e G erm an G o v ern m en t, e ith e r b y reg istered le tte r or de livered d irec t ag ain st a re ceip t given b y an au th o rized person. < 5 7 . W ith in th ree clear w orking d ay s of re ceiving th e c o n tra c t th e ag e n t of th e G erm an G o v ern m en t shall inform th e ag e n t w hich h as tra n s m itte d th e c o n tra c t w h e th e r he accep ts it w ith o r w ith o u t re serv atio n or w h e th e r he p ro poses its rejectio n . 5 8 . If he h as no o b jectio n to th e c o n tra c t he will inform th e B a n k for In te rn a tio n a l S e ttle m en ts, to w hich he will send a copy of th e co n tra c t. 5 9 . If th e a g e n t of th e G erm an G o v e rn m en t considers th a t th e c o n tra c t should be m odified or re je cted , or if he reg ard s th e d etails w hich it co n tain s to be insufficient, he will re tu rn it, accom panied b y his o b serv atio n s an d reasons, to th e a g e n t from w hom i t w as received. 6 0 . If th e ag e n t of th e c red ito r G o v e rn m en t does n o t concur in th e view of th e G erm an ag e n t, he shall b rin g th e q u estio n before the a rb itra to r for w hom provision is m ad e in p a ra g rap h 1 0 8 h ereafte r. A fter calling for th e o b serv atio n s of th e a g e n t of th e cred ito r pow er concerned a n d th e G erm an ag e n t, th e a r b itra to r shall give a final decision w ith in a m ax im u m 212 F E D E R A L R E S ER V E B U L L E T IN of eig h t clear w orking days from the d ate on w hich th e question was referred to him . 6 1 . T h e ag e n t of th e G erm an G ov ern m en t m ay ap p ly d irec t to th e G erm an seller for fu rth e r in fo rm atio n or to have an y changes m ad e in th e c o n tra c t w hich he m ay consider to be necessary. I t shall be his d u ty , how ever, to inform th e ag en t of th e cred ito r pow er, in o rd er t h a t th e ag e n t m ay ta k e th e necessary actio n w ith reg ard to th e purchaser. 6 2 . W henever th e procedure is suspended in th e m a n n e r described, it shall be resum ed w ith th e sam e form alities a n d th e sam e tim e lim its as from th e d ay on w hich th e ag e n t of th e cred ito r pow er sends to th e G erm an ag e n t th e necessary in fo rm atio n or th e ag reem en t of the p artie s concerning th e changes re q u ired to be m ade in th e co n tra c t. 6 3 . W hen an appeal is m ade to th e a rb itra to r th e aw ard shall be notified to th e G erm an ag e n t an d th e ag e n t of th e c red ito r pow er concerned. T h e la tte r m ay th e n send th e c o n tra c t d irec t to th e B an k for In te rn a tio n a l S ettle m e n ts, an d shall be responsible for inform ing th e G erm an ag en t to th is effect. 6 4 . W hen a c o n tra c t does n o t provide a definite schem e of p ay m en ts, th e G erm an ag e n t will draw up a schedule in agreem ent w ith th e ag en t or au th o rized d e p a rtm e n t of th e cred ito r G o v ern m en t, in o rd er th a t th e B an k for In te rn a tio n a l S ettlem en ts m a y set aside th e sum s req u ired for p aying for th e c o n tra c t. 6 5 . T h e B an k for In te rn a tio n a l S ettle m e n ts will keep accounts for each c red ito r co u n try , show ing th e d ates an d am o u n ts of th e pa}7-m en ts for w hich th e approved co n tra c ts p ro vide an d in d icatin g how m uch of th e q u o ta rem ain s av a ila b le for new c o n tra c ts. A b stra c ts of these accounts will be supplied on th e 1st an d 1 5 th of each m o n th to th e agent of th e cred ito r pow er concerned and to the G erm an agent. 6 6 . B efore su b m ittin g a c o n tra c t for ap proval th e cred ito r G ov ern m en t concerned shall h av e definitely agreed w ith th e p u rchaser the term s on w hich he can o b tain p ay m en ts o u t of th e fu nds reserved for deliveries in kind. 6 7 . If, in th e course of execution of a con tra c t, th e b u y er does n o t fulfill these conditions he sh all co n tin u e to b ea r th e e n tire responsi b ility for th e c o n tra c t, as fa r as th e seller is concerned, u n d er o rd in ary com m ercial condi tions, even if th e c o n tra c t stip u la te s th a t it shall only be executed as a delivery in kind. 6 8 . In this case the B an k for In te rn a tio n a l S ettle m e n ts shall, if th e cred ito r pow er con cerned so req u ests on its own responsibility, A pril, 1930 release th e credits reserved b u t n o t y e t utilized for p a y m e n t for th e co n tra ct. T h e agent of th e G erm an G o v ern m en t shall be inform ed accordingly. 