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61ST CONGRESS \

2d Session

J

SENATE

/ DOCUMENT

\

No. 408

NATIONAL MONETARY COMMISSION

The Reichsbank
1876-1900

Washington : Government Printing Office : 1910




NATIONAL MONETARY COMMISSION.

J U L I U S C.

NELSON W. ALDRICH, Rhode Island, Chairman.
EDWARD B . VREELAND, New York, Vice-Chairman.
JESSE OVERSTREET, Indiana.
BURROWS, Michigan.

E U G E N E H A L E , Maine.

J O H N W . W E E K S , Massachusetts.

PHILANDER C. K N O X , Pennsylvania.

ROBERT W . BONYNGE, Colorado.

THEODORE E . BURTON, Ohio.

SYLVESTER C. SMITH, California.

J O H N W . D A N I E L , Virginia.

LEMUEL P . PADGETT, Tennessee.

H E N R Y M. T E L L E R , Colorado.

GEORGE F\ BURGESS, Texas.

HERNANDO D . MONEY, Mississippi.

A R S E N E P . P U J O , Louisiana.

J O S E P H W . BAILEY, Texas.

ARTHUR B . SHELTON, Secretary.




A. PIATT ANDREW, Special Assistant to Commission.

This volume was published in Germany under the auspices of the
Reichsbank in 1900, upon the occasion of the twenty-fifth anniversary
of that institution. The English translation has been prepared for
the National Monetary Commission by Dr. Frederick W. C. Lieder of
Harvard University.

CONTENTS.
CHAPTER I. Introduction:
Page.
The German monetary and banking system before the founding
of the Empire
n
Reform of coinage and paper money
15
Problems of banking reform
17
The Bank Act and the Reichsbank
20
General provisions of the Bank Act of March 14, 1875
22
The Reichsbank
25
Establishment of the Reichsbank
34
The Reichsbank as the central bank of Germany
36
Basis established by the Bank Act
36
Decrease in the number of private banks of issue
38
Extension of the Reichsbank's system of branches
40
The Reichsbank as the last resort of the German monetary
system
41
CHAPTER I I . Administrative organization:
Organization in general
42
The main bank
43
Branch establishments
46
Internal organization
46
Territorial division
53
System of control
58
The staff
61
Legal status
61
Preparatory training and classification
62
Salaries and other emoluments
65
Special regulations
65
CHAPTER I I I . Note issue:
Notes the most important liability of the Reichsbank
68
Legal regulations concerning note issues of the Reichsbank
69
Indirect limitations of notes
69
Regulations concerning the acceptance of bank notes as a
medium of payment
70
Obligatory redemption of notes
70
Denominations
71
Recall and withdrawal
72
Protective measures against counterfeit bank notes
72




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CHAPTER I I I . Note issue—Continued.
Page.
Development of note circulation
74
Total note issue
74
Uncovered notes
76
Cause of fluctuations of uncovered notes
77
Uncovered notes and contingent (limit)
81
Relation between notes and cover for notes
82
CHAPTER IV. Transfers and the clearing system:
Transfers (Giroverkehr)
87
The system of transfers
87
Reasons for the reorganization of transfers
88
introduction of gratuitous distance transfers
90
Organization of the transfer system
91
Extension of transfers
93
Payments by persons not holding accounts
93
Collections for current accounts
96
Compulsory domiciling of acceptances
97
Compulsory entries on transfer accounts
98
Further regulations for facilitating the management of
private accounts
99
Territorial expansion of transfers (inclusion of suboffices)
100
The share taken by different vocations and by public authorities in transfers
103
Total development of transfers
104
Development of the branches of the transfer system. _
105
Local differences of development
107
Increased use of transfer accounts
no
Transfer accounts as working capital for the Reichsbank._
in
Clearing houses
115
Duties of a clearing system (A brechnungsverkehr)
115
Establishment and organization of clearing houses in
Germany
116
Development of the clearing system
119
Deposits and drafts
120
Acceptance of deposits
— ,
120
Drafts
122
Letters of credit
124
CHAPTER V. The purchase and collection of bills and securities:
Importance of bill purchases for the Reichsbank as the central
bank of issue
125
General principles
127
More than one party liable on bill
127
Compulsory acceptance
128
Credit capacity of parties 1 iable on bills
128
Control of credit
129




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6-1900

CHAPTER V. The purchase and collection of bills and securities— Page.
Continued.
General principles—Continued.
Consideration of the business nature of the bill
130
Modifications
131
Further development of principles in accordance with altered
circumstances
131
Disadvantages to the Reichsbank of mutual collections of
private banks
132
Competition of private banks of issue
133
Introduction of a private rate for the Reichsbank
134
Granting of credit to small business people
137
Bills from cooperative societies
138
Extension of the network of branches and collecting districts
139
Acceptances obtained gratis
140
Reduction of the minimum time that bills have to run and
of the minimum deduction in discounting
141
Repeal of a severe obsolete provision
143
Precautions against the forging and misuse of domiciled
bills
144
Bill holdings of the Reichsbank in the bill circulation of
Germany
145
Bill purchases of the Reichsbank as a symptom of the economic
situation
148
Composition of bill investments
149
Local and consigned bills
149
Bills purchased a t private discount
150
Denomination
150
Average amount
151
Average time to run
152
r
Persons authorized to take credit according to their vocation
and the extent of their credit
153
Amount of credit granted
154
Trade
_
155
Industry
156
Agriculture
157
Cooperative societies
159
Purchase of bills in the various economic divisions of the
Empire
160
Profits and losses in discounts
162
Purchase and sale of foreign bills
165
Discounting of securities
169
Collection of bills, etc., received on commission
170
CHAPTER VI. Lombard loans (loans on collateral):
Importance of lombard loans
173
Regulation of lombard investments through the interest rate__
175




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Monetary

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CHAPTER VI. Lombard loans (loans on collateral)—Continued.
Page.
Organization of the lombard system
176
The debtor
176
Stocks and shares, bills, and precious metals as deposited
security
177
Test of the pledge with regard to its safety
177
Depositing of the pledge
178
Merchandise as pledges
179
Technical difficulties
179
Legal difficulties
182
Special facilities in advances on cereals, sugar, and spirits.
183
Limits set for advances
184
Legal and actual limits
184
Depreciation in value of pledge
186
Lombard contract
^
186
Verification
186
Terms on which advance is made
187
Minimum amount of loans
__
189
Loan certificate (Pfandscheiri) used like a current account
189
Measures against the improper use of the lombard system on
the part of speculators
191
Lombard loans at suboffices
192
Movement of lombard holdings
192
Composition of lombard investments
195
Lombard loans in different economic divisions of the
Empire
198
Profits and losses._
__
201
CHAPTER VII. Discounts:

Preliminary remarks
Conception and importance of discounts
Discounts and note tax
Discounts and the money market
The activity of the Reichsbank from 1876 to 1900
Economic development of Germany in the last quarter of
the century
Introduction and maintenance of the imperial standard.Competition of private banks of issue
History of the discount policy of the Reichsbank
Various periods of business activity of the Reichsbank
1876-1879—
General economic situation
Effects of monetary reform
Beginning of gold payments
Limitation of working capital at the transformation of the Prussian bank into the Reichsbank;
protective measures of bank management, especially the reorganization of transfers




6

202
202
205
207
208
209
212
214
216
216
217
218
221

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1876-1900

CHAPTER VII. Discounts—Continued.
Page.
History of the discount policy of the Reichsbank—Continued.
Various periods of business activity—Continued.
1876-1879—Continued.
Abundance of money and decrease of discounts
of the Reichsbank from 1876 to 1879
225
Decrease of gold reserve and increase of metal
holdingsof the Reichsbank
227
The warring factors influencing discounts and the
rapid development of the discount rate
230
1879-1883—
Introductory
231
Economic advance and its influence on the demand for money
232
Concern for upholding the gold standard after the
cessation of silver sales
233
Advances free of interest on deliveries of gold and
the increase of the purchase price of gold
236
Introduction of private discount and experiments
with reduced lombard interest rate
238
The discount rate from 1879 to 1883
240
1883-1888—
Economic depression
242
Development of the status of the Reichsbank
243
Movement of discount rates
246
1888-1890—
General economic situation
248
Increasing money demand and the R e i c h s b a n k . .
250
Movement of discount rates
252
1891-1895—
Economic depression and its causes
256
Development of the money market
258
Condition of the Reichsbank
259
Movement of discount rates
262
1895-1900—
Economic advance
263
Development of the money market
266
Condition of the Reichsbank
268
Bank policy
271
Limitation of lombard investments
272
Movement of discount rate in general
275
Discount in 1895
275
Discount from 1896 to 1898
278
Discount in 1899
280
Discount in 1900
283
Retrospect
287




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CHAPTER VIII. Services performed for the finance administrations Page,
of the Empire and the federal states:
Legal basis
293
The Reichsbank receives and makes payments for the Empire.
293
The Reichsbank as the medium for financial operations of federal states
295
Business forms
296
Effect of the transfer system of imperial and state treasuries.300
Other services for finance administrations
302
CHAPTER IX. Regulation of monetary circulation:
The problem of regulating monetary circulation
304
Regulation of currency with respect to its good condition
304
Counterfeit coins
305
Damaged coins
305
Worn coins
306
Tests for coins
.
306
Counterfeit and damaged imperial treasury notes (Reichskassenscheine) and bank notes
306
Regulation of the local circulation of currency
307
Various duties of the Reichsbank in the local regulation of
circulation
308
Redemption of notes
308
Acceptance of notes of private banks
308
Redemption of imperial treasury notes
309
Issue of gold coins for divisional money of the Empire.
309
Voluntary local regulation of circulation by the Reichsbank
310
Acceptance of imperial treasury notes
311
Acceptance of notes of private banks
311
Acceptance and issue of divisional money
312
Use of talers for large payments
313
Limitations for suboffices of the Reichsbank
314
The local regulation of circulation
315
CHAPTER X. Custody and management of articles of value; purchase and sale of securities:
Custody and management of articles of value
318
Closed deposits
320
Open deposits
324
Deposits of minors
332
Purchase and sale of securities for the account of patrons
333
CHAPTER XI. The Revised Bank Act {Banknovelle) of June 7,1899,
as a result of previous development:
Experiences with the German bank constitution
336
The Revised Bank Act
337
Increase of the capital and reserve fund of the Reichsbank
339




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ank

, 187

6-1900

CHAPTER X I I . The Revised Bank Act of June 7,1899, etc.—Cont'd.
Extension of the tax-free note contingent of the Reichsbank. _
Binding of the discount rate of private banks of issue to that
of the Reichsbank
Regulations with regard to the private discount rate of the
Reichsbank
Distribution of the net profits of the Reichsbank between
shareholders and Empire
Loans on bonds issued by land credit institutions against loans
to communal corporations
Withdrawal of notes of the Prussian Bank
Recapitulation
._
APPENDIX. Law of June 1,1909, concerning changes in the Bank Act_




9

p a ge.
343
340
349
351
353
354
355
357




CHAPTER I.
INTRODUCTION.
THE GERMAN MONETARY AND BANKING SYSTEM BEFORE THE
FOUNDING OF THE EMPIRE.

The newly established German Empire found in the
organization of the coinage, paper money, and bank-note
systems an urgent and difficult task. Probably in no
department of the entire national economic system were
the disadvantages of the political disunion of Germany so
clearly defined as in this; in no economic department were
greater advantages to be expected from a political union.
Although the customs union (Zollverein) had happily
united the greater part of Germany in a commercial union,
similar attempts in monetary affairs had met with but
modest success, and were absolutely fruitless in banking.
The inconvenience most complained of was the multiplicity and variety of the different coinage systems (seven
in all) in the different states, also the want of an adequate,
regulated circulation of gold coins. This deficiency had
its origin in the establishment of the standard. All German states had a silver standard with the single exception of the free city of Bremen, the monetary system of
which rested on a gold basis. Gold coins were therefore
in circulation only to a limited extent and at fluctuating
rates. As a result of the general economic development,
however, the need for a more convenient means of payment for larger amounts had considerably increased dur-




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Monetary

Commission

ing the last two decades before the foundation of the
Empire. Silver money became more and more burdensome and inconvenient for such payments.
This need led to the circulation in alarming proportions of paper money—not only of government paper
money but also of bank notes.
True, there existed in Germany no so-called " freedom
of banking," and the establishment of banks of issue
(Notenbanken) could take place only through government
concession. In reality, however, especially in a number
of smaller states, numerous banks received an.extensive
and even unrestricted right to issue notes; the aim of
these banks from the outset was to extend into adjoining
German territories, beyond the borders of the state for
which they were licensed, their business operations and
their note issue.
Thus there existed in Germany before the foundation
of the Empire 31 banks of issue, for which various regulations had been made by the various states, and the
statutes of which differed considerably from one another.
A large number of these banks was concerned with
utilizing most extensively the right to issue notes—that is,
with putting as many notes as possible into circulation.
Since notes for smaller sums were not so often returned for
payment to the place of issue as those for larger amounts,
not only the different governments but also the banks
issued large amounts of small notes, down to notes for one
taler.
Since the legal control of note issue was frequently
inadequate, many banks did not provide sufficient cover
for notes. Besides, the banks of issue engaged to some




12

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Retchsbank,

187

6-190

0

extent in business which tied up permanently their
working capital. This was not proper for banks, the
liabilities of which consist of obligations, such as notes,
falling due at all times.
Owing to the impossibility of bringing about uniform
regulations for German banks of issue, several German
states attempted through prohibitive measures to keep out
of their territory the notes of banks licensed by other
states. These prohibitions were not strictly observed in
general trade, but were authoritative for all public treasuries and were regarded by the public as great inconveniences.
The abuses in the currency and in the banking system
were closely connected. Nevertheless, the reform which
had long been recognized as necessary could not be brought
into existence in its entirety at one stroke. The problem
to be solved was so complicated that progress could be
made only step by step and by constant consideration of
the close connection between the different parts of the
entire work of reform. As long as a uniform German
coinage system was wanting, as long as there were no
proper provisions for a sufficient gold circulation, no
thorough rearrangement of paper currency and the banknote systems was possible. On the other hand, the abuses
in the latter increased the difficulty of reforming the coinage. A rational bank constitution is one of the most
important preliminary conditions for the maintenance of
an orderly monetary system. The reorganization of the
banking system had to form the keystone of the whole
work of reform and instill into the new order of things a
vital and progressive spirit.




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Monetary

Commission

The preliminary legal condition for a uniform monetary and banking reform was created by article 4 of the
Constitution of the North German Confederation of July
26, 1867, and the Constitution of the German Empire of
April 16, 1871, respectively, according to which the following are subject to the supervision and legislation of
the Confederation and of the Empire: (3) The regulation of coinage, weights, and measures, and the formulation of principles for the emission of funded and unfunded paper money; (4) general regulations for banking.
There were still considerable difficulties in the way of
an effective organization of the monetary and banking
systems as long as the South German states did not belong to the Confederation. Before the foundation of the
Empire, therefore, the coinage question got only as far as
preparations for an inquiry, and these were dropped for
a time in consequence of the war with France. Laws
were decreed to prevent a further increase of paper
money and bank notes. The law of March 27, 1870,
concerning the issue of bank notes, prescribes that the
right to issue bank notes can be conferred only by a
federal law, and that, similarly, an extension of existing
privileges with respect to notes can be granted only by
a federal law.
After the founding of the Empire, this law was promulgated as a law of the Empire, and went into force in
Baden, South Hesse, Wurttemberg, and Bavaria on January 1, 1872. Wurttemberg and Baden, which hitherto
had not had any banks of issue, established such institutions—the Wurttembergische Notenbank at Stuttgart and the Badische Bank at Mannheim—just before




14

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Reichs

bank,

1876-1900

the law went into force. The number of German banks
of issue was thus increased to 33.
The law was originally intended to be valid only until
July 1, 1872. It was subsequently found necessary, however, to prolong the period of validity three times.
A similar limitation was decreed with regard to the
issue of government paper money by the law of June 16,
1870, concerning the issue of paper money. Later, this
law was likewise promulgated as a law of the Empire,
and made the further issue of paper money dependent
on a federal law.
These two laws, passed merely to prevent existing conditions from becoming worse, were the only legislative
measures adopted with respect to monetary and banking
affairs during the period of the North German Confederation. The foundation of the Empire, which also brought
South Germany into the political union, gave to legislation a greater freedom of action which was at once
taken advantage of.
REFORM OF COINAGE AND PAPER MONEY.