6 9 . E xceptions to th e p resen t regulatio n s m ay be a d m itte d by agreem ent betw een th e agent of th e cred ito r G o v ern m en t concerned and th e agent of th e G erm an G o v ern m en t provided th a t th ey do n o t exceed— (а ) In th e case of an y ra tio n s w hich m ay ev e n tu ally be fixed, 2 0 per cent of th e ra tio n allowed for th e y e a r in question. (б ) In th e case of d irect p ay m en ts, 3 0 per cent of th e p ay m en ts of this k in d w hich should have been effected u n d er th e c o n tra c t in ques tion h a d th e regulations been stric tly applied. 7 0 . If th e conditions of a c o n tra c t en tail o th e r exceptions to w hich th e G erm an agent agrees, th e c o n tra c t shall only be appro v ed provided th a t, of the B elgian, B ritish , F ren c h , Ita lia n , Jap a n ese, an d Y ugoslav agents, at least th ree agree to th e exception proposed. 7 1 . In th e case, how ever, of an exception to the clause concerning re ex p o rtatio n , w hich in principle rem ains forbidden, th e unanim o u s agreem ent of these six agents shall be req u ired . 7 2 . In tra n sm ittin g to th e B an k for I n te r n atio n al S ettlem en ts a c o n tra c t in resp ect of w hich exceptions h av e been a d m itte d in appli cation of p a rag ra p h s 6 9 , 7 0 , and 71 above, th e ag en t of the G erm an G o vernm ent shall a tta c h to th e c o n tra c t a n o te sta tin g th e n a tu re of the exception g ra n te d and in d icatin g w hich agents h av e given th e ir consent. In th e case of c o n tra c ts approved in v irtu e of an a rb itra l decision in accordance w ith p a ra g rap h 6 3 , th e agent who tra n sm its the c o n tra c t will a tta c h to it a copy of th e a rb itra l decision. 7 3 . T h e sta tistic s w hich th e B an k for In te r n atio n al S ettlem en ts will keep in execution of p ara g ra p h 23 will be sent by th e b an k each m o n th to th e agents of all th e G o v ern m en ts and will show (1 ) according to countries and categories th e to ta l am o u n t of th e c o n tra c ts w hich it has received during th e preceeding m o n th , those for an am o u n t exceeding 5 ,0 0 0 ,0 0 0 reichsm arks and riders th ere to being show n sep arately ; (2) th e in fo rm atio n tra n s m itte d to it w ith co n tra c ts in accordance w ith p a ra g ra p h 72. A rticle V I I I .— P a y m e n ts (A ) P a y m e n ts f o r d eliv eries i n k in d . 7 4 . F o r each cred ito r G o v ern m en t th ere shall be opened a t th e B a n k for In te rn a tio n a l S e ttle m en ts an acco u n t to w hich shall be cred ited all sum s to be reserved b y t h a t G o v ern m en t for APRIL, 1930 F E D E R A L R E S ER V E B U L L E T IN deliveries in k in d according to th e appro v ed schedule. All p ay m en ts m ad e in resp ect of appro v ed co n tra cts shall be d eb ited to this account. 7 5 . T h e cred it b alance a t th e end of each m o n th shall be added to th e cred its opened d u rin g th e following m o n th . T h e sum avail able to th e cred ito r pow er for deliveries in kind d u rin g th a t m o n th shall be th e to ta l of these two am o u n ts. 7 6 . A t th e beginning of each m o n th th e ag en t of th e cred ito r G o v ern m en t concerned an d th e ag en t of th e G erm an G o v ern m en t shall be inform ed of th e s ta te of th e account. 7 7 . S u b ject to th e reserves pro v id ed by th e presen t regulations th e sum s paid to this account can only be em ployed for th e p a y m e n t of c o n tra c ts for deliveries in kind. 7 8 . F o r th e purpose of pay in g for d u ly a p proved co n tra cts for deliveries in k in d each cred ito r pow er m ay dispose freely of th e cred it balance lying in his acco u n t, by an y m eth o d of p a y m e n t w hich is cu rre n t in in te rn a tio n a l com m erce, and p a rtic u la rly by m eans of checks, orders to tran sfer, and tim e d ra fts. T h e p ay m en ts will be m ade by th e R eichsb an k in B erlin. 7 9 . T h e cred ito r powers will tra n s m it to th e B an k for In te rn a tio n a l S ettlem en ts th e nam es and sig n atu res of th e officials who are a u th o r ized to issue orders to pay. 8 0 . In principle, orders to p ay shall be m ade o u t in reichsm arks. W hen a c o n tra c t s tip u lates th a t p a y m e n t is to be m ade in a n o n G erm an curren cy , th e o rder to p ay shall be m ade o u t in th is curren cy , b u t m u st b ear th e in scrip tio n " p a y a b le in re ic h sm a rk s.” In this case th e conversion in to reichsm arks shall be m ade a t th e tim e of p a y m e n t, a t th e official average ra te of th e B erlin B ourse as q u o ted for th e day preceding th a t of p ay m en t. 8 1 . If a c o n tra c t provides for an agreed ra te of conversion, th e conversion in to reichsm arks shall be m ad e a t th is ra te . 8 2 . All orders to p ay m u st in d icate th e a p proval n u m b er of th e c o n tra c t in resp ect of w hich th ey are issued. 8 3 . C hecks shall be issued by th e cred ito r G o v ern m en t m ade o u t in th e n am e of th e seller and passed to th e b u y er for tran sm issio n to th e seller. T h ey can n o t be cashed over th e co u n ter, b u t m u st be passed th ro u g h a b an k account. 8 4 . O rders to tran sfer shall b ear th e nam es of th e bu y er an d seller, as well as th a t of the b an k responsible for collection. 8 5 . T im e d ra fts shall be m ade p ay ab le not less th a n 3 0 days and n o t m ore th a n 9 0 213 d ay s a t m o st from th e d a te of issue. T h ey shall only be issued if th e c o n tra c t for w hich th ey are required m akes provision to this effect. T h ey shall be d raw n b y the cred ito r G o v ern m en t on th e B an k for In te rn a tio n a l S e ttle m en ts. T h ey shall n o t be accepted. T h ey shall be issued to the o rder of the b u y e r, who shall indorse th em an d tra n sm it th em d irect to the seller. T h ey shall b ear th e w ords: " P a y a b le a t the R eichsbank in B erlin .” 8 6 . If a cred ito r G o v ern m en t w hich has issued a tim e d ra ft does n o t possess credits sufficient to m eet the p a y m e n t when it falls d u e, it shall place the necessary funds a t the disposal of th e B an k for In te rn a tio n a l S e ttle m en ts tw o d ay s before th e due d a te . A cred ito r G o v ern m en t w hich advances a sum in this m an n er shall be reim bursed o u t of th e first cred its w hich are th e re a fte r placed a t its disposal for deliveries in k in d . 8 7 . T h e issuing a u th o rity an d th e ag en t of th e G erm an G o v ern m en t will receive d aily advice an d periodical s ta te m e n ts of the p a y m en ts effected. 8 8 . T h e rules to be applied to th e p ay m en ts m ade in ap p licatio n of th e preceding p a ra grap h s will be d eterm in ed jo in tly b y re p resen ta tives of the G erm an , B elgian, B ritish , F ren c h , Ita lia n , Jap a n ese, and Y ugoslav G o v ern m en ts and th e B an k for In te rn a tio n a l S ettle m e n ts, p a rtic u la rly in so fa r as concerns th e requisite m easures for safeguarding these p ay m en ts. 8 9 . W hen a seller has to m ak e a p a y m e n t to a b u y e r in executing or w inding up a c o n tra c t th e b u y e r shall inform his G o v e rn m en t an d re q u e st th e seller to m ak e th e p a y m e n t in to th e acco u n t for deliveries in k in d opened for this G o v ern m en t. 9 0 . T h is provision shall n o t ap p ly to an y p a y m e n ts of less th a n 1 0 ,0 0 0 reich sm ark s and of less th a n 2 0 p er ce n t of th e valu e of th e con tr a c t w hich th e seller m ay be liable to m ak e to th e p u rc h aser a fte r th e la s t p a y m e n t for w hich th e c o n tra c t provides has been m ad e an d th e c o n tra c t is co n seq u en tly reg ard ed b y th e con tra c tin g p a rtie s as te rm in a te d . In such a case th e p a y m e n ts shall be m ad e b y th e seller d ire c t to th e p u rch aser. (B ) D ir e c t p a y m e n ts . 