Immediately after the conclusion of peace with France,
the imperial government took up the question of coinage reform. The law concerning the minting of imperial
gold coins was proclaimed as early as December 4, 1871;
this law laid down fundamental principles with respect
to the monetary system, the standard, and the legal
basis of German coinage.
The consolidation of the German monetary system was
completed by the Coinage Act of July 9, 1873. This law
proclaimed the imperial gold standard, which was to




15

National

Monetary

Commission

take the place of all standards existing in the different
states, as the ultimate aim of coinage reform, and settled
all details both for the future system and for the one
provisionally permitted during the transition stage (during
which the large coins of the taler standard were to be
legal tender in addition to the imperial gold coins), a
standard which was called "imperial standard" to distinguish it from the definitive imperial gold standard.
The Reichstag, on its own initiative, added a concluding
clause to the Coinage Act of July 9, 1873. This clause,
strictly speaking, did not touch upon coinage, but introduced drastic regulations concerning bank notes and
paper money. It provided that the paper money issued
by the various federal states should be withdrawn at the
latest by January 1, 1876, and that it be replaced, in
accordance with an imperial act to be framed, by imperial paper money. The regulation regarding bank
notes reads as follows:
" All bank notes not based on the imperial standard are
to be withdrawn by January 1, 1876. After this date
only notes for amounts of not less than 100 marks and
based on the imperial standard may remain in circulation
or be issued."
The imperial act regarding the issue of paper money,
which article 18 of the Coinage Act set forth, was promulgated on April 30, 1874, as an act concerning the
issue of imperial treasury notes (Reichskassenscheine).
It replaced by uniform imperial paper money, the paper
money which had been issued in 22 different states, for
which a definite sum of 120,000,000 marks (against some




16

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Retchs

bank,

1876-1900

184,000,000 marks in circulating paper money of the
federal states) was fixed. This sum was at first increased,
however, by advances in imperial treasury notes to different state governments, in order to facilitate the withdrawal of their paper money. The repayment was to be
made in fifteen years (December 31, 1890).
THE PROBLEMS OF BANKING REFORM.

The settlement of the paper currency question was
delayed by its close relation to the banking question
and by the many difficulties that prevented a satisfactory solution of the latter. The individual banks of issue
were private institutions; their privileges with regard
to the issue of notes represented well-earned private
rights. The difficulty was to bring about an effective
rearrangement without injuring these privileges.
A direct abolition of these note privileges was, from
the very beginning, entirely out of the question. The
only possible course was to decree uniform regulations
of a general nature, which would cause the banks to
limit duly the number of their branches, to reduce their
note circulation, and to provide adequate cover. The
difficulty was to make the measures sufficiently effective
without injuring the rightfully acquired privileges of the
various banks.
Public opinion and the great majority of experts in
banking, however, favored the view that banking reform must not be limited to such measures. The crises
of 1857 and 1866 had shown that banks of issue had
other duties than to satisfy private claims for credit;

82302—10




2

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National

Monetary

Commission

that they have to fulfill rather, side by side with these
claims, important functions in the public interest. Thus
they have, above all, to supervise and regulate the entire
monetary circulation, from the point of view of the home
trade as well as in relation to foreign currencies. The
conviction gained ground that these tasks could be
fulfilled only from one centre, that a centralized management was indispensable, and therefore that a central
bank was necessary, which either stands alone or else
surpasses all other banks of issue so that it exercises a
dominating influence.
These important functions had hitherto been fulfilled
for the kingdom of Prussia by the Prussian Bank. The
latter had in the year 1866 afforded a firm support to all
cash and credit transactions at a time when a number of
other banks of issue either limited or suspended their bill
purchases and thus refused their services at a critical
moment in national economic affairs. The activity of
this bank was, however, confined chiefly to the kingdom
of Prussia. It did not have the right of establishing
branches outside of Prussia; on the contrary, when in the
year 1865 the Prussian government wanted to pass an
act empowering the Prussian Bank to establish branches
outside of Prussia, the bill was killed by the Landtag,
which imposed the condition that the uncovered note circulation should be limited to 60,000,000 talers. When,
after the war with France, it was found necessary to
establish a branch bank in Alsace in order to meet the
need for credit caused by the liquidation of the branches
of the Bank of France, the authority for this step was
obtained only by means of an emergency decree of June




18

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1876-1900

10, 1871, based on section 63 of the Constitution, which
became law on February 26, 1872. In the same way it
was necessary to pass a special bill to allow the bank to
meet the wishes of the free city of Bremen for a branch
establishment there (Act of June 15, 1872).
The conditions in Alsace-Lorraine and Bremen showed
how great was the necessity in states outside Prussia for a
union with a large central bank. The uniform economic
system of the German Empire required a common centre,
where all cash and credit transactions could converge; a
German Reichsbank, the highest duty of which should
consist in supervising and regulating the German monetary system, was looked upon as the natural final step
in German monetary and banking reform. The regulation of existing banks of issue could only limit existing
abuses. The Reichsbank, on the other hand, seemed
to be the living force necessary to carry out, uphold,
and develop further the new monetary and banking
constitution.
Under the conditions then existing, the foundation of
an entirely new Reichsbank in accordance with this idea
was quite out of the question; only the transformation of
the Prussian Bank into an imperial institution could be
considered. The Prussian Bank already held for the
greater part of Germany the position which the new
Reichsbank was to hold for the whole of Germany. A
Reichsbank in addition to the Prussian Bank would have
been impossible.




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Monetary

Commission

THE BANK ACT AND THE REICHSBANK.

Considerable difficulties, however, stood in the way of
the conversion of the Prussian Bank into a Reichsbank,
and these delayed the working out and introduction of a
bank bill. Finally, in July 1874, a bill was laid before the
Bundesrat which abandoned for the time being the idea of
a Reichsbank, and was content with formulating guiding
principles for the regulation of existing banks of issue.
It added a clause forcing those banks of issue which did not
wish to be restricted to the territory of their own state to
agree that the Bundesrat could, on January 1, 1886,
announce the withdrawal of their privilege of issuing notes.
At this date the Empire was to have an entirely free hand
in a thorough reorganization. The Bundesrat passed this
bill with but few alterations. On November 5 the bill was
forwarded to the Reichstag.
At the very first reading (November 16, 1874) it was
clear that a large majority of the House regarded the
immediate establishment of a Reichsbank as a necessary
preliminary condition for banking reform. The bill was
referred to a committee, which in its first sitting (November 21,1874) resolved at once, by a vote of 13 to 4, " t h a t
the committee does not consider a discussion of the
bank bill desirable until a decision has been arrived at
regarding the establishment and organization of the
Reichsbank.''
As an outcome of this decision the deliberations concerning the cessions to the Empire by the Prussian Bank
led to the desired result. Prussia declared itself ready,
after the withdrawal of its invested capital of 5,720,400
marks and of its share (9,000,000 marks) of the reserve




20

The

Reichs

ban k,

1876-1900

fund legally belonging to it on the dissolution of the bank,
to cede to the Empire the Prussian Bank which was to be
transformed into a Reichsbank, on the following terms:
i. Prussia was to receive a lump sum of 15,000,000
marks as compensation for the net profits from the Prussian Bank of which it is now deprived.
2. The Reichsbank was to assume the obligation to
which the Prussian Bank was bound by the contract of
1856 of paying to Prussia a yearly revenue of 1,865,730
marks until 1925.
3. A special understanding was to be arrived at with
regard to taking the real estate of the Prussian Bank.
4. The private shareholders of the Prussian Bank were
to have the right to exchange their shares for shares of the
same nominal value in the Reichsbank.
The proposals of Prussia were accepted by the Bundesrat, and on this basis it was decided to transform the
Prussian Bank into a Reichsbank. The regulations in
the bill affecting the existing banks of issue (which, to distinguish them from the Reichsbank, were now termed
Privatnotenbanken) were not affected to any appreciable
extent by the establishment of the Reichsbank.
In order to avoid the introduction of a new bill and
to avoid another first reading a member of the Reichstag
committee was induced to introduce formally as his own
motion the modifications decided upon by the Bundesrat.
The bill thus supplemented by the creation of the Reichsbank was accepted without radical changes both by the
committee and, later, by the Reichstag in full session
after the second and third readings, and the act was published as the Bank Act of March 14, 1875.




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Monetary

Commission

GENERAL PROVISIONS OF THE BANK ACT OF MARCH 14, 1875.

The fundamental principles of the Bank Act are as
follows:
It contains, first, a number of general regulations as
to the issue of notes. The right of issuing notes can be
obtained or extended only through an imperial law. No
obligation is imposed to accept bank notes as payment in
private transactions, and no obligation can be imposed
for"public treasuries by the laws of any particular state;
the circulation of foreign bank notes based on the standard of the Empire is prohibited; bank notes may only
be for amounts of ioo, 200, 500, 1,000, and multiples of
1,000 marks; the banks are obliged to redeem their notes
at all times at their full nominal value; issuing banks are
not allowed to accept bills, nor to conclude on their own
account or that of others time transactions in goods and
securities; four times a month they must publish in the
Reichsanzeiger (Imperial Gazette) their assets and liabilities according to a detailed scheme, an exact balance
sheet, and also within three months after the end of the
business year a statement of the year's profit and loss.
Among the measures which are binding for all banks,
the so-called indirect contingent (indirekte Kontingentierung) of bank notes not covered by cash (Barvorrat;
see below and also note at foot of p. 80) is of especial
importance. For each existing bank of issue and also for
the Reichsbank a certain sum was fixed to which it might
issue notes in excess of its cash holdings. In case this
sum be exceeded, a yearly tax of 5 per cent on the excess
is to be paid to the imperial treasury. As cash may




22

The

Reichs

bank,

1876-1900

be reckoned "the amount held by the bank in current
German coin, imperial treasury notes, notes of other
German banks, and gold in bullion or foreign coin, the
pound fine to be reckoned at 1,392 marks.'' In case
the authority of a bank to issue notes expires, the
amount to which the bank was formerly allowed to issue
uncovered notes (the bank's contingent) is added to that
of the Reichsbank.
The sum total of contingents was reckoned at
385,000,000 marks, of which 250,000,000 marks made up
the share of the Reichsbank.
Through this system of note taxes an effort was made
to limit the issue of uncovered notes to an amount not
dangerous for the German monetary system. In contrast to the English bank act, however, this safety was
not to be obtained by means of an impassable limit nor
was the elasticity of note circulation to be impaired.
The rigid limitation of the uncovered note circulation of
the Bank of England had on various occasions led to
acute crises. The fear that the bank might reach the
limit of its note reserve and, as a result, be forced to
suspend credit, caused at critical periods a panic-like
run on the bank, since everyone endeavored to get a
supply of ready money, either in coin or notes, by discounting bills, etc. Three times it had been found necessary, in order to allay the panic, to ignore the limitation
on uncovered notes.
These experiences caused German legislators to adopt
a new course. Banks were allowed to exceed the legal
limit assigned to them (that is, to exceed their note " contingent"), but by means of the 5 per cent tax on the




23

National

Monetary

Commission

excess of uncovered notes, the banks were to be forced to
work against an excess of the " contingent" by raising
their rate of discount to at least 5 per cent.
This system has become of great importance in the
development of note issues in Germany.
The regulations thus far mentioned, with which all
banks of issue were compelled to comply, were not,
however, sufficient to attain the end aimed at in banking
reform. In order to bring more extensive measures into
harmony with well-earned private rights, the private
issuing banks were allowed by the Bank Act the choice of
having their note circulation and their whole sphere of
business strictly confined to the territory of that state
which had conferred on them the right to issue notes, or
of conforming of their own free will to a number of farreaching regulations.
The new regulations provided specially that the banks
must bind themselves to keep at all times a reserve covering at least one-third of the notes issued by them, and
consisting of current German coin—imperial treasury
notes or gold in ingots or foreign coin—and to hold good
commercial bills for the remainder of the outstanding notes.
The banks were also obliged to agree that notice of
revocation of their right to issue notes might be given
first on January 1, 1891, and then at intervals of ten years.
In this way legislation was to be assured a free hand in
future uniform regulations of banking.
Furthermore, regulations were framed concerning the
places where bank notes were redeemable, the mutual
acceptance of notes of those banks which conformed to




24

The

Reichs

bank,

1876-1900

the optional regulations, the accumulation of a reserve
fund, and the publication of the discount rate.
Certain measures of relief were provided for those banks
which would limit their issue of notes to the amount of
their capital stock.
These measures were for the most part already contained in the government bill.
THE REICHSBANK.

To these were added the provisions concerning the
Reichsbank. Section 12 of the Bank Act states:
"Under the name 'Reichsbank' a bank is established
under the supervision and guidance of the Empire, with
the powers of a corporate body, and with the task of regulating the monetary circulation in the entire Empire, of
facilitating the settlement of payments, and of utilizing
available capital."
The capital stock of the Reichsbank was fixeda at
120,000,000 marks (instead of 60,000,000 in the case of
the Prussian Bank); it was divided into 40,000 shares of
3,000 marks each, each share bearing the name of the
holder. It was decided that the Empire should not put
any capital into the enterprise.
The well-tested constitution of the Prussian Bank was,
in all essential features, taken as the pattern for the constitution given to the Reichsbank.
The supervision of the Reichsbank by the Empire is
exercised through a council of curators (Curatorium) coma In conformity with the Revised Bank Act of June 7, 1899, the capital
stock was brought up to 150,000,000 marks by the end of the year 1900
by the issue of new shares, and was raised to 180,000,000 marks by the
end of the year 1905 (cf. p. 342).




25

National

Monetary

Commission

posed of the Chancellor of the Empire, who is president,
and four members, one of whom is designated by the
Emperor and the other three by the Bundesrat. The
direction of the Reichsbank is exercised by the Chancellor and under him by the Reichsbank Directorate
(Direktorium). A deputy can be appointed in place of the
Chancellor. The Reichsbank Direktorium is the administrative and executive, and, so far as the outside world is
concerned, the representative body of the Reichsbank (cf.
p. 42). It consists of a president, a vice-president (since
1887), a n d the required number of members (six), who are
appointed for life by the Emperor upon the nomination
of the Bundesrat. The officers of the Reichsbank have the
rights and duties of civil servants of the Empire; they
may not own any shares in the Bank. The accounts of
the Reichsbank are audited by the board of accounts
(Rechnungshof) of the German Empire.
As compared with the Empire, the part taken by private shareholders in the management of the Bank is very
limited. The main duty of representatives of the shareholders is to help the managers of the Bank with expert
advice, and, in addition, to form a protection for large
banks of issue against the dangers which have arisen often
enough from too close a connection with the financial
administration of the country.
The shareholders exercise their part in the administration of the Bank through the general meeting and through
a committee (Zentralausschuss) elected in the general
meeting.
The general meeting of the shareholders is held annually
in March, at Berlin, in accordance with the Reichsbank




26

The

Reichsbank,

1876-1900

Statute (cf. Laws, pp. 90-100 a ), but it can also be convened in extraordinary session at any time. This meeting
receives annually the report of the administration, the
balance sheet, and the statement of profit and loss, and
chooses the members of the central committee; it has also
to decide all points relating to the increase of capital stock
and alterations of the statute.
The central committee is the permanent representative
body of the shareholders over against the administration.
It consists of fifteen members. All members must be residents of the Empire, and at least nine of them must reside
in Berlin.
The central committee meets at least once a month
under the chairmanship of the president of the Reichsbank Directorate; reports of the total business are laid
before it monthly, and the views of the Directorate regarding the general state of business and proposals for any
necessary measures are stated. The opinion of the central committee is sought on a number of questions, such
as the determination of the discount rate and the highest
sum to which the funds of the Bank can be applied to
loans on collateral. The purchase of securities for the
account of the Bank can take place only after the amount
to which the funds of the Bank can be used for this purpose has been fixed with the consent of the central committee.
Three deputies of the central committee, chosen for a
year from its members, exercise continuous special control over the management of the Reichsbank. These
a German Imperial Banking Laws, published by National Monetary
Commission.




27

National

Monetary

Commission

deputies are authorized to attend with advisory powers
all sittings of the Directorate, and to examine the books
of the Bank. Business transactions with the treasury of
the Empire or of the federal states, for which terms
other than those general in banking are to be made,
must be brought to the knowledge of the three deputies,
and on the motion of one deputy must be laid before the
central committee; unless the majority of the committee
decide for the transactions in question, they must be
abandoned.
As in the case of the Reichsbank Directorate in Berlin,
the Bank Act arranged that the managing officials of
the head branches (Hauptstelleri) to be founded in larger
places other than Berlin, should have the assistance of
representatives of the shareholders; these are the district
committees, the members of which are chosen by the
Chancellor of the Empire from the number of those shareholders living in, or in the immediate neighborhood of,
the seat of the branch establishment. Reports of the
business of the head branch are laid before the district
committee monthly. Two or three members are chosen
by the committee from its own number to act as deputies
(Beigeordnete) and to exercise a special and constant control over the business transactions of the head branches.
Through the cooperation of the Reichsbank authorities,
who are not interested in the financial profits of the Bank,
with the representatives of the shareholders, who are
practical business men, the Bank management is safeguarded, since it takes into consideration the interest of the
public; and at the same time the experience and business
knowledge of the shareholders, who are financially inter-




28

The

Reichs

bank,

1876-1900

ested in the success of the Bank, are utilized in the guidance of the Bank. This bank organization, which strikes
the mean between a purely state bank and a purely private
one, has proved to be the best system according to the
experiences of most European countries. On the occasion
of the deliberations, in the years 1889 and 1899, over the
renewal of the privilege of the Reichsbank, the demand
was made for the transformation of the Reichsbank into
a state (government) bank, in that the Empire was to
acquire all the shares and so do away with the shareholders
and their cooperation in the administration of the Bank.
The Government, however, as well as the majority of the
Reichstag, were on both occasions opposed to this demand.
The representative of the governments of the various
states stated distinctly, during the deliberations of the
committee in charge of the revision of the Bank Act in
1899, that the state governments were unanimous in
their decision " t o oppose on political, economic, and
financial grounds the transformation of the Reichsbank
into a state bank."
The Reichsbank is endowed with important rights to
enable it to fulfill the tasks allotted to it by the Bank
Act; the Bank also has extensive obligations.
The Reichsbank has, first, the right of issuing notes
without direct limitation, according to the requirements
of its business. Indirectly, its issue of notes is limited,
first, by the 5 per cent tax on uncovered notes issued
in excess of the set limit (contingent); secondly, through
the regulation that the Bank must always hold as security metal and imperial treasury notes for at least onethird of the note issue, and for the remainder discounted




29

National

Monetary

Commission

bills fulfilling the conditions of the Bank Act (cf. p. 1255.).
The Reichsbank must redeem its notes in current German coin at the chief office in Berlin immediately on
presentation, and in the case of branch establishments
as far as their stock of metal and the demand for money
allow. The Reichsbank has, furthermore, the right to
establish branches anywhere in the Empire; the Bundesrat
is authorized to order the establishment of branches in
specified places.
The Reichsbank and its branches are, throughout the
Empire, free from all income and trade taxes.
When a debtor for a loan on collateral (Lombard loan)
is in arrears, the Reichsbank has the right to sell the
dead pledge (Faustpfand), without legal authorization or
procedure, and to deduct principal, interest, and costs
from the proceeds.
On the other hand, a number of special obligations are
imposed upon the Reichsbank in addition to the general
task of regulating monetary circulation, etc. (cf. p. 304).
In accordance with section 22 of the Bank Act, the Bank
is bound to receive, without compensation, payments for
the account of the Empire and to make payments to
the extent of the Empire's balance. It is also authorized
to undertake the same transactions for the states of the
Empire. This duty has been extended by section 11
of the Imperial Bank Statute, which provides that the
Reichsbank shall administrate gratuitously the balance
of the Empire, and shall keep and render accounts of
all receipts and payments on the account of the Empire
(cf. p. 293).




30

The

Reichs

bank,

1876-1900

The business which the Bank is allowed to carry on is
clearly defined. It is confined to transactions in precious
metals; to the discounting of bills which have at most
three months to run and on which, as a rule, three, but at
least two, persons known to be solvent are liable; the
purchase and sale of bonds of the Empire, of the federal
states, and of inland communal corporations, which are due
at their face value at the latest in three months; the granting of collateral loans on portable pledges of a prescribed
kind; trading in certain absolutely safe German securities;
the collection of commercial bills; the purchase and sale
for patrons of precious metals and securities; the acceptance of noninterest-bearing and, under certain restrictions, of interest-bearing moneys as deposits and transfer
(giro) accounts; the custody and management of articles
of value.
Of great importance for the monetary standard is the
duty imposed upon the Reichsbank in section 14 of the
Bank Act of exchanging its notes for gold bullion at a fixed
rate of 1,392 marks for the pound fine. As 1,395 marks
are coined out of a pound fine of gold, and the mints, in
accordance with the proclamation of the Chancellor of the
Empire on June 8, 1875, charge, for the coinage of gold on
private accounts, 3 marks per pound fine, the price which
the Reichsbank is bound to pay for gold bullion corresponds to the sum for which the mints coin for private
persons. At the mints, however, a person delivering gold
suffers a loss of interest, as he must wait until the coining
is completed; at the Reichsbank, on the contrary, he gets
the value in notes immediately. As a result, all gold
destined for monetary purposes is in reality delivered to




31

National

Monetary

Commission

the Reichsbank, and the Reichsbank is the only private
concern which makes use of the free right of coining.
It follows of necessity that the demand for gold for consignments abroad must finally be covered from the bullion
of the central bank. Consequently, the widest conceivable
control over all international relations of German banking is assured to the Reichsbank by section 14 of the
Bank Act. Through this provision, in conjunction with
the private coinage right, the standard is connected
closely with the Bank administration and the condition of
the money market.
Furthermore, the Reichsbank must make known its
rate of discount and the rate for loans on collateral (Lornbardzinsfuss).
It is obliged to take in payment at full nominal value, in
Berlin as well as at its branch establishments in towns
with over 80,000 inhabitants, or at the seat of the issuing
bank, the notes of those banks complying with the optional
provisions of the Bank Act, as long as the issuing bank
punctually fulfills its duty of redeeming notes. The
Reichsbank, however, may make use of these notes only
for payments to that bank which has issued them, or for
payments in that place where the latter has its headquarters, or it must present the notes for redemption.
The notes of the Reichsbank, on the other hand, may be
used at will as payment by private banks of issue
(Privatnotenbanken).
The Empire, finally, participates in the net profits of
the Reichsbank. Concerning the division of the profits,
section 24 of the Bank Act provides as follows:
First, a regular dividend of \% per cent on the capital
stock is paid to the shareholders; then 20 per cent of the




32

The

Reichsbank,

1876-1900

remainder is allotted to the reserve fund, as long as this
does not amount to a quarter of the capital stock. The
remaining portion is divided equally between the Empire
and the shareholders, in so far as the total dividend of the
shareholders does not exceed 8 per cent; of the surplus
still remaining the shareholders receive one-fourth and
the Empire three-fourths.
By the act of December 18, 1889, proposing a change in
the Bank Act (cf. Appendix 2) ,a the initial dividend of the
shareholders was reduced to 3 ^ per cent, corresponding to
the general decline of the interest rate of the Empire, and
three-fourths of the surplus was allotted to the Empire,
provided the total dividend of the shareholders exceeded
6 per cent. b
Section 41 of the Bank Act reserves to the Empire the
right either to abolish the Reichsbank (first, on January 1,
1891, then, however, every ten years after a preliminary
notice of one year) and to take over its real estate at the
book value, or to acquire the total shares of the Reichsbank
at their nominal value. In both cases the reserve fund as
shown by the balance sheet, in so far as it is not needed for
meeting losses, goes in equal portions to the shareholders
and the Empire.
For a prolongation of the privileges of the Reichsbank
the consent of the Reichstag is necessary.
a See page 445 of the German edition of the Reichsbank volume, also
note on page 56 of this translation.
&The Revised Bank Act (Banknovelle) of June 7, 1899, caused a further
decrease in the profits of the shareholders. This act provides t h a t after
the first dividend of 3 ^ per cent to the shareholders and the legal portion
to the reserve fund, three-fourths of the remaining surplus is to go to the
Empire and one-fourth to the shareholders (cf. p. 353).

82302—10




3

33

National

Monetary

Commission

As the note privilege of those banks which conformed
to the optional provisions of the Bank Act—all banks, in
fact, except the Braunschweigische Bank—can be revoked
at the same time as that of the Reichsbank, legislation has,
every ten years, a free hand to adapt the Bank constitution to altered conditions, and to consider any reforms
which appear to be necessary or desirable.
THE ESTABLISHMENT OF THE REICHSBANK.

In order to establish the Reichsbank by transforming
the Prussian Bank into the form outlined in the Bank Act
a number of comprehensive administrative measures were
necessary. It was specially important that the Prussian
government revoke the privilege of the Prussian Bank
and conclude a contract with the Empire.
The privilege of the Prussian Bank was revoked, in
view of the pending reorganization of banking affairs,
before the end of the year 1871, according to section 2
of the Prussian Bank Act of May 7, 1856. According to
the paragraph in question the shareholders were to receive the nominal value of their shares and, in addition,
half of the reserve fund; the whole wealth of the Prussian
Bank went, on the other hand, to Prussia.
The Prussian Government received authority by a law
of March 27, 1875, to conclude with the imperial government a contract concerning the cession of the Bank to
the Empire; the necessary authority was accorded to
the imperial government in the Bank Act of March 14,
1875. The terms of the contract were fixed by both
parties in agreement with those which, during the abovementioned deliberations on the establishment of the
Reichsbank, had been proposed to the Bundesrat by the




34

The

Reich

shank,

1876-1900

Prussian Government in November, 1874. The contract
concluded between Prussia and the German Empire in
accordance with these terms was ratified on May 17-18,
1875. According to this contract the Empire took over
the Prussian Bank on January 1, 1876, with all its privileges and duties, in order to transfer them, in accordance
with the Bank Act, to the Reichsbank to be established.
The cession was made in that the head of the Prussian
Bank, on January 1, 1876, assigned in writing the wealth
of the latter to the Reichsbank Directorate for further
management.
In accordance with the provisions of the contract between the Empire and Prussia, the necessary measures for
the establishment of the Reichsbank were provided by
the Bank Act and by the statute decreed by the Emperor
with the consent of the Bundesrat, in accordance with
section 40 of the Bank Act.
The capital stock of the Reichsbank was to be raised
from the invested capital of those shareholders of the
Prussian Bank who would use the right, reserved to
them in the contract with Prussia, of exchanging their
shares for shares in the Reichsbank, and further, through
the sale of the remainder of the new bank shares by the
Chancellor.
Only 81 shares of the Prussian Bank, representing
243,000 marks, made no use of the privilege of exchange.
In accordance with the contract with Prussia, the Reichsbank had to pay to the owners of these shares their invested capital and their share of the reserve fund.
Altogether, 20,081 shares, with a total nominal value of
60,243,000 marks, were disposed of—20,000 by public




35

National

Monetary

Commission

subscription—through a proclamation of the Chancellor
on May 24, 1875, and 81, for which the privilege of exchange had not been used, by sale on the Bourse.
A rate of 130 was obtained in the sale; and the premium, to the total amount of about 18,000,000 marks, was
used in paying off the 15,000,000 marks to Prussia in accordance with the surrender contract, the remainder being
allotted to the reserve fund.
On December 31, 1875, the funds of the Prussian Bank
were transferred to the Reichsbank Directorate by a decree of the Prussian minister of commerce, the former head
of the Prussian Bank. On January 1, 1876, the most important features of the new system were put into operation.
THE REICHSBANK AS THE CENTRAL BANK OF GERMANY.
THE BASIS ESTABLISHED BY THE BANK ACT.

In the bank constitution created by the Bank Act of
March 14, 1875, the principle of a central bank was established in so far as it could be reconciled with the well-earned
rights of the existing 32 private banks of issue (Privatnotenbankeri).
The predominance of the Reichsbank was assured by its
capital, which, in comparison with that of the remaining
banks of issue, was extraordinarily large for the existing
conditions, and further by the amount of its authorized
tax-free note contingent (JVotenkontingent), which considerably exceeded the sum of the entire remaining contingents, and which was subsequently to be increased by
the contingents of those banks that decided to issue no
more notes. In case of a general demand for money the
tax on excess notes was no effective restriction to the in-




36

The

Reichsbank,

1876-1900

crease of notes of the Reichsbank beyond its authorized
limit, as the Reichsbank did not hesitate to sustain losses
through the tax when public interest required an extension
of its note emission. The predominance of the Reichsbank was also promoted by its right to establish branches
all over the Empire; for private banks of issue the establishment of branches outside their own particular state
was coupled with severe conditions.
It was the business of the Reichsbank to put in practice,
on this basis, the idea of a German central bank of issue.
Since legislators favored such a development of the
Reichsbank, it was in keeping with this fundamental idea
to divert private banks of issue from note issues to other
branches of banking (viz, deposits), and to urge them to
renounce voluntarily their privilege of issuing notes.
Besides, every adequate regulation of conditions for
note issue was bound to lead to such a result. The restriction of business to lines compatible with note issues,
principally to discounts and loans on collateral, is practicable, without too great a curtailment of financial
proceeds, only for a bank resting upon a comparatively
broad basis. This limitation was prescribed, however,
for all banks which would confine their operations to
the particular state which had granted them the concession. Certain facilities were granted only to those banks
which would restrict their note issue to the amount of
their capital stock. But the limitation of note issues and
the confinement to one state deprived the banks in question of all importance as issuing banks in the German
monetary system.
The note-tax system helped the intended development
in two ways. Banks can not in normal times, when




37

National

Monetary

Commission

the rate of discount does not rise to 5 per cent, exceed
their authorized contingent to any appreciable extent
and for any length of time without suffering financial loss;
even when the discount rate reaches 5 per cent the banks
have no interest in extending their uncovered circulation
beyond their contingents, for the interest on notes issued
beyond the tax limit is counterbalanced by the 5 per
cent tax. Even when higher discount rates prevail, the
profit resulting from excess note issues is comparatively
small. In consequence of this, the note tax has had the
effect, upon the whole, of keeping within limits the uncovered note issue of private issuing banks.
On the other hand, the fact that the entire cash holdings of banks are reckoned as cash reserve in calculating the uncovered note circulation and the note tax,
has caused banks to encourage deposits, for the cash
from deposits is cover for notes within the meaning of the
Bank Act.
DECREASE IN THE NUMBER OF PRIVATE BANKS OF ISSUE.

How far the development contemplated in the German
bank constitution has been realized is shown by the fact
that of the 32* private banks of issue which existed in
1875 only 7 are still in existence. Even before the Bank
Act went into force 12 private banks of issue renounced
their privileges. Of the private banks of issue at present
existing, only one, the Braunschweigische Bank, 6 has not
conformed to the optional provisions of the Bank Act.
Its privilege runs until the year 1952.
o In 1910 only four remained, the Bank of Bavaria, the Bank of Saxony,
the Bank of Wurtemberg, and the Bank of Baden.
&The Bank of Braunschweig, the Bank of Frankfurt, and the Bank fur
Stiddeutschland no longer issue notes.




38

The

Ret

chs bank,

1876-1900

In Prussia there exists only one bank of issue besides the
Reichsbank, namely, the Bank of Frankfurt." Whereas all
other Prussian private banks of issue have lost their right
of issue, either through voluntary renunciation or through
the refusal on the part of the Prussian Government to
renew the privilege upon its expiral, the privilege of the
Frankfurt Bank on account of the competition of the
neighboring South German banks of issue was prolonged
indefinitely, subject to revocal after one year's notice.
The remaining 5 private banks of issue that have conformed to the regulations of the Bank Act are the following: The Bayerische Notenbank at Munich; the Sachsische Bank at Dresden; the Wurttembergsche Notenbank at Stuttgart; the Badische Bank at Mannheim; the
Bank fur Siiddeutschland a at Darmstadt.
Of these, the two first mentioned have managed to keep
a comparatively exclusive field of activity, and have
established a large network of branches, which, however,
have been confined to the one state.
Through the renunciation by 25 private banks of issue
the note contingent (authorized tax-free note issue) of
the Reichsbank has gradually been increased from
250,000,000 marks to 293,400,000 marks, 6 while the sum
total of the contingents of the private banks of issue
amounts now to only 91,600,000 marks.
o The Bank of Braunschweig, the Bank of Frankfurt, and the Bank fiir
Siiddeutschland no longer issue notes.
&By the Revised Bank Act of June 7, 1899, it has been raised to
450,000,000 (cf. p. 346), and by the Act of June 1, 1909, to 550,000,000,
with an aggregate circulation of 618,000,000 marks, except at the end of
March, June, September, and December, when the contingent of the
Reichsbank is raised to 750,000,000, and the aggregate circulation to
818,771,000 marks.




39

National

Monetary

Commission

T H E EXTENSION OF T H E REICHSBANK'S SYSTEM OP BRANCHES.

More important for the Reichsbank than this increase
was the immediate extension of its branches over all
Germany. How great was the need outside Prussia for
connection with a central bank is shown by the many
petitions received in 1875 by the Prussian Bank from
the provinces, especially from Saxony. These petitions
desired the' establishment of branches before the new
bank constitution went into force. The same law of
March 27, 1875, which empowered the Prussian Government to surrender its bank, gave to the Prussian Bank,
which had formerly established branches by virtue of
special laws only in Alsace, Lorraine, and Bremen, the
right to establish branches over the entire Empire during
the short time which it still had to exist as Prussian Bank,
and use was at once made of this authority, not only for
Saxony but also for Hessen, Baden, Brunswick, and
Reuss a. L. After January 1, 1876, the remainder of
Germany was included.
Of distinct importance, however, for the position of
the Reichsbank in the German banking system is the
fact that private banks of issue have, according to their
management, ceased more and more to exercise a determining influence on the regulation of monetary affairs
and on the international relations of our monetary system. The fulfillment of these important tasks became
more and more a duty of the Reichsbank.




40

The

Reichs

bank,

1876-1900

T H E REICHSBANK AS T H E LAST RESORT OF T H E GERMAN MONETARY
SYSTEM.

The Reichsbank is the last support of the German
home market. It satisfies out of its own funds every
increased demand for money by increasing its note
emission, even when this largely exceeds its tax-free
contingent; on the other hand, it regulates the demand
for money and counteracts too great an extension of
note circulation by fixing the discount rate. It neither
depends on other banks nor does it rediscount bills—as
do private banks of issue—for the purpose of diminishing its capital invested in bills and strengthening its
funds by claims on third parties.
In the same way, the supervision of foreign relations
of German monetary affairs lies exclusively in the hands
of the Reichsbank. It endeavors to hold a sufficient
gold reserve, out of which at all times foreign obligations
can be settled without causing a shock to our standard.
In consequence of the provision of the Bank Act concerning the purchase of gold, the gold coming from abroad
flows principally into the Reichsbank. By fixing its
discount rate, the Reichsbank exercises on domestic
demands for credit and on international gold movements
a certain steadying influence. This was formally recognized by the private banks of issue as early as 1887 by
an agreement in which they bound themselves not to
discount a at a rate lower than that of the Reichsbank,
as soon as the Reichsbank gives notice of a threatened
draining of gold.
How the Reichsbank has sought to solve its problems
in detail will be described in the following pages.
<*Cf. art. 7 of the Revised Bank Act of June 7, 1899.