9 1 . W h en th e case arises th e provisions of A rticle V I of th e p re se n t reg u latio n s concern ing th e d irec t p a y m e n t of a p a r t of the v alue of c e rtain com m odities or services shall be a p plied to a c o n tra c t eith er— (a ) B y th e term s of th e c o n tra c t itself, or 214 F E D E R A L R E S ER V E B U L L E T IN A pril, 1930 (b ) B y th e decision concerning th e ap p ro v alcom m odities unless th e following declaratio n of th e c o n tra c t, such decision being regarded as signed by th e b u y er is included in or a tta c h e d con d itio n al w ith in th e m eaning of A rticle V II. to th e co n tra ct: In th e first case th e d ates and am o u n ts of I undertake for five years not to reexport the com th e sum s to be paid d irec t shall be stip u la te d modities which form the subject of the present contract. In the event of my selling all or part of these com in th e co n tra c t. I undertake to require my purchaser to take In th e second case th e d ates and am o u n ts of modities, upon himself all the obligations which I have assumed, th e sum s to be p aid d irec t shall be fixed b y the and to cause the same undertakings to be given by his decision of ap p ro v al in such a m an n er t h a t th e successive purchasers. If I fail to perform any of these undertakings I con d irec t p ay m en ts are m ade a t th e sam e tim e and to be deprived of the possibility of having new in th e sam e p ro p o rtio n s as th e p ay m en ts m ade sent contracts concluded by me paid for by means of the on acco u n t of deliveries in kind. funds which are reserved for deliveries in kind. Commodities shall not be considered to be reexported: In b o th cases th e p u rc h aser shall m ake th e (a) In cases of plant for public works which is utilized d irec t p ay m en ts to th e seller in accordance abroad by a firm of the creditor power during a short w ith th e rules of o rd in ary com m erce. period not exceeding one year, with obligation for the 9 2 . T h e foregoing provisions shall n o t p re return of the plant to the territory of the creditor clude th e B an k for In te rn a tio n a l S ettlem en ts in power. ( b) If commodities are exported to the colonies, ag reem ent w ith th e cred ito r pow er concerned dependencies, or mandated territories of the creditor from m eeting all th e p ay m en ts for w hich a con power. tra c t provides w hen th e y fall due. I n this (c) If they are intended for embassies, consulates, or case th e d irect p ay m en ts shall be m ade un d er higher educational institutes of the creditor power th e conditions and in th e currencies stip u la te d abroad. (d) If after transformation or being incorporated in in th e co n tra c t, b u t it shall be d ebited to th e another article the value of the commodity does not cred ito r pow er in an account o th er th a n th a t represent more than 60 per cent of the value of the article sold abroad, such value being estimated for relatin g to deliveries in kind. delivery at the frontier or f. o. b. at a port of the creditor power. A rticle I X .— P r o h ib itio n co n c e rn in g re 9 6 . If th e c o n tra c t is concluded by the e x p o rta tio n creditor G ov ern m en t itself, th e la tte r will 9 3 . E ach cred ito r pow er u n d erta k es, as far tra n sm it i t to th e ag en t of th e G erm an G overn as possible, to p re v en t th e com m odities w hich m en t, w ith th e u n d erta k in g for five y ears n o t i t receives from G erm an y as deliveries in kind to reex p o rt th e com m odities or, if it sells them , from being reexported durin g five years. to require of th e b u y er an u n d e rta k in g in the 9 4 . I t shall n o t be considered to be reexpor form prescribed b y p a ra g ra p h 9 5 above. ta tio n w ithin th e m eaning of th e p re sen t reg u la 9 7 . If a d isp u te arises betw een a cred ito r tio n s : G ov ern m en t an d th e G erm an G o v ern m en t as (a ) In cases of p la n t for public w orks w hich to w heth er th ere has been re ex p o rtatio n or n o t, is utilized ab road b y a firm of th e creditor it shall be su b m itte d to th e ju risd ictio n for pow er d u ring a sh o rt period n o t exceeding one w hich p a ra g ra p h 1 07 h ereafte r provides. y ea r, w ith an obligation for th e re tu rn of th e p la n t to th e te rrito ry of th e cred ito r pow er. A rticle X .— I n jr a c t io n s a n d j r a u d s ( b ) If com m odities are exported to th e col 9 8 . I t shall be th e d u ty of th e G overnm en ts onies, dependencies, o r m a n d a te d territo rie s of concerned to tak e such steps w ith in th eir th e cred itor pow er.1 (c) If th e y are in ten d ed for em bassies, con respective territo ries as th ey m ay deem neces sulates, or higher educational in stitu te s of th e sary in o rder t h a t c o n tra c ts m ay be executed in accordance w ith th e p re sen t regulations, an d , cred ito r pow er abroad. (d ) If afte r tran sfo rm atio n or being incor in cases of frau d or willful in fractio n , to app ly p o ra te d in an o th er article th e value of a com such penalties as th e y m ay consider ap p ro m o d ity does n o t rep resen t m ore th a n 6 0 per p ria te in resp ect of th eir nationals. 9 9 . T h e B an k for In te rn a tio n a l S ettle m e n ts ce n t of th e value of th e article sold ab ro ad , such shall n o t in cu r an y responsibility b y reason of valu e being estim ated for delivery a t th e fron an y frau d or irre g u la rity co m m itted durin g tie r or f. o. b. a t a p o rt of th e cred ito r pow er. 9 5 . T h e cred ito r pow er shall n o t su b m it for th e execution of a co n tra c t. B u t it shall ap p ro v al an y c o n tra c t for th e delivery of inform th e agent of th e cred ito r G o v ern m en t concerned an d th e G erm an ag en t of an y fa c t 1If mandated territories are allowed the benefit of deliveries in kind w hich m ay a p p e ar to i t to c o n stitu te a frau d this shall, as inthe past, be without prejudice to thelegal status of the or willful in fractio n of th e p re sen t regulatio n s. mandate. _ A pril, 1930 F E D E R A L R E S ER V E B U L L E T IN 1 0 0 . T h e ag en ts of th e cred ito r G o v ern m en t an d th e ag en t of th e G erm an G o v ern m en t will inform one a n o th e r of th e in v estig atio n w hich th e ir resp ectiv e G o v ern m en ts cause to be u n d er ta k e n in o rder to ascertain w h eth er th ere has been frau d or in fractio n of th e p re sen t reg u la tio n s in connection w ith a c o n tra c t and th ey shall inform one a n o th e r of th e re su lt of such inv estig atio n s. 10 1 . T h e G o v ern m en ts u n d e rta k e to afford one an o th e r full facilities for th e p u rpose of carry in g o u t th e in v estig atio n s w hich an y of th em m ay decide to m ake. F o r th is purpose th e ag en ts of th e vario u s co u n tries will ex change such in fo rm atio n as th e y possess and is likely to fa cilitate th e ir respective task s. 1 0 2 . If a cred ito r G o v ern m en t o r th e G er m an G o v ern m en t considers one of its n atio n als to be g u ilty of frau d or of willful in fra ctio n of th e p re sen t reg u latio n s, its ag en t will so inform th e ag en ts of th e o th e r G o v ern m en ts. 1 0 3 . P u rs u a n t to such n o tification no con tra c t to w hich one of the p a rtie s is a person whose n am e h as th u s been notified shall be ap p ro v ed d u rin g a period of tw o y ea rs from th e d ate of th e n o tification. 1 0 4 . A G o v ern m en t w hich lias applied for one of its n atio n als to be excluded m ay , before th e end of th e period of tw o y ea rs m en tio n ed above, re q u est t h a t its n a tio n a l be rem oved from th e list of excluded persons. 1 0 5 . If before th e la s t p a y m e n t u n d er a con tr a c t h as been m ad e, th e b u y er or seller is found g u ilty b y his G o v ern m en t of frau d or willful in fractio n of th e p re sen t reg u latio n s, and if his nam e is notified in accordance w ith p arag ra p h 1 0 2 , no fu rth e r p a y m e n t shall be m ad e o u t of th e fu n d s for deliveries in k in d in resp ect of th e c o n tra c t w hich shall be liq u id ated d irect be tw een b u y er an d seller. I f th e sum s p aid up to th a t tim e exceed th e v alue of th e com m odities o r services due to be delivered u n d e r th e c o n tra c t, th e G o v ern m en ts concerned shall do th e ir u tm o s t to o b ta in re p a y m e n t of th e excess to th e acco u n t for de liveries in k ind of th e cred ito r pow er. 1 0 6 . In o rd e r t h a t th e provisions of th e p re ceding p a ra g ra p h m ay be ap p lied , th e ag en t of th e pow er w hich h as declared its n atio n al to be excluded shall inform th e B a n k for In te r n a tio n al S ettle m e n ts of th e m easures ta k e n in th is respect. A rticle X I .— A r b itr a tio n 1 0 7 . An}^ d isp u te w hich m ay arise betw een a c red ito r pow er an d th e G erm an G o v ern m en t concerning th e in te rp re ta tio n of th e p resen t reg u latio n s shall be su b m itted to th e a rb itra l 215 trib u n a l for w hich article 15 of T h e H ag u e agree m e n t of J a n u a ry , 1 9 3 0 , provides. T h e sam e pro ced u re shall ap p ly to an y dis p u te w hich m ay arise concerning th e ap p lica tion of th e provisions of A rticl
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