4i

CHAPTER II.
T H E ADMINISTRATIVE ORGANIZATION.
THE ORGANIZATION I N GENERAI,.

The well-tested administrative organization of the
Prussian Bank was retained in its salient features upon
the establishment of the Reichsbank. The deviations to
suit altered circumstances were mainly of a purely formal
nature and only in isolated instances of material importance.
At the head of the Reichsbank stands the Chancellor
of the Empire, who directs the whole bank management
according to the provisions of the Bank Act and the Bank
Statute. He is invested not only with important special
powers which the act enumerates, particularly in the
authority to issue orders and official instructions for the
conduct of business, but also in the general provision that
the Reichsbank Direktorium, which is directly under the
Chancellor, must at all times obey his orders. He is president of the Curatorium,, which supervises the Reichsbank
on behalf of the Empire. In case of the Chancellor's unavoidable absence, he is represented in all functions affecting the Reichsbank by a substitute appointed by the
Emperor.
The Reichsbank Direktorium, which, under the Chancellor, has immediate control of the Reichsbank, is designated in the Bank Act as the managing and executive
body. Its members are the official representatives of the




42

The

Ret

chs bank,

1876-1900

Reichsbank. It is endowed with special independent
powers, even though these can be checked by higher
officials; it acts in its own name as the central managing
body of the Reichsbank, forms its resolutions on its own
responsibility by majority vote, and has the rights of a
"supreme imperial board" (obersteReichsbehorde).
The branches of the Bank, on the other hand, are not
invested with independent legal power and authority.
The Reichsbank is, to be sure, bound just as much by
the regular signature of the principal branch offices
(Reichsbankhauptstellen) and of other branch offices
(Reichsbankstellen), within their field of business, as by
that of the Reichsbank Direktorium, even where the laws
require a special authorization (Bank Act, section 38,
proclamation of the Chancellor of the Empire on December 27, 1875); but this right is only a derived one, and
nothing more than a legal power of attorney. Only in
the case of the head office in Berlin and its circuit has
this right not been transferred. Here the Reichsbank
Directorate combines two different functions—the general
management of the Reichsbank and the local direction of
the Berlin office.
THE MAIN BANK.

The activity of the Reichsbank Direktorium as head of
the central administration for the whole Bank is shown
not only in its supervision, its official instructions, its
business rules conforming with the laws, ordinances, and
directions of the Chancellor, but also in its responsible
general management of the business itself. All transactions of the Reichsbank as a whole, and, furthermore, all




43

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Monetary

Commission

transactions of greater importance which do not fall within
the scope of ordinary business as defined in the official
instructions, are reserved to the Direktorium; many other
matters carried out by branch offices require the consent
of the Direktorium in each particular case. The branch
institutions, even when endowed with independent powers,
are under the supervision of the central board, which is
constantly kept informed about the business by means
of reports and statements, and convinces itself of their
correctness through special reports and revisions.
The Reichsbank Direktorium is a board with a president,
since 1887 also a vice-president, and six other members.
The president and members of the Direktorium are appointed for life by the Emperor upon nomination by the
Bundesrat, the members after approval by the central
committee (Zentralausschuss). The salaries and pensions
of the Directorate are determined annually in the imperial budget.
By combining the functions of the central administrative office with the business direction for the Berlin bank
circuit the Directorate is inclose contact with commercial
life and technical administration. This purpose is furthered by two special arrangements, which are calculated
to procure for the central board trustworthy information,
based on independent observations by special Reichsbank
officers, regarding the general business situation within
the various bank circuits. First, reports on the condition of commerce and industry are made twice a year
to the president of the Direktorium by the independent
branch establishments and once a year by the subordinate
branch offices; secondly, annual conferences of provincial




44

The

Reichsbank,

1876-1900

branch directors are held in various towns under the
chairmanship of the president, and here discussions
follow concerning the general state of business and
credit, and the proposed changes in the administrative
and technical organization.
The main Reichsbank office, in which central and local
functions—the latter limited to the Berlin circuit—are
combined, is organized into the following bureaus: The
central bureau (Zentralbureau), comprising the department
of the president; the main bookkeeping office (Hauptbuchhalterei), which controls the bookkeeping of all
branches, settles the accounts of branches with one
another, collects all booked material, makes the final
entries on the different accounts, draws up the weekly
reports,01 and at the end of the year prepares the balance
sheet; the archives (Archiv), which keep the books relating to bank shares; the statistical department (Statistische Abteilung), in which all statistics of any importance to the bank management are collected and arranged; the Reichsbank main treasury (Reichsbankhauptkasse), which is also charged with the care of the
monetary transactions of the imperial treasury under the
title of main imperial treasury (Reichshauptkasse); the
transfer (Giro), discount, and collateral loan (Lombard)
departments; the collateral loan (Lombard) control office;
the bureau for private closed deposits; lastly, the registration office (Registratur), and the copying office (Kanzlei).
a As the separate reports of the branches, in order to give an accurate
picture of the situation, are made up simultaneously—in contrast to the
procedure in other large central banks of issue—the compilation and publication of the returns for the whole Reichsbank can, on account of the
great distance of many branches from Berlin, take place only after the
lapse of several days after the closing of the books.




45

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Monetary

Commission

A peculiarity in the administrative system is the securities department of the Reichsbank main office (Kontor der Reichshauptbank fur Wertpapiere, cf. p. 324ft.).
A special auditing official has to receive all accounts
of the Reichsbank, check them, and forward them to the
board of accountants (Rechnungshof) of the German
Empire, which then revises them according to section 29
of the Bank Act.
BRANCH ESTABLISHMENTS.

The centralization of bank note issues aimed at
by the Bank Act—a centralization which in the course
of time has really come about in many parts of Germany through the disappearance of most banks of
issue—presupposes for the Reichsbank an extended and
well organized system of branches, so that it can fulfill
its legal duties and satisfy the rightful claims of trade to
a metal and note circulation suited to times and local
requirements. The Bank Act gave the Reichsbank the
right " t o establish branches in all parts of the Empire/'
and empowered the Bundesrat to order branches to be
established in certain places (sec. 12). The Reichsbank
at its establishment needed only to extend the Prussian
Bank's network of branches over the whole Empire, and
to arrange the network according to the development of
commerce.
INTERNAL ORGANIZATION.

This applied above all to the internal organization of
the branches of the Prussian Bank. The main branches
(Reichsbankhauptstellen),
branch offices {Reichsbank-




46

The

Reichs

bank,

1876-1900

stellen), suboffices {Reichsbanknebenstellen), and warehouses
(Warendepots) correspond to the Bankkontoren, Bankkommanditen, Agenturen, and Warendepots of the Prussian Bank. The past twenty-five years have caused no
essential changes in the old and tried organization except
in the case of suboffices (Nebenstellen).
No important differences exist between the Reichsbankhauptstellen and the Reichsbankstellen, which by virtue of
their rights are called in the official language by the common name "independent branch establishments" (selbststandige Bankanstalten). They are empowered to carry
on independently in the district assigned to them by the
Reichsbank Directorate all forms of business to which the
Reichsbank is entitled in accordance with section 13 of
the Bank Act. Their importance is therefore that of commercial branch establishments, but only in an economic
respect. Legally their constitution is specially arranged.
Corresponding to their purpose of doing business independently, they possess with regard to external affairs
unlimited rights of representing the Reichsbank. Internally, they are parts of the Reichsbank system and are in
direct connection with one another, although they do not
settle accounts directly with one another. This takes place
solely through the main bank. Each branch is put in
charge of two managing officials. The independent
branches must obtain the signatures of these officials, or
of others appointed as their deputies, in order to bind the
Reichsbank legally.
Each main branch (Reichsbankhaupstelle) is under
the supervision of a commissioner appointed by the Emperor. Justiciaries, who exercise nearly the same func-




47

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Monetary

Commission

tions, are appointed for the branches (Reichsbankstelleri).
Moreover, the main branches are distinguished from
branches by the fact that the main branches have district
committees (Bezirksausschiisse) selected from the shareholders in accordance with section 36.
In only one respect are branches linked within circuits
to the main branches; in the determination of large normal
credits for the more important firms in the circuit of the
branch, a certain cooperation with the deputies of the
main branch takes place (cf. p. 129).
The suboffices (Reichsbanknebenstellen) form the lowest
instance of the Bank's organism, and are directly subordinated not to the Reichsbank Directorate but to the independent branches. Their purpose is to conduct within
their respective circuits such business as is allowed to the
Reichsbank; but their field of operation is limited to
their district, when nothing to the contrary is expressly
arranged, so that their work consists only of purely local
business. Above all, however, they are completely dependent on the branches immediately above them—first,
because they stand, as a rule, in immediate official connection and on clearing-house terms only with the higher
branch office, and secondly because their transactions are
directly subject to the approval of the higher office.
Their intermediary activity finds expression in the fact
that no bill may be purchased by them which has not
been previously laid before the higher office and accepted
by the same for discount. This rule has gradually been
mitigated so that the higher branch can name to the suboffice those persons and business houses from whom,




48

The

Reichs

bank,

1876-1900

without inquiry in each case, bills may be purchased
within the fixed limits of credit, with the reservation,
however, that sanction may subsequently be refused.
Suboffices have been completely dependent throughout the past twenty-five years, though their powers have
been extended in many particulars. These extensions
were the necessary result of the perfection and popularization of arrangements with the Reichsbank, also of the
increasing requirements of economic development, but,
above all, of changes in the organization of the staff.
One of the chief obstacles to the free development of
suboffices was the necessity of limiting cash reserves to
a certain amount for the sake of safety. Wherever one
officer managed the business, only small balances could
be kept on hand, determined by the amount of security
deposited by the official. In consequence of this, requests
of the commercial world for an extension of business could
be treated only with a certain amount of caution, as
otherwise considerable sums might be sent back and
forth too frequently. For similar reasons the suboffices
could not be permitted to accept closed deposits nor to
accept and manage collateral on loans (lombardierte
Effecte)f however desirable this might appear in the
interest of the public. Where, however, the volume of
local business justified the appointment of a second official, these considerations could, by virtue of the greater
safety thus guaranteed, be overlooked.
Similarly another circumstance stood in the way of a
more rapid development. At the creation of the Reichsbank most of the directors of suboffices were not officials
trained in banking, but agents, some of whom performed
82302—10




4

49

National

Monetary

Commission

the duties of the office only as incidental work and received for it no fixed salary, but only a percentage of the
profits. It was not always possible to require of them,
without further ado, additional work in branches of
business which yielded no immediate profit—a consideration which disappeared when the Bank, with increasing
trade, proceeded to replace gradually most of the agents
by trained officials receiving a fixed salary. Naturally
the Reichsbank was also obliged, before it decided upon
innovations in suboffices, to await the lessons of experience in order to form an opinion as to whether the
existing arrangements were adequate to meet the new
demands.
Only in the course of development, therefore, could the
Reichsbank make use of its suboffices for the exercise
of important functions, such as transfer transactions
(Giroverkehr), the cashing of interest coupons, and business with the treasuries of the different states.
Such a development took place in the case of most
suboffices and led to the establishment of the preponderating and normal type managed by one official
and termed suboffice with a cash- and limited transferdepartment (Nebenstelle mit Kasseneinrichtung
und
beschrdnktem Giroverkehr). The activity of the few
suboffices without cash departments is confined now,
as formerly, to the purchase of bills and to loans on collateral. It is to be noted, however, that in the meantime
many of them have received cash departments, and
have therefore entered the first-mentioned category.
But the powers which could be granted to all suboffices possessing cash departments were not sufficient




50

The

Reichsbank,

1876-1900

where the business was especially extensive. Since 1883
the Reichsbank created as an experiment, in a number
of such places, a new form of Reichsbank suboffices
managed by two officials (Reichsbanknebenstellen mil
zwei Vorstandsbeamten). This new form had not only
a complete transfer department as conducted by independent branches, but also more independent departments
for collateral loans, sealed deposits, and increased cash
reserves. Since the middle of the nineties, however, the
Reichsbank has, after several unfavorable experiences,
given up this plan, and has no longer appointed two
officials for suboffices in places with extended business,
but has left the management to one director and given
him one or more assistants intrusted specially with the
management of the cash. Similar powers could be assigned to these suboffices. Their extended transfer system (erweiterter Giroverkehr) is nearly equal to that of
the independent branches. Only in official transactions
are a few restrictions still enforced with respect to transfers,
but these restrictions are no longer perceptible to the business world. Also in other branches of banking, as loans
on collateral and sealed deposits, extended powers could
be granted to them, yet the Reichsbank has always
avoided general schemes and has always been guided
by local requirements. This new form of suboffice in
places with extended business has prevented a further
increase of suboffices with two managing officials. The
latter have, for the most part, been transformed into
independent branches. The last one, that in Heilbronn,
was changed in 1900 into a suboffice with extended
transfer facilities.




51

National

Monetary

Commission

The subordinate branch establishments (Kommanditen)
at Coeslin, Insterburg, and Stolp, which were taken unaltered from the Prussian Bank, were similar to suboffices with two managing officials. In consideration of
local requirements and wishes these institutions, which
were endowed with somewhat greater powers, had not
been transformed into ordinary suboffices; on the other
hand, their business was not yet considerable enough to
justify their conversion into an independent branch. This
transformation took place later, at Stolp in 1877, at Coeslin
in 1899, and in Insterburg in 1900.
The independent branches of Trier, Marienwerder,
and Saarbriicken, which until 1891, 1892, and 1890 had
been managed either by the local Prussian government
treasuries (Regierungshauptkassen) or the Royal Mining
Directorate (konigliche Bergwerks-Direction), were relics of
the old administrative organization of the Prussian Bank.
Accordingly the Reichsbank has to-day only three kinds
of suboffices—first, those having one manager; secondly,
those with one manager and one or more assistants (suboffices with limited and suboffices with extended transfer
systems); and thirdly, those without a cash department
(Kasseneinrichtung).
Here must be mentioned, as branch institutions connected with main branches and branches, the few warehouses {Warendepots) existing only in the northern and
eastern Prussian provinces, which serve practically only
in the preparation and transaction of loans on collateral
(cf. p. 181).




52

The

Reichs

bank,

1876-1900

T E R R I T O R I A L DIVISION.

The exterior organization of the Reichsbank—i. e., the
distribution of its branch establishments over the whole
Empire—was given largely by the Prussian Bank. Almost
all necessary changes were results of the extension of
the system over the whole Empire, and even here the
Prussian Bank had prepared the way for its successor,
inasmuch as it had opened branch offices in many places
before 1875, and especially in this very year, in view
of the coming transformation. These branches were in
Alsace-Lorraine, Saxony, Baden, Hesse, Brunswick, Reuss
a. L., and Bremen.
The main branches (Reichsbankhauptstellen) are established by the Bundesrat on the motion of the Chancellor
of the Empire. According to the express provision of the
law, they are established only in large places. It was
planned that each large federal state and each Prussian
province have a main branch. The Prussian Bank's
branches established on the same principle were accordingly transformed into main branches, only with this
difference, that, on account of the volume of business,
Dortmund received a main branch in place of Minister, and
Hamburg in place of Altona. The province of SchleswigHolstein, where business was at that time hardly developed, got no main branch of its own, but was linked to
that of Hamburg. In the remaining states the cities
of Munich, Leipzig, Stuttgart, Mannheim, Bremen, and
Strassburg were decided upon as locations of main
branches. For the same reasons the independent branch
in Danzig was transformed into a main branch in 1879,




53

National

Monetary

Commission

after the division of the province of Prussia into East and
West Prussia.
The establishment of branches takes place through
the Chancellor of the Empire, ordinarily on the motion
of the Reichsbank Directorate, but for this the law
lays down no special requirements. Since the completion of a system of branches comprising the whole German Empire, new branches have come into existence only through the transformation of subofiices,
because in places where there had been no banks, suboffices have always first been established in accordance
with the volume of business. The importance of the
place itself is the first consideration for such a conversion; but the most decisive factor is the size of the circuit
and the^ extent of the business of the independent branch
to which the suboffice was previously subordinate.
In numerous circuits the business of the Reichsbank has
increased in the course of time, and the work has become
so important that the independent branches find it more
difficult to supervise their own immediate circuit and
their thriving and ever-increasing suboffices. In certain cases a division of a district which has become too
large is absolutely necessary on account of the complicated district credit system, which requires careful watching by the Reichsbank. At the establishment of the
Reichsbank the existing independent branches (Kornmanditen) of the Prussian Bank were taken over as
Reichsbankstellen; several new ones were also founded.
In the course of twenty-five years, apart from the branches
established in 1876, there have been added those in Stolp
(1877), Cottbus (1883), Coeslin (1889), Duisburg (1892),




54

The

Reichs

bank,

1876-1900

Wiesbaden (1894), Bochum (1896), Darmstadt (1897),
Plauen (1897), Hildesheim, Ulm (1898), Freiburg (1899),
Schweidnitz, Allenstein, Insterburg, Barmen, and Fulda
(1900).

The division, which in 1876 appeared fully justified
and sufficient, was no longer so in later years. It is
evident that the ever-increasing burdens caused in many
branches by the growth of population and business were
especially felt in prosperous times. This found expression in the great amount of business and the large
profits of some of the bank circuits. The later years,
therefore, of this economic rise have caused changes in
the territorial organization of the independent branches.
Whereas in the first half of the quarter century the number
of independent branches increased by only two, no less
than 14 were added in the second half, of which 11 were
added in the last five years.
The establishment of suboffices is solely the business of
the Reichsbank Directorate; it takes place whenever there
is a demand. It is not always possible to determine
whether and in what way the business at the new suboffice will develop. In consideration of the high cost for
establishment and maintenance, and in order to test the
question of necessity—a question too readily answered in
the affirmative by the most influential circles of the particular town—the Reichsbank Directorate has hitherto always
required in doubtful cases the fulfillment of certain
conditions by the municipal authorities or the business
circles. These conditions are, however, of a temporary
character; they are usually imposed only for a certain




55

National

Monetary

Commission

number of years, and disappear as soon as the vitality of
the suboffice has been demonstrated.
One hundred and thirty subordinate institutions—
dependent branches (Kornmanditen), agencies, and goods
depots—were taken over from the Prussian Bank, and 17
new ones founded shortly afterwards, in the year 1876;
in the first years, they did not increase uninterruptedly.
Here and there suboffices, but principally goods depots
the business of which did not develop in the expected way,
have been discontinued since then.® Thus their number
increased by only 25 in the twelve years after 1876, but
the increase was all the greater in the next twelve
years. At the end of 1900 the Reichsbank had 255 subordinate branches against 147 in the year 1876 and 172
at the end of 1888, a result all the more noteworthy when
one remembers that the number of goods depots decreased from 27 to 14, that 16 suboffices (Nebenstelleri)
became independent branches (Reichsbanktelleri), and 43
were given the extended transfer department (Giroverkehr).
The ever-growing importance of suboffices, resulting from
the extension of their powers, is shown by the fact that
their increase has been more rapid than that of independent branches; whereas at the end of 1876 the proportion between suboffices and the independent branches
was 2.49:1, at the end of 1888 it was 2.82:1, and at the
end of 1900, 3.4:1.
The increase of branches is not only absolute, since their
number rose from 206 (1876) to 330 6 (i90o) while the size
«The tables referred to in this English translation are contained in the
original German volume published in Berlin in 1900. The National Monetary Commission has prepared a volume of statistics for Germany which
include Reichsbank statistics for more recent years.
&In 1909 there were 493 branches.
56




The

Reichsbank,

1876-1900

of the Empire remained the same, but also relative to population. Their increase has taken place at a more rapid
rate than has population; at the end of 1876 there was
1 branch to 209,000 inhabitants, at the end of 1900, 1 to
170,000, a sign of the increased activity of the Bank, due
to changes in German economic life and to flourishing
industry and commerce.
The density of population and the economic condition
of the various districts have been of importance in the territorial distribution of Reichsbank branches. In thickly
populated, highly developed regions the branches are
closer together than in agricultural districts. Bank districts are much smaller, therefore, in commercial and
industrial districts. If the average size of each of the
76 bank circuits is 7,114 square kilometers, nearly all
the industrial and commercial districts fall below this
average. This is all the more striking if one takes into
consideration that the districts of important branches, such
as Leipzig, Essen, Dortmund, and Chemnitz, are very
small. The five smallest districts are highly developed
centres of industry, namely, Bochum, Elberfeld, Dusseldorf,
Barmen, and Duisburg, with areas of less than 1,000 square
kilometers. Yet not one of these institutions is to be
regarded as small; they are of commercial importance
and do a considerable business. The largest districts are
those of the branches in Munich, Niirenberg, Posen,
Ivtibeck, Stettin, Berlin, Hamburg, and Breslau. In the
case of the Bavarian branches at Munich and Niirenberg,
the districts are large, because there is no sufficient demand for the establishment of a Reichsbank branch,




57

National

Monetary

Commission

since the Bayerische Notenbank has had for a long time
past an extended network of branches. a The extraordinary differences in the territorial distribution of branches
are striking when one compares the area of the largest
bank circuit, Munich, amounting to 29,607 square kilometers, with the smallest, that of Bochum, comprising 120
square kilometers.
The differences with respect to the number of inhabitants are by no means so considerable. The Berlin district, which is sixth in area, is naturally first in population,
with 3,044,000 inhabitants, whereas the smallest district,
Memel, has only 95,000. But here again the industrial
districts are below the average—an instance of how much
more the services of the Reichsbank are claimed in these
places by the people.
THE SYSTEM OF CONTROL.

The Reichsbank has always laid great stress on an
organized system of control, for the valuable papers and
the large amounts of cash which pass through its numerous offices, or are stored and managed in its vaults and
safes, make special precautions necessary, partly to avoid
false and erroneous entries, partly to guard against embezzlements. In the course of development the measures
of control employed by the Reichsbank have been subjected to various changes.
The measures for control include the checking of entries
and of actual valuables on hand, and, finally, the testing
of calculated and actual assets.
a At the end of 1900 the Bayerische Notenbank had 6 branches and 53
agencies.




58

The

Reichs

bank,

1876-1900

The system of control is organized with special detail
for suboffices managed by only one official. In larger
branches, control is easier through the presence of several
officers. Herein lies an important element of safety, not
only with regard to amounts on hand, but also with regard
to bookkeeping. The Bank's own tried system of bookkeeping is trustworthy, for all books are doubly kept by
different officers.
A constant control by responsible officials is possible
through numerous returns comprising the whole business
of the Bank. Independent branches send their returns
at stated intervals, usually on the last day of the week
or month, directly to the main bank, where they are
examined in the head bookkeeping office (Hauptbuchhalterei). They afford the central management at all
times an exact and detailed survey, not only of transactions but also of the balance on hand according to the
books. The branches exercise a certain independent control through direct correspondence necessitated by current
transactions.
The control of suboffices, in accordance with their
organization, lies entirely in the hands of the superior
independent offices, but here the reports are not
confined to periodical statements; suboffices report
to the superior bank office, every evening at the close of
business, all transactions together with detailed abstracts from their books.
Examinations (Revisionen) form another important
means of control. In the first place, these determine
whether the calculated assets as shown by the books and
correspondence of the various branches agree with the




59

National

Monetary

Commission

actual assets. In the case of independent branches, examinations take place regularly every month; special
examinations are ordered from time to time by the president of the Reichsbank Directorate. It is in keeping with
the purpose and nature of special examinations that the
offices to be examined be kept in complete ignorance concerning the date. Examinations take place simultaneously at the main bank and all independent branches.
At the main bank they are undertaken by members of
the Reichsbank Directorate with the cooperation of the
deputies of the central committee, at the head branches
by the commissioner with the aid of the assistants (Beigeordneten), at the other independent offices by a justiciary. At suboffices only extraordinary examinations
take place, but these are held several times in the year;
they are ordered by the superior branch office, and are, as
a rule, undertaken by one of the two managers. The
determination of the number and time of these examinations is incumbent upon the managers of the superior
branch office.
In addition to these, other examinations are held from
time to time by members of the Reichsbank Directorate.
The interested public exercises an independent public
control over the business management of the Bank, for
example, through the entries in the transfer account
books and on collateral loan certificates. The public is
also a medium of control in distance transfers, as it is
universally customary in the business world that the
sender of a remittance inform the receiver. Only in the
case of suboffices are special measures prescribed by the
Reichsbank for its clients for the purpose of bringing




60

The

Reichsbank,

1876-1900

about a public control. In cases of loss the Reichsbank
recognizes the validity of larger payments to suboffices
only when the depositor has informed the superior branch
office immediately upon completion of the payment. This
announcement is required only in certain kinds of payments, according to the conditions governing the different
branches.
THE STAFF.
LEGAL STATUS.

Corresponding to the character of the Reichsbank as an
imperial institution, the rights and duties of civil servants
are expressly conferred upon its officers by the Bank Act
(sec. 28). All legal rights of the latter, especially the law
of March 31, 1873 on the legal status of civil servants, are
therefore applicable to the staff of the Reichsbank. All
questions of pension and provision for widows and orphans
are settled beyond possibility of doubt by several imperial
decrees (December 23, 1875, March 31, 1880, June 8,
1881, June 20, 1886, March 18, 1888, and July 26, 1897).
Owing to special points in the business management of the
Reichsbank, particularly with regard to the security required from officials, departures from the general law were
necessary. Special regulations for Reichsbank officials were
embodied in the aforementioned ordinances of December
22, 1875, and March 31, 1880. It is of special importance,
however, that the law of February 20, 1898, relieving civil
servants from the necessity of depositing security, is not
applicable to the staff of the Reichsbank (sec. 3). All
these ordinances, the contents of which refer to laws,
are to be regarded as subsequent interpolations in
the Bank Statute and decreed on the basis of the Bank Act




61

National

Monetary

Commission

(sec. 40). The staff have received thereby a position
guaranteed not merely by contract but by law. On the
other hand they are subjected to the provisions of the
imperial penal law and to the imperial authorities.
With the exception of the president, vice-president,
members of the Reichsbank Directorate (cf. p. 26), and
commissioners of the head branches (cf. pp. 47 and 64)—
all of whom the Emperor appoints—the Reichsbank
officials, in accordance with the ordinance of December
19, 1875, are appointed through the Chancellor, or by
virtue of authority granted by the latter, through the
president of the Reichsbank Directorate, which is designated as the superior official board of the staff (vorgesetzte
Dienstbehorde), and exercises the corresponding rights of
supervision and discipline. This authorization is conferred
by the Chancellor's decree of November 8, 1875, a n d
has reference to all officials with the exception of the
highest managing officials of the head branches of the
Reichsbank.
PREPARATORY TRAINING AND CLASSIFICATION.

The staff of the Reichsbank has been drawn for the most
part from the ranks of tradespeople, in the lower grades
also from enlisted men entitled to civil employment. In
the case of the former, the condition for employment in
the Bank is a certificate of graduation from a Gymnasium,
a Realgymnasium, an Oberrealschule, or proof of an
equivalent training at some other higher educational
institution. The applicant must have learned routine in
a bank or in some other reputable business house and
must have been employed in such as a clerk. The candidate, who is first sworn in, is accepted by the Bank only




62

The

Reichs

bank,

1876-1900

after a three months' trial and an examination held at the
end of the three months. Such soldiers as have claims
to civil employment (Militdranwdrter) are employed,
under certain necessary conditions, in the calculation,
record, and copying departments, also as tellers and messengers (Kassendiener), in accordance with the " Regulations for filling with military claimants, vacancies in
inferior and subordinate positions in the Empire and
State" sanctioned by a general cabinet order on September 10, 1882. For all other positions only persons with a
business and technical training are considered.
The two managers at the head of each independent
branch are jointly intrusted with directing the business
and supervising the subordinate officers; they sign in the
name of the branch all documents, returns, letters, and
negotiations in rough and final copy. The first managing
official (bank director) is especially responsible for the
orderly conduct of business; he distributes the work among
the clerks in accordance with the regulations decreed or
sanctioned by the Reichsbank Directorate for all branches,
but he can also require the staff to render any necessary
temporary help in other branches of business. The second managing official is the regular representative of the
first, and his assent is necessary in all important transactions. At smaller branches he also does the work of
the cashier. The executive officers are represented in
case of inability to attend by one of the other older officers
(cashier or bookkeeper). At the larger main branches a
permanent substitute is at hand in the person of the socalled third officer. According to the size of the branch,
one or more cashiers are employed. The books are kept




63

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Monetary

Commission

by bookkeeping officers, consisting of chief bookkeepers
and bookkeepers, bookkeepers' assistants and clerks employed by the day.
The suboffices are under the management of a bank
committee (Bankvorstand), assisted by one or more
bookkeeping clerks, one of whom may have charge of the
cash. The "bank managers" are either officers trained
by the Bank itself and employed by it in other positions
or they are agents trained in business. The agents are
also civil servants. They do not, however, draw a fixed
salary, but percentages of the profits of the suboffice.
They are not permanently engaged. The Reichsbank and
the agents may terminate engagements after due notice.
The commissioners and justiciaries appointed to independent branches are expected not only to conduct examinations ordered by the Reichsbank Directorate, but to
render assistance to the executive officers in all important
matters, especially in legal questions. They also adjust,
if possible, any differences of opinion between the various
members of the staff, or bring the matter to the notice of
the Reichsbank Directorate. They are practical jurists,
as a rule higher judicial officials, attorneys, and administrative officers, whose functions in connection with the
Reichsbank are only incidental.
The organization of the staff at the main office corresponds in all essentials to that at the branches, but with
numerous modifications, due to the differences in the
organization of the head office (pp. 44 and 45). In consequence of special bureaus in charge of special managers,
and of the central administration system, several categories of officers are found at the branches only in isolated
cases.




64

The

Ret

chs bank,

187

6-1900

SALARIES AND OTHER EMOLUMENTS.

Salaries and other allowances, also pensions and maintenance of those dependent on a deceased officer, are
paid by the Reichsbank. The salary and pensions of the
Reichsbank Directorate appear annually in the imperial
budget. That of the other officers is fixed by the Emperor,
in agreement with the Bundesrat, on the motion of the
Chancellor (Bank Act, sec. 28, par. 2). The salaries of
Reichsbank officers, as in the case of all civil servants at
present, are graded according to years of service. All
other emoluments, especially traveling allowances, are subject to the general rules for civil servants. Fixed allowances for rent are granted instead of extra allowances for
dwellings. These are determined according to similar
rules.
SPECIAL REGULATIONS.

In accordance with a long-tried arrangement adopted
from the Prussian Bank, a certain "percentage" of the
profits is given to the responsible managers of independent branches, but not to members of the Reichsbank Directorate. This arrangement aims at the largest possible growth of business, by means of a certain direct interest in the financial proceeds. On the other hand, it is
a guarantee that only good and safe transactions will be
entered into, since the percentages are not paid in cash
to those entitled to them, but are saved and invested at
interest in accordance with the rules of the Directorate.
This is a constantly growing guarantee fund, and is security for any losses arising at the branch through lack
of prudence or circumspection on the part of the officials.
According to the decision of the Directorate, officers have
82302—10




5

65

National

Monetary

Commission

the right to appeal to the Chancellor, but they have no
recourse to law. The "percentage fund" is regarded as
a part of the official security. The money is handed to
the person entitled to it only when, after expiry of his
term of office, no losses covered by his share of the
"percentages'' can arise.
The duties of the Reichsbank officials, so far as they
are of a general nature, are regulated by the laws and
ordinances applying to all civil servants; the special duties pertaining to the management of the Reichsbank are
regulated by instructions from the Chancellor and by the
orders of the Reichsbank Directorate. Here may be mentioned the special prohibition—already existing in the
Prussian Bank—against speculating on the Bourse, the
infringement of which is threatened with severe punishment. There is, as in the Prussian Bank, the regulation
that no officer of the Reichsbank may own its shares
(Bank Act, sec. 28), in contrast to most private companies,
in the statutes of which the higher officials are required
to own a number of the shares.
At the establishment of the Reichsbank the officers of
the Prussian Bank were taken over with it. The extension of business over the whole Empire naturally resulted
in a considerable increase of the staff (cf. Table 2).
In the first year 327 employees were added to the 767
taken over from the Prussian Bank.
With the growing importance of the Reichsbank and
the increase of its branches, the official staff has constantly increased. The total number of its officers and
employees was 1,094 a t the end of 1876, as compared
with 2,322 at the end of 1900, an increase of 112 per cent.




66

The

Reichs

bank,

1876-1900

The increase took place mainly during the second half
of the twenty-five years. It amounted between the end
of 1876 and the end of 1888 to 298, on an average 25
each year, as compared with 930 from 1888 to 1900, or
77 a year; and of these, 503, or 100 a year, belong to
the years since 1895, a period of extraordinary commercial activity and unusual increase in routine work. The
main bank had 307 of all the officers at the end of 1876,
and 664 at the end of 1900; the branches had 787 in 1876,
1,658 in 1900. In the twenty-five years the main bank
had on an average 29 per cent, the branches 71 per cent.
The increase has been fairly equal in both cases—at the
main bank from 307 to 664, or 116 per cent; at the
branches from 787 to 1,658, or i n per cent.
Of the Bank's employees, 82 per cent on an average
appeared in the budget; 18 per cent represented the
other employees. The latter comprise those paid by the
day, furthermore, the special assistants and assistant
messengers, who are employed temporarily or on trial
with a view to future permanent employment in the
Bank proper, also agents at suboffices and managers of
warehouses. The Bank also employs, either at a fixed
salary or by the day, numerous men and women to attend
to the heating, lighting, and cleaning of the offices.




67

CHAPTER III.
N O T E ISSUE.
NOTES THE MOST IMPORTANT LIABILITY OF THE REICHSBANK.

Bank notes are the most important liabilities of the
Reichsbank. Through these the Bank receives its special
character, with these all other liabilities are connected,
and by these the assets are determined.
The right to issue notes is a privilege which has given
rise to the exhaustive legal provisions regulating the
Bank's business activity and to the participation of the
Empire in the administration and in the division of the
net proceeds. The fact that bank notes are obligations
which fall due daily and have the same importance for the
national economic system makes them closely related to
transfer accounts (Giroguthaben). Transfers, which, next
to notes, are the most important liabilities of the Reichsbank, have thus been stimulated and materially increased.
If bank notes are to fulfill their functions and not
cause more harm than good, it is necessary that banks
employ only for short credit the notes issued in excess
of their stock of metal, so that a quick reflux of funds
from their investment will meet demand liabilities. For
this reason the Bank Act restricts the assets of the Reichsbank to short-term grants of credit.
The economic importance of the Reichsbank, like its
constitution and its business activity, depends in the first




68

The

Reichsbank,

1876-1900

place on the right to issue notes. This right puts the
Bank in a position to adapt, within certain limits, the
monetary circulation to the fluctuating demands for
money; it makes the Bank the last source of money for
the German economic system, gives it a certain influence
over the money market and its transactions, and enables
it to regulate both the domestic and the foreign demands
on the German monetary system.
LEGAL REGULATIONS CONCERNING NOTE ISSUES OF THE
REICHSBANK.

The note issue of the Reichsbank is regulated by the
Bank Act of March 14, 1875, as follows:
INDIRECT LIMITATIONS OF NOTES.

The Reichsbank has the right to issue bank notes according to the requirements of its business (sec. 16). An
indirect limitation of this right exists, however, in the
above-mentioned (p. 22) system of indirect contingents,
according to which the Reichsbank has to pay to the
Empire an annual tax of 5 per cent (sees. 9 and 10) on
any issue exceeding its cash holdings (Barvorrata) by more
than a certain sum (at first 250,000,000 marks), furthermore, in the so-called " one-third cover," i. e.,the rule that
for at least one-third of the amount of notes issued, a balance of current German coin, imperial treasury notes, gold
bullion, or foreign coin must be held (sec. 17).
The object of these restrictions is to force the Bank to
maintain a sound proportion between cash holdings and
circulating notes, thus to prevent too large an increase of
uncovered notes, and to insure the redemption of the notes.




a See note at foot of p. 80.
69

National

Monetary

Commission

REGULATIONS CONCERNING THE ACCEPTANCE OF BANK NOTES AS A
MEDIUM OF PAYMENT.

The same purpose of securing redemption of notes is the
cause for the regulation that note circulation in excess of
cash reserve must be covered by discounted bills (sec. 17),
maturing at least in three months, on which, as a rule,
three, but at least two, parties are liable.
The notes of the Reichsbank are not legal tender a any
more than the notes of private banks of issue. The regulation in section 2 of the Bank Act applies to all German bank
notes, viz, " there exists no obligation to accept bank
notes for payments which must legally be made in coin,
and such obligation can not be imposed on public treasuries by law of the land." The imperial and state treasuries, however, have been officially instructed to accept
notes of the Reichsbank in payment. In addition, every
bank is bound to accept its own notes for payment at full
face value, both at the head office and at the branches
(sec. 4). Those banks, moreover, which have accepted
the optional provisions of the Bank Act must accept for
payment at their head offices and at branches in towns of
more than 80,000 all German bank notes which are allowed to circulate in the whole Empire; but while they are
allowed to present notes of private banks of issue only
for redemption or in payment to that bank which issued
them or in payments at the place where the private bank
has its head office, they are allowed to use the Reichsbank's
notes (sec. 44, par. 1, no. 5) without limit for payment.
OBLIGATORY REDEMPTION OF NOTES.

The Reichsbank branches are bound to redeem its
notes immediately on presentation at full face value, "as
« B y the Act of June 1, 1909, the notes of the Reichsbank were made
legal tender.
*
70




The

Reichsbank,

1876-1900

far as cash holdings and monetary requirements allow"
(sec. 18).
This obligation of redemption extends also to damaged
notes, provided the holder presents more than a half of the
note or furnishes proof that the remainder of the note, of
which he presents only half or less, is destroyed. On the
other hand, the Bank is not bound to replace destroyed or
lost notes (sec. 4). Damaged or badly soiled notes may
not be given out by the Bank (sec. 5).
DENOMINATIONS.

Concerning the denominations of bank notes, the Bank
Act provides (sec. 3) that notes may be issued for 100,
200, 500, 1,000, or for a multiple of 1,000 marks. a The
Reichsbank had formerly issued notes only for 100 and
1,000 marks. As all rights and obligations of the former
Prussian Bank have passed over to the Reichsbank, the
notes issued by the Prussian Bank before January 1, 1876
are equivalent in all respects to those of the Reichsbank
(Proclamation of the Chancellor, December 16, 1875).
Of these only an insignificant amount has not yet been
redeemed. Some of them are based on the taler
standard; others, issued during 1875, are on the mark
standard for amounts of 100, 500, and 1,000 marks. 6
Nearly three-fourths of the notes of the Reichsbank consist of 100-mark notes.
a
By the Act of February 20, 1906, notes of the denomination of 50 and
20 marks were authorized.
&The Revised Bank Act of June 7, 1899, decided that these notes, most
of which have probably been lost, should, after January 1, 1901, be cancelled
from the balance of the Reichsbank. See below in the concluding chapter
on " T h e Revised Bank Act of June 7, 1899," p. 336ff.




7i

National

Monetary

Commission

RECALL AND WITHDRAWAL.

The recall and withdrawal of bank notes may take place
only by the order or with the consent of the Bundesrat,
which must prescribe in the imperial official gazette (Reichsanzeiger) the nature, the number, and the duration of the
notices of recall; furthermore, the Bundesrat must determine the periods during which notes are to be cashed,
the places where they are to be cashed, the conditions
under which notes presented after the expiry of the fixed
period are to be honored, and all other measures necessary for the protection of the holders of the notes
(sec. 6). In accordance with this regulation, notes based
on the taler standard and the ioo-mark notes of the Prussian
Bank have been called in, but not precluded, by proclamation on March 15, 1878 and April 10, 1878.
PROTECTIVE MEASURES AGAINST COUNTERFEIT BANK NOTES.

Owing to the insignificant value of the material out of
which bank notes are made, the danger from counterfeits is always imminent. In order to meet this danger as
far as possible, the counterfeiting of bank notes is in section 149 of the Penal Code placed on the same footing as the
counterfeiting of coins and paper currency. The punishment for counterfeiting is imprisonment for not less than
two years.
According to a resolution of the Bundesrat on November
30, 1876, all imperial and state treasuries must hold
counterfeit and falsified notes of the Reichsbank, and, in
case the notes are recognized immediately as counterfeits,
must give notice at once to the proper legal or police authorities, with submission of the counterfeit; if the counterfeit




72

The

Ret

chs bank,

1876-1900

appears doubtful, they must send the note to the Reichsbank Directorate to be tested. Information is to be given
by the legal or police authorities to the Reichsbank Directorate of any proceedings or investigations regarding the
falsification and imitation of the Reichsbank's notes; the
forged notes must be submitted, as soon as practicable, to
the Reichsbank Directorate and must be preserved.
Every possible difficulty is put in the way of forging by
the process for the manufacture and technical execution
of notes.
The manufacture and execution, withdrawal, and cancellation of notes of the Reichsbank take place under
the supervision of the imperial debt commission (Reichsschulden-Kommission).
Notes of the Reichsbank and imperial treasury notes
are made in the imperial printing office from a peculiarly rippled hemp paper interspersed with fibres. The
manufacture of this paper, which is called after the in
ventor, an American, " Wilcox paper," is full of technical
difficulties.
The exclusive right to the Wilcox process was purchased
by the former Prussian state printing establishment, and
became the property of the Empire when the latter took
over the printing works. New imperial treasury notes were
produced in 1882 from this paper, and put into circulation
in exchange for the notes of the old emission (with the date
July 11 1874). I*1 a short time, however, more or less
deceptive counterfeits were discovered, which were produced from a paper made in imitation of the Wilcox paper.
To create a greater security against such counterfeits the
paper used in the manufacture of imperial treasury notes




73

National

Monetary

Commission

is legally protected by a law of May 26, 1885. Paper,
"which is so similar to that used in the manufacture of
imperial treasury notes that the difference can be perceived
only with difficulty, may neither be manufactured, nor
introduced from abroad, nor sold, nor kept for sale, nor
otherwise brought into circulation without permission
of the Chancellor or of a body authorized by the Chancellor. Deliberate contravention of this law is punished
by imprisonment up to one year, and when the act is committed with counterfeiting in view, by imprisonment
from three months up to two years. A contravention
through negligence is punishable by a fine up to 1,000
marks or imprisonment up to six weeks.
This protection is not limited to Wilcox paper, the name
of which is not mentioned in the act, but extends to all
paper which may be used for the manufacture of imperial
treasury notes. On the other hand, this protection is
granted only to the paper of imperial treasury notes; the
notes of the Reichsbank, however, enjoy the advantages
of this protection if they are made from the same paper.
Up to the present, extensive forgeries have not occurred
with the exception of a single case, in which the question
of theft by an officer of the imperial printing establishment
was involved.
DEVELOPMENT OF NOTE CIRCULATION.
TOTAL NOTE ISSUE.

The notes of the Reichsbank have increased rapidly—
an increase interrupted only during a very few years.
Whereas the average circulation in 1876 amounted to
684,900,000 marks, it amounted in 1899 to 1,141,800,000,




74

The

Reichs

bank,

1876-1900

and in 1900 to 1,138,600,000 marks. This increase was
coincident with the development of economic conditions in Germany, and, above all, with the increase of
the German stock of specie, which has been estimated at
2,670,000,000 marks at the beginning of 1876 and nearly
3,800,000,000 marks in 1900. At the same time the circulation of Reichsbank notes has increased outside the
offices of the Reichsbank. The bullion of the Reichsbank
amounted on an average in 1876 to 510,600,000 marks;
outside the Reichsbank there were about 2,160,000,000
marks in German metallic money, while the average note
circulation of the Reichsbank amounted to 684,900,000
marks—that is, about 32 per cent of the specie in circulation. The average amount of bullion of the Reichsbank
in 1900 amounted to 817,100,000 marks; in free circulation there were 2,983,000,000 marks, with an average
circulation of bank notes of 1,138,600,000 marks, or about
38 per cent of the metallic money in free circulation.
The variations in the average note circulation from
year to year show clearly the influence of changes in
economic conditions. The average note issue for the
years of economic decline, 1878 and 1879, was less than
that of the two first years of the Reichsbank's existence;
it then shows a considerable increase until 1882, from
622,600,000 marks in 1878 to 747,000,000 in 1882; in
the years of economic standstill a slight retrogression
took place to 727,400,000 marks in 1885, then a new advance up to 987,300,000 marks in 1889, the highest point
of the new prosperity; the years of depression, 1890 to
1893, do not reach these figures; from 1894 on there
begins a new increase up to 1,141,800,000 marks in




75

National

Monetary

Commission

1899. Besides these movements of economic life, which
were mainly responsible for these fluctuations of note
issue, the variations in gold imports have exercised a
certain influence and have effected several modifications.
As the gold from abroad flows primarily into the Reichsbank, principally in exchange for its notes, each heavy
importation of gold must lead to a larger issue of notes.
Thus the large gold purchases of the Reichsbank in the
years 1885 to 1888 certainly helped in the great expansion
of note circulation during those years, and, furthermore,
the great increase of 111,000,000 marks in note circulation from 1893 to 1895 is to be attributed mainly to
the heavy gold importations of the year 1894.
UNCOVERED NOTES.

Far more characteristic than variations in the total
note circulation are the fluctuations of the uncovered
note issue. Whereas the total note circulation shows an
almost uninterrupted growth, the development of uncovered notes is much more unequal. The years of economic
standstill show a decided falling off, particularly those
years which showed a strong influx of gold; the years of
economic rise show a considerable increase. While the
average uncovered note circulation fell to 78,500,000
marks in 1879, 8,700,000 marks in 1892, and 30,600,000
in 1894, and while in 1888 the average stock of bullion
exceeded the average note circulation by more than
1,000,000 marks, the average uncovered note circulation
always reached a high figure in years which denote an upward trend. It amounted in 1882 and 1890 to 152,000,000,
in 1899 to 281,100,000, and in 1900 to 284,700,000 marks.




76

The

Reichs

bank,

187 6-19

00

The same fact is to be observed in the course of the
various years; for both note circulation and uncovered
circulation reflect faithfully the demands for money.
Both are regularly lowest in the first months of a year
in which there is little demand for money, and highest
in the last quarter of a year in which there is a strong demand for money; both show rapid advances at monthly
and quarterly periods at which large payments are made.
But these movements are much sharper in uncovered note
circulation than in note circulation. In 1899, f° r instance,
the total circulation of notes ranged between 1,013,000,000
marks on February 23, and 1,383,000,000 marks on
September 30; the difference between the two extreme
points amounted, therefore, to 370,000,000 marks.
The uncovered note circulation fluctuated in the same
year between 70,500,000 marks on February 23 and
664,600,000 marks on September 30; the difference was
therefore 594,100,000 marks, and consequently greater by
more than 200,000,000 marks than the difference in the
case of note circulation.
CAUSE OF FLUCTUATIONS OF UNCOVERED NOTES.

The cause lies in the fact that the domestic demand for
money applies to metallic money as well as to bank notes.
An upward economic trend increases not only the need
for notes for larger payments, but also the need for small
money for the payment of wages, etc. The increased
need of metallic money is often considerably greater, because the large transactions in which bank notes alone
are considered are settled more and more by methods
avoiding the use of cash. The increase in times of pros-




77

National

Monetary

Commission

perity of transfer transactions of the Reichsbank, often
with a simultaneous decrease of the balances of current
accounts, bear witness to this, as does also the increased
business of the clearing houses. As these methods come
into consideration only in the case of larger payments,
they probably work against an increase of notes, but not
against the increased need of specie for smaller payments.
As the bullion of the Reichsbank is the reservoir out of
which the needs of trade are met by bill discounts, etc.,
by cashing notes and drawing on balances, upward tendencies of trade, along with an expansion of the note issue
of the Reichsbank, frequently effect a still heavier decrease of the stock of bullion, and both movements
find expression in the final figures for uncovered note
circulation.
Uncovered notes are the elastic part of monetary circulation, and the changes in it make perceptible the
fluctuations of money demands on the Reichsbank.
Since the establishment of the Reichsbank, the fluctuations in various years in the domestic demand for money
have also undergone a material increase, along with
the development of economic conditions. Thus the demands made by trade on the elasticity of uncovered note
circulation have considerably increased. Whereas in the
development of note circulation the important and constant increase in the average of the various years, from
685,000,000 marks in 1876 to 1,142,000,000 in 1899
and 1,139,000,000 in 1900, is most striking, there is no
constant growth in uncovered note issue. As late
as 1895 the average uncovered note circulation was




78

The

Reichs

bank,

1876-1900

50,000,000 marks—considerably smaller than in 1876, with
120,000,000 marks. Even under the strained conditions
of 1899 and 1900, the average uncovered note circulation
of the Reichsbank was greater by only 161,000,000 and
164,000,000 marks, respectively, than in 1876, whereas the
dilBference in note circulation amounted to 451,000,000
and 454,000,000 marks, respectively. The most striking
fact in the development of uncovered note circulation
is perceived in the increase of "ranges" (Spannungen;
differences between the maximum and minimum) within
the various years. Whereas in 1876 the difference between the maximum and the minimum of uncovered
note circulation amounted to only 212,500,000 marks, it
was as high as 594,100,000 in 1899. That the increase
was on the whole continuous is seen when one observes
the development in periods of five years. We then get
the following results:




79

[Amounts expressed in 1,000 marks.]

ft
Uncovered note circulation.
Periods.

Maximum.

Minimum.

Range.

Average uncovered note
circulation.

ft

Amount.

1876-1880
1881-1885
1886-1890
1891-1895
1896-1900

July
1, 1876
Dec. 31,1884
Dec. 31,1889
Dec. 31,1895
Sept. 30, 1899

242,201

306,551
396,058
441,683
664,633

Mar.
Mar.
June
Feb.
Feb.

23, 1879
15,1883
7,1888
23,1895
23,1898

- 25,350^
4. 082
-170,6300

-177, 764°!
-128,1030

267,551
302,469
566,688
619,447
692. 736

102,263
117,113

73.943
48,879
228,623

ft

*Barvorrat (consisting of gold and silver reserves and holdings of imperial treasury notes and of notes of private banks of issue) greater
than the note circulation by this amount.




o
8

The

Reichs

bank,

1876-1900

The increase in "range" figures is, as a comparison of
column 6 with column 7 shows, independent of the average uncovered note circulation. There was a considerable
progress from 1881-1885 to 1891-1895, while the average
of uncovered notes declined from 117,000,000 to 49,000,000
marks.
UNCOVERED NOTES AND CONTINGENT (LIMIT).

The greater the fluctuations of uncovered notes the
more difficult it was for the Reichsbank to keep within the
limit fixed for uncovered notes by note taxes (cf. Tables
19 and 22). The yearly average of uncovered notes was
always less than the contingent; in most years it remained
considerably below this amount. The whole development
of the German monetary system has led to more frequent
and heavy excesses of the legal limit on settlement days.
While in the first five years of the Reichsbank's existence
the difference between the maximum and minimum of uncovered note circulation (267,600,000 marks) did not
reach by several million marks the amount of the contingent (273,900,000 marks), the difference in the year 1899
(594,100,000 marks) was twice as large as the note contingent. The highest amount of uncovered notes in 1876
was higher than the year's average by only 122,000,000
marks; in 1899, by 383,000,000; the year 1899 had to
show an extra cover of 90,000,000 marks if the contingent was not to be exceeded. Under these circumstances it is conceivable that the number of issues exceeding the contingent has constantly increased. In the first
five years of the Reichsbank's existence there was no excess issue. The period 1881-1885 showed five excess issues,
82302—10




6

81

National

Monetary

Commission

the largest being 32,700,000 marks, on December 31,1884.
The following five years, 1886-1890, brought ten excess
issues, of which six occurred in the one year 1890; the
largest, 109,500,000 marks, was on December 31, 1889.
In the following years of commercial standstill and small
demand for money the excess issues became less frequent;
only four took place in the period 1891-1895, the largest
on December 31, 1895, with 148,300,000 marks. The
period of business revival, which had begun in 1895 and
led to a considerable increase both of the average and the
fluctuations of uncovered notes, caused an extraordinary
increase in the number and extent of excess issues. There
were 71 in the five years 1896-1900, and the highest figures
were reached on September 30, 1899, with 371,200,000
marks. The importance of these increasingly numerous
excess issues for the discount policy of the Reichsbank
and the extension of the Reichsbank's contingent, authorized by the Revised Bank Act (Banknovelle) of June 7,
1899, will be described in special chapters (cf. pp. 202ff.
and 343^-).
THE RELATION BETWEEN NOTES AND COVER FOR NOTES.

When the system of contingents was introduced, the
main point was that an excess of the legal limit should
always be possible when justified by the condition of
the money market. The case is different with regard to
the provision for a " one-third cover." The regulation
that metal and imperial treasury notes for at least onethird of the notes in circulation must be on hand in the
vaults of the bank as cover is absolutely binding.




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1876-1900

In reality the Reichsbank's cover for notes has always
been considerably larger than the prescribed minimum.
Even the most unfavorable state of affairs, on September 30, 1899, w;as still such that metal and imperial
treasury notes together constituted 50.93 per cent of
the notes in circulation. Only on this one settlement
day was the metal cover for notes a little under 50 per
cent.
In the whole previous period the cash cover for notes
was subject to the same fluctuations as uncovered
notes. Every increase of uncovered notes must, if the
cash holdings remain the same, injure the proportion
between notes and cover. In their direction, therefore,
the fluctuations in cover run parallel with those of
uncovered notes. They were influenced, however, by
the fact that, on the whole, the Reichsbank's stock
of ready money has considerably increased; with a
larger cash reserve and the same circulation of uncovered notes, the proportion between notes and cover is
more favorable. Thus the average of uncovered notes
was (within the meaning of section 9 of the Bank Act)
just the same in 1890 as in 1882, viz, 152,000,000 marks;
but though the cash holdings amounted in the latter year
to only 595,000,000 marks it ran, in 1890, to 832,000,000.
As a result, the proportion of cover was in 1882, with
an equal circulation of uncovered notes, only 79.6 per
cent, as compared with 84.5 per cent in 1890. Furthermore, the proportion of metal cover was almost the same
in 1881, with 75.26 per cent, and 1898, with 75.67 per
cent, in the latter year even more favorable; yet the




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notes in circulation uncovered by metal amounted in
1881 to only 183,000,000 marks, in contrast to 273,000,000
in 1898 (cf. Table 20).
In consequence of the increase of cash holdings, the
cover for notes has increased when uncovered notes
have decreased, and has, in a smaller measure, decreased
when uncovered notes increased. The metallic cover
for notes amounted on an average in 1876 to 74.55 per
cent; only in 1882, 1899, and 1900 have the figures been
lower. The figures were highest in 1888 with 96.82 per
cent. In 1892, 1894, and 1895 the figures were 95.67,
93.40, and 92.35 per cent. The enormous demand for
money in the last five years has caused such a heavy increase of note issue and decrease of metal stock that the
average metal cover gradually fell to 72.3 per cent in 1899
and 71.8 per cent in 1900. It must be emphasized that
this amount of cover falls only a little short of the first
years of the Reichsbank, although the average note circulation of the Reichsbank uncovered by metal amounted
in 1899 to 316,000,000 marks, in 1900 to 321,000,000
marks, against only 174,000,000 marks in 1876.
As the Reichsbank, in the interest of the German
imperial standard, always pays on demand in the one
medium of full value, namely, in gold coin, it is of importance to know how the gold reserve has developed as
metallic cover for notes.
When one regards the metal reserve of the Reichsbank
from this point of view, the first thing noticed is that in
the first years of the Reichsbank's existence, in which




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1876-1900

occurs t h e conversion of German silver currency into a
gold currency, t h e stock of gold, which had been collected
in t h e Prussian Bank for this transformation, diminished
from an average of 287,000,000 marks in 1876 to an
average of 207,000,000 marks in 1881, whereas a considerable increase took place in the stock of silver during
this time. T h e result was t h a t the gold cover for
notes decreased from 41.9 per cent to 28 per cent. Since
then t h e gold reserve of t h e Reichsbank has been substantially strengthened b u t not without considerable fluctuation, while t h e silver reserve, with a short break at the
beginning of t h e nineties, has constantly declined. The
result was t h a t gold cover for notes which since 1881-82
has moved in t h e same general direction as t h e total
metal cover, has, on t h e whole, increased more favorably t h a n t h e latter. Since 1883 it has amounted to
considerably more t h a n the prescribed "one-third c o v e r "
of total metal holdings and imperial treasury notes, and
since 1887 has never fallen below 50 per cent. Even
during t h e great strain of 1899 it kept up to 50.2 per
cent, with a note circulation of 1,142,000,000 marks and
a metallic cover of 72.30 per cent, while in 1881, with a
note circulation of only 740,000,000 marks and a metal
cover of 75.26 per cent, it amounted to only 27.9 per
cent. T h e average gold cover was most favorable in
1888 with 65.2 per cent and 1895 with 64.2 per cent.
These figures show w h a t an extraordinary improvement
t h e most important metallic cover for notes has experienced since t h e beginning of t h e eighties, and




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how much the whole currency of Germany has been
consolidated.0
a The complaint has frequently been made that t h e shareholders of t h e
Reichsbank have received in the right to issue notes a gift which yields
many millions annually. T h e demand for a complete state ownership
of the Reichsbank is always based on the argument that the proceeds of the
note privilege ought t o go to the Empire, which alone ought t o exercise or
confer this right. But t h e services rendered by the Reichsbank, a n d t h e
conditions upon which the note privilege is legally dependent, are usually
overlooked or considerably underestimated. Above all, the services which
the Reichsbank is bound to render t o t h e Empire must be taken into
account. First among these is the gratuitous management of the imperial
treasury, and the duty of issuing to certain bank officers imperial gold coins
for subsidiary coins. T h e Reichsbank must, in addition, make certain
payments. These consist first of all in the share of profits belonging t o
the Empire, and secondly, in the note t a x which is paid to the Empire on all
notes issued in excess of the contingent limit; to these must be added t h e
revenue of 1,865,730 marks which was taken over from the Prussian Bank
and is payable t o Prussia until the year 1925, and finally, the lump sum of
15,000,000 marks paid to Prussia in 1876 as compensation a t the establishment of the Reichsbank. Altogether, t h e Reichsbank has paid in t h e
twenty-five years of its existence: to Prussia, in lump sum and in annual
revenues, 61,600,000 marks; to the Empire, in note taxes, 9,500,000 marks,
and in shares of profits 133,400,000 marks, so that its payments to t h e
Empire and Prussia amount u p to the present t o 204,500,000 marks (cf.
Table 80). The compensations paid by the Reichsbank in the first years
of its existence to several private banks of issue for the surrender of their
note privilege, and amounting altogether t o 169,066 marks, are also to be
subtracted from the proceeds of the Reichsbank.
On the other hand, the clear profits from the issue of notes can only be
approximately ascertained, because the cash holdings of the Bank can not,
without difficulty, be divided among notes and other liabilities. Besides, a
proper share of the costs of managing the Bank, and separate balances for
the manufacture of bank notes, must be deducted from the gross proceeds
of the note issue.
If, therefore, a calculation be made, which of course could only be approximate, it will be found t h a t the financial importance of the note privilege has
been greatly overestimated, and that, especially in accordance with new
legislation which considerably curtails t h e dividends of t h e shareholders,
the Empire is assured, without complete acquisition of the Reichsbank, of
the proceeds of the note privilege.




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CHAPTER IV.

TRANSFERS AND T H E CLEARING SYSTEM.
(Giro-und Abrechnungsverkehr.)
TRANSFERS

(GIROVERKEHR).

T H E SYSTEM OF TRANSFERS.

Transfers are cash-saving methods of payments between patrons of the same bank; instead of a cash payment a transfer is made on the books of the Bank so that
the sum is deducted from the account of the payer and
added to the account of the payee. With this is connected the acceptance of cash for current accounts and
the payment of cash from the accounts, also settlements of
all kinds, credit and debit, with the owners of accounts.
The transfer of large sums on the books of the Bank
has great advantages over cash payments. The trouble
of testing and counting, the danger and the cost of handling cash are done away with. The completed payment
is recorded by the transfer on the books of the Bank.
Deterioration, unavoidable in circulating money, is
avoided when the money lies idle in the bank; the loss
of interest incurred in the delivery of cash is also avoided.
These advantages are sensibly increased by the circumstance that after transfers have been generally
adopted there is no possibility of withdrawing all balances,
because the business world in critical times can not do
without the facilities of transfers, and therefore can not




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afford to withdraw the balances of their current accounts
(Giroguthaben). Consequently, the bank can use current
account moneys for granting short credit. This is another
important saving of cash. The balances on current accounts help the market by credit granted; they themselves are created in part by the granting of credit.
It is a necessary condition of a system of transfers that
the possessor of an account can withdraw in cash the balance in his favor. The deposits on these accounts are
therefore demand liabilities, and are to be treated by the
Bank like bank notes. On account of this similarity, the
transfer accounts are particularly suitable for banks of
issue. The advantages of the combination of notes and
transfers are especially noticeable, in that the ready money
flowing to banks of issue as a result of transfer accounts
diminishes the uncovered note circulation.
REASONS FOR T H E REORGANIZATION O F TRANSFERS.

Through various circumstances the Reichsbank at its
establishment paid particular attention to transfers. The
Bank Act assigns to the Bank the task of "facilitating settlements and rendering available capital productive." The Bank could not satisfy this requirement
better than by substituting for cash payments transfers
on the books, and collecting idle cash from various transactions into a great productive fund of current accounts.
The Bank was practically forced to do this by the withdrawal of trust funds committed by the courts to the care
of the Prussian Bank, and by the limitation of notes
ttaough the system of note taxes. A substitute for the
funds thus withdrawn had to be found. A substitute




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1876-1900

could not be sought in interest-bearing deposits. All
experts agree that interest-bearing deposits are not suitable for a bank of issue, and on this account the Bank Act
(sec. 13, par. 7) had limited the amount of interest-bearing
deposits to the capital stock and reserve fund. Thus
everything pointed to transfers, especially the fact that
the cash brought in by transfer transactions can be regarded as cover for notes within the meaning of the Bank
Act, and that consequently every increase of transfers was
sure to extend the limit for note issues.
The Reichsbank, at its establishment on January 1, 1876,
found itself confronted by the necessity of creating something entirely new in the way of transfers, for the transfer
business of its predecessor, the Prussian Bank, was almost
negligible.
The Prussian Bank had had no more facilities for transfers than private institutions. Its transfer business was
limited, moreover, principally to Berlin; outside Berlin
there existed in 1875 only the insignificant transfer institution (Giroanstalt) in Danzig.
Immediately upon the conversion of the Prussian Bank
into the Reichsbank, the transfer business of the new Bank
was considerably extended through taking over the state
Girobank of Hamburg, which had developed transfer transactions, as local business, almost to perfection, and had
educated the Hamburg business world to an extensive use
of the facilities for transfers. The Reichsbank took over
with the Hamburg Bank—this was an expressly stipulated
condition—its transfer department (Giroverkehr) essentially in its previous form.




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INTRODUCTION OF GRATUITOUS DISTANCE TRANSFERS.

The most important means for stimulating this branch
of business lay, however, in a field in which neither the
Hamburg Bank nor a foreign one could serve as model.
Even the Hamburg transfer system was purely local.
The transfer system of the Reichsbank, which has now
become a model for foreign countries, owes its great development to the introduction of distance transfers free of
cost. The Reichsbank first made all its independent
branches transfer banks (cf. Table 38), which were connected by means of free distance transfers. The transfer
system was thus changed from a limited local system into a
general system comprising all German economic territory.
As the Bank added to the advantages of transfers offered
gratis by the Prussian Bank the advantage of being able
to make and receive payments free of cost between all
branches of the Reichsbank, a Reichsbank current account
(Girokonto) became valuable even at such places in which
was lacking the preliminary condition of a profitable
local transfer system, namely, sufficient business to pay
for the trouble. Deposits and withdrawals, for which a
charge is generally made, became, through the innovation
of transfers, gratuitous to parties having a transfer account. Remittances of the Bank have thus been furthered
greatly by transfer accounts, and business has likewise
gained in facility. Through the constant extension of
transfers the way was paved for the gradual transformation of most German payment operations into the
forms of transfers. Even for those banks which encourage
transfer accounts with certain clients, the transfer system
of the Reichsbank has become indispensible because of




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1876-1900

the advantages which it affords their clients. The booked
items at the Reichsbank represent a highly organized payment system, and the Reichsbank itself appears as the %
great clearing house of the whole Empire.
ORGANIZATION OF T H E TRANSFER SYSTEM.

Immediately after the adoption of the Bank Act, the
Directorate of the main bank in Berlin began to prepare
for the organization of the transfer system. The work
was hastened after Prussia had, on February i, 1876, used
the right reserved to it by section 12 of the contract of
May 17-18, 1875, of recalling trust funds deposited by
order of the courts.
The following are the essential features of the reorganized transfer system:
The signature of the depositor to the printed il Regulations for transfers at the Reichsbank" is required as
proof of the conclusion of a contract. The account is
opened by a cash deposit called balance (Guthaben).
This is increased by further cash deposits, by transfers
from other current accounts, and by an adjustment of
transactions between the Bank and the depositor (crediting of discounted bills, granting of loans on collateral,
etc.). The depositor can close the account by drawing
out the balance in cash, by transferring it to other current
accounts, and by settling with the Bank (debiting bills
made payable at the Bank by the account holder, of
collateral loans due from him, etc.).
The red check, which represents the real transfer draft,
was introduced for transfers from one account to another.
The white checks serve for the withdrawal of cash and




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for settlement of transactions with the Bank. The red
check bears the name of the person to whom the transfer
is made, and is not transferable. The white check, on
the contrary, is made out in the name of the payee, with
the addition " o r bearer." For making payments between different places (distance transactions) the red
check, that is, the transfer from account to account, is
used almost exclusively, as a fee is charged for cash payment from one account to another by means of a white
check, and such payment can be made only after it has
been determined whether a balance is at hand at the
branch.
The transfer facilities provided by the Reichsbank are
open to all classes of population, to institutions, and to
public authorities. The Bank opens an account for anyone who enjoys the necessary confidence. The Bank expects the holder of the account to keep a balance corresponding to the labor involved. A fixed rule is not given;
the amount of the minimum balance can be fixed only
according to the extent to which the depositor claims the
services of the Bank. Nevertheless, the opening of accounts with tradespeople is dependent on a previous understanding about the minimum balance, which should not go
below 1,000 marks in small places, and at larger trade
centres must amount to several thousand marks. If the
transactions on the account increase unexpectedly, and if
the Bank is not sufficiently compensated in other directions, it can request the holder of the account to strengthen
his balance. The Bank can, at any time and without assigning reasons, give notice to terminate an account. This
generally happens when an account is misused.




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bank,

1876-1900

On April 10, 1876, transfer departments could be
opened on the new basis in Berlin and at all the independent branches. The new department began with an
extended circle of interested parties. The funds which
flowed to the Bank from the encouragement of this business increased rapidly. After the large holdings of the
Hamburg Girobank were taken over, the balances of private current accounts had slightly exceeded 16,000,000
marks, but amounted no later than May 31—scarcely two
months after the general introduction of the system—to
more than 94,500,000 marks. The new arrangements subsequently proved suitable for their purpose, and only
once experienced an important change in the introduction of clearing offices (cf. p. 115).
EXTENSION OE TRANSFERS.

The Bank has adopted a number of important measuses for the gradual expansion of the system, for the
further extension and facilitation of transactions between
the Bank and its patrons, between the patrons themselves,
and even with outside persons. These provide for transfer
deposits by persons not having an account with the Bank,
for the collection of bills for current-account customers,
for the compulsory domiciling of bills, and, finally, for the
gradual extension of the transfer system to suboffices
(Reichsbanknebenstellen).
Payments by persons not holding accounts.—As early as
1876, the Bank increased its business to allow anyone to
deposit sums, without charge, to any amount at any of
the branch offices of the transfer system, for the account
of patrons having current accounts in other places. The




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acceptance of these " sums paid in by persons not possessing accounts" constituted a necessary supplement of the
transfer system, if the transfers of the Reichsbank were
to take the place of the obsolete method of adjusting
payments by means of dutiable bank drafts. In the
privilege thus granted to everybody of gratuitous remittance from place to place, the Reichsbank conceded to
persons not possessing accounts some of the advantages
belonging to the persons concerned in transfers.
The arrangement quickly became popular, as is shown
by the sums paid in by persons not possessing accounts
(cf. Table 35), which had amounted to only 133,900,000
marks in 1876 and had risen to 1,317,000,000 marks in
1882; that is, 25 per cent of the sums were remitted in
this year from place to place by means of red checks.
In the increase of these deposits, however, one factor
retarded the general development of the transfer system.
As the most conspicuous privilege of the holders of accounts—that of being able to make payments from place
to place without charge—was afforded to persons not holding accounts without obliging the latter to tie up a certain
amount of capital, many interested parties were deterred
from entering the actual transfer system. The public
considered only the immediate advantage and did not
reflect that the effectiveness of this system depends not
only on the readiness of large circles to make payments
by transfer, but also upon the existence of enough accounts
to which these payments can be made. Only transfer
transactions between persons having accounts can be
regarded as real transfers, and the Bank can find remuneration for its trouble only in the accounts bearing




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1876-1900

no interest. At more than one $lace, however, it was
observed that the sums paid in by persons not having
accounts had reached an extent out of all bounds in proportion to the number of patrons holding accounts. The
Bank resolved, therefore, to cease gratuitous work in connection with sums thus paid in, and in this way to draw
into the real transfer system the principal persons interested in the transactions. However great a value the Bank
set upon the principle of gratuitous transfer remittances,
the consideration had to be taken in account, that in the
acceptance of payments a service is rendered to persons
who are in no way connected with the transfer system.
Certainly there are found among such persons many who
have current accounts at another place, and now, in
person or through commercial agents, use for remittances
to their own firms this favorable method offered by the
Reichsbank. Sometimes this use is made chiefly in the
interest of the payee, on whom the cost of transportation
would otherwise fall. In general, however, the levying of
a fee on deposits by persons not possessing accounts is not
inconsistent with the principle of free transfer remittances,
and is justified, moreover, by the outlay of the Bank for
printing and delivering the forms.
The fee introduced on July i, 1884, has repeatedly been
raised, because the intended effect of stimulating transfer
accounts has been realized very slowly. It amounts now
to one-tenth on a thousand, and at least 30 pfennigs for
each deposit. This mode of payment, however, is cheaper
than the inconvenient and uneconomical method of sending cash through the mail; the post-office money order,
which is possible only for small amounts, is cheaper




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only for very small sums. In this department the Reichsbank does not care to compete with the post-office. The
effect of the raised fee was shown by the fact that deposits by persons not possessing accounts did not increase in 1884 and 1885, but diminished by more than
200,000,000 marks, though the number of individual payments showed a slight increase. At the same time, there
was an enormous increase in transfers from account to
account between different places and in the number of
persons holding accounts. The Reichsbank attained its
purpose; persons paying in large amounts started
transfer accounts, and now remitted by means of red
checks, while the number of persons paying in small
sums continued to increase. Since 1886 the deposits by
persons not having accounts have increased uninterruptedly, both in number and in amount. From 380,442
individual payments, amounting to 1,104,400,000 marks
in 1885, they rose to 733,805 payments with a total of
3,047,100,000 marks in 1897. This growth has not been
brought about exclusively by the sums paid in by private
persons, but also by the government treasuries in the
province, which assigned to the offices superior to them,
and especially to the central office in Berlin, the money not
immediately required. This is shown by the fact that in
1898, after whole systems of public treasuries were connected with the transfer system (cf. pp. 104 and 297 ff.),
the sums paid in by persons not having accounts decreased
to 2,777,900,000 marks, and the decline continued in
1900 to 1,545,900,000 marks.
Collections for current accounts.—Similar to the arrangement for allowing sums to be paid in by persons not hold-




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1876-1900

ing accounts, the local collection, without charge to
patrons with transfer accounts, of bills, checks, drafts,
etc. (Giroeinzugswechsel, cf. Table 56), had in view the
facilitation of payments. Soon after the reorganization
of the transfer system, however, complaints were made
about the improper use of this arrangement. Large numbers of small bills were committed to the Reichsbank for
collection on transfer accounts, although the guarantors
of these bills were of little interest to the Reichsbank
and the collection involved a disproportionate amount of
trouble. Moreover, a considerable percentage of these
small bills were not paid on presentation, and it was
necessary to return them to the persons sending them for
collection. On this point, a restriction could be made
without injuring the principle of gratuitous services for
transfers. In 1888, therefore, a fee of 20 pfennigs each
was imposed (as in the case of the Austro-Hungarian
Bank) on those bills committed to the Bank for collection
which had to be returned to the person who sent them in.
The effect of this rule was shown in the rapid decline of
bills delivered to the Bank for collection, from 713,108 in
1887 to 335,299 in 1889. As bills of small value were
mainly concerned, the decline in the number of bills
has had no influence on the total value of the bills
delivered to the Bank for collection. The total in 1887
was 859,500,000 marks, and in 1889 882,700,000 marks.
Since that time the number of bills for collection has
been fairly stationary.
Compulsory domiciling of acceptances.—The domiciling of bills at the Prussian Bank by its holders of
transfer accounts attained no great importance, for
82302—10




7

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Commission

the transfer system had not been developed. The Reichsbank encouraged this policy with energy. It made, at
the opening of a transfer account, the universal stipulation that the holder of the account must make payable
at the Reichsbank all bills which bind him to payment
(i. e., acceptances), so that at maturity the bills could
be honored by means of a simple draft and a debiting
of the transfer account. In 1888 holders of transfer
accounts were permitted to have bills in their favor
paid by the Reichsbank after their transfer accounts
had been debited. On the other hand, the obligation of
domiciling acceptances was modified at places possessing
a clearing system, so that the Reichsbank allowed domiciling to take place not only at its own branches, but also
at those banks with which it had daily clearings. As the
Bank always has many matured bills on hand, the routine
of business is facilitated for the Bank and for the public by
the discontinuation of presentations and cash payments.
This relief occurs also when the bill domiciled to the Bank
is in possession of a third party, for this third party is
usually a banker who settles daily with the Bank by
means of transfers. Presentation is not avoided here,
but the cash payment probably is, as in most cases
the bill can simply be entered to the credit of the presenter's transfer account. In this way the Bank succeeds in
concentrating payments in its own hands, and in considerably diminishing the amount of metallic money to be
put in circulation.
Compulsory entries on transfer accounts.—The most
essential measure for encouraging transfers and for combining them with other branches of the Bank's business




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1876-1900

was the regulation of February 1883, according to which
all payments which a client with a transfer account is to
receive from the Bank are not to be made in cash, but are
to be entered to the credit of his account. This applies
not only to demands on bills and checks payable at the
Bank, but also to bills discounted at the Bank, to those
committed to it for collection, and to collateral loans
made by it. The holder of the account can dispose of
these sums only through transfers. This measure was in
the interest of the Bank and of the public. All payments
of the Bank to persons having accounts are now concentrated upon the accounts; the Bank now gives cash only
on white checks. Thus an effective means is provided
against fraud, counterfeiting, and the like. Since the
introduction of this regulation the Reichsbank insists
more strongly that its patrons in the transfer department
comply with the provision requiring them to make their
acceptances payable at the Bank. Furthermore, all
firms, etc., wishing to carry on a discount business with
the Reichsbank are required to open a transfer account.
Further regulations for facilitating the management of
private accounts.—The effort to include more private accounts in the transfer system has given rise to a number of
further measures.
In 1887 an arrangement was made at a number of places
with the post-office authorities. This arrangement now
extends to all branches in the transfer system, and stipulates that post-office orders to persons with transfer
accounts be entered, if desired, to their accounts. On the
other hand, such parties may obtain post-office orders by
checks on the Reichsbank (cf. Table 73). In 1900 the




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Commission

credited post-office orders amounted to 1,252,000,000
marks; the post-office orders paid for by means of checks
amounted to 119,000,000 marks.
In a similar manner, since 1885 and 1892, respectively,
the payment of register interest (Schuldbuchzinsen) of the
Prussian debt and of the imperial debt, also, since 1884,
the payment of interest on securities deposited with
the Reichsbank is made, at the desire of the receivers,
through transfers (cf. Tables 71 and 72). Here, also, the
importance of transfers has risen from year to year; in
1886, 80.5 per cent of the interest and dividend payments
to depositors through the offices of the Bank were made in
cash, and 19.5 per cent through transfers; in 1900 the proportion had changed to 65.9 and 34.1 per cent, respectively.
Territorial expansion of transfers (inclusion of suboffices).—The transfer system of the Reichsbank
was at first restricted to the independent branch
offices—the head branches (Reichsbankhauptstellen) and
branches (Reichsbankstelleri). The general inclusion of
suboffices (Nebenstellen) in the transfer system was contemplated from the beginning, but was not at first
practicable. In the first place, the control of the large
cash holdings necessary in transfer transactions presented certain difficulties at the suboffices. Added to
this was the fact that, in the middle of the seventies, the
management of suboffices was still in the hands of
agents, most of whom were taken from other vocations, who
regarded their position as an incidental office, and received
principally a share of the profits on the transactions arranged by them. These agents could not, however, be
saddled with the burdens connected with transfers, for




100

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chsbank

, 187

6-1900

transfers, being liabilities, yield no profits in which the
agents could have shared.
The "Business instructions for transfers" of February
25, 1876, by which the transfer system of the Reichsbank
was inaugurated, contained, therefore, no regulations
concerning transfers at suboffices. The inclusion of suboffices was the result of a gradual development which was
made possible by the complete transformation of the organization and nature of suboffices. Out of small agencies
have grown business centres, managed by trained officers,
at which one person is no longer able to supervise the
work.
The first general arrangement which the Reichsbank
made in the interest of transfer suboffices permits clients
(with transfer accounts) residing in such places to avail
themselves of the gratuitous services of the suboffice in
the withdrawal of cash from their balance at the branch
office. Even this procedure was very cumbrous.
More important was the power granted to suboffices
of accepting deposits from persons not possessing accounts.
This right was especially valuable to firms in the town of
a suboffice as long as the possession of a transfer account
was so inconvenient for them. For the patrons in the
transfer system residing there, however, this provision
brought with it the important right of depositing sums
at the place of residence to the credit of their account at
the superior branch.
The decisive step, however, was that of charging the
suboffice itself with the management of accounts. Only
with the possibility of using transfers of the Reichsbank
without the agency of the postal system did the offices




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Commission

attain their full significance for transfer clients. For the
purpose of control, the accounts established at the suboffice are kept in duplicate at the superior branch. The
account, as kept here, is legally authoritative for the
relation of the Reichsbank to the client, and the latter is
bound to inform the superior branch of all payments
made by him at the suboffice by means of transfers.
Transfers from and to the suboffice were made for the
time being through the superior office.
The transfer system had been introduced in this form
as an experiment in 1876 at several suboffices in Wurttemberg. Abuses did not arise, and the provisional arrangement, the usefulness of which was evident, was soon extended to other suboffices. Further progress was made
in 1883 and 1888 by the extension of the powers of suboffices. In 1883 the independent branches and in 1888 the
suboffices were instructed to make transfers direct to the
receiving suboffice and no longer to the superior office.
On account of the increase of cash from the large sums
paid in, and on account of the work arising from sending
the advices, this power could not be extended beyond
certain limits (beschrdnkter Giroverkehr) in suboffices
managed by one official. Suboffices managed by two
officials are, on the contrary, generally invested with
extended powers {erweiterter Giroverkehr).
Along with the internal expansion of the transfer system went the extension of the system to more branches.
Of the 330 branches of the Reichsbank only the few suboffices and warehouses without a separate cash office are
excluded from the transfer system. Moreover, the business centre of all suboffices is in the transfer transactions.




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1876-1900

The Reichsbank has therefore been enabled to open
branches at places where a sufficient field could not have
been found for a discount and collateral loan business.
While, on the one hand, the great extension of branches,
in which the Reichsbank excels all other central banks, is
largely attributable to the transfer system, the transfer
system itself has attained its full importance for German
payment operations only through the continued extension
of the system of branches. The whole of Germany has
become, so to say, a single "banking place" through
transfers in conjunction with the great number and the
general extension of the branches of the Reichsbank.
T H E SHARE TAKEN BY D I F F E R E N T VOCATIONS AND BY PUBLIC
AUTHORITIES IN TRANSFERS.

It has already been mentioned that the advantages of
facilities for payments, which extend to all parts of the
Empire, are open to all persons, whatever their calling.
But as the transfer system in its territorial extension
found most favorable soil in the great centres of trade,
so those callings, which by nature require more rapid
payment operations, have been able to turn the advantages of transfers to the most account. First of all come
the banks, the business of which consists to a great extent
in demands for money and in the acceptance and making
of payments. Then follow commerce, industry, trade,
and finally agriculture.
An investigation undertaken on May 7, 1900 (cf. Table
40), resulted as follows:
Of the 13,689 private transfer accounts, with a total
balance of 240,000,000 marks, 7,368 accounts with a total
of 179,000,000 marks belonged to commerce, banking,




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transportation, and insurance—that is, 53.8 per cent of
all transfer accounts of private persons and concerns and
74.6 per cent of their balances. Of this, the banks alone
have a total balance of 142,000,000 marks. The share of
industry and trade is considerably smaller; the number
of accounts was less in proportion than the sum of the
balances. The latter with 51,700,000 marks amounted to
21.5 per cent of the private balances; the number of accounts was 5,189—37.9 per cent. Agriculture (and allied
trades) has only 183—1.3 per cent of all transfer accounts—
and the balances (923,000 marks) did not amount to onehalf of one per cent of all private balances. The average
account in the case of commerce, etc., was 24,297 marks,
of banks 57,541 marks, of industry and trade 9,955
marks, and of agriculture 5,046 marks.
A similar investigation at the end of 1898 led to similar
results in the divisions according to the vocation of the
holders of accounts.
For a long time the transfers of the Reichsbank were
confined principally to the business world; public authorities became friendly very slowly. Only the imperial postoffice authorities made use of the transfer system of the
Bank to any great degree since 1879 (cf. p. 297). A more
energetic collection of public funds by the Bank has been
made only in recent years (from 1896 on) through the connection of whole groups of public treasuries of the Empire,
Prussia, and Baden with the transfer system of the Bank
(cf. p. 297 ff.).
Total development of transfers.—The Reichsbank has
succeeded through the systematic organization of the
transfer system in bringing this branch to an advanced




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1876-1900

stage of development (cf. Tables 34 and 38). Transactions on transfer accounts, which had amounted in 1875
at the Prussian Bank to only 834,000,000 marks and at the
Hamburg Bank to 2,658,000,000 marks, rose in the early
years of the Reichsbank's existence to 16,700,000,000
marks, and by the year 1900 to 164,000,000,000 marks.
The number of accounts taken over by the Reichsbank
from the institutions mentioned was not much more than
700. The number rose in 1876 to 3,245, and by the end
of 1900 to 15,847.
The development did not, however, proceed without
interruption. After the number of participators had
remained nearly stationary since the end of the seventies,
there began in 1882 a decline both in sum total and in the
accounts, which is all the more remarkable as in this year
business activity was exceptionally great. Since then
there has occurred only one other temporary decrease, in
1892—clearly in connection with the economic depression
of that year.
When one compares the development of economic life
with the development of transfers, it is not always possible
to establish a connection. The development of transfers
was up to this time due mainly to the continual expansion
of the system, especially to its extension to more places,
and to the inclusion of state treasuries; in view of this,
economic development had not yet become an influential
factor.
The figures above give an idea of the expansion of the
whole transfer system.
Development of the branches of the transfer system.—The
increase is to be found also in all branches, though




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in varying degrees. Cash deposit withdrawals show a
slower and smaller increase than sums debited, credited,
and transferred on the books of the Bank, by which
considerable ready money is saved. The percentage of
cash payments in the total transactions declines continuously; it amounted as late as 1886 to 28.2 percent,
in 1900 to only 16.8 per cent.
On account of certain changes in bookkeeping it is possible to compare only the years within the three periods,
1876-1885, 1886-1892, and 1893-1900; within each one
of these periods the percentages of cash payments declined
from 39.5 per cent in 1876 to 35.9 per cent in 1885,
from 28.2 per cent in 1886 to 27 per cent in 1892, and
from 19.4 per cent in 1893 to 16.8 per cent in 1900.
The saving of cash in the total transactions has consequently increased considerably.
The sums received for distance transfers have increased
steadily and almost uninterruptedly from 2,000,000,000
marks in 1876 to 25,900,000,000 marks in 1900. The
percentage of distance transfers in the total business
attained its highest point in 1881 with 32.1 per cent,
and, after sinking for a time to 26.1 per cent (1891),
amounted in 1900 to 30.7 per cent (cf. Table 34). The
first years of the reorganized transfer system show relatively the greatest development. The explanation is that
the advantages of distance transfers are more apparent
in the saving of postage and interest than in the case
of local transfers, in which the advantages lie chiefly in
the saving of labor, which can scarcely be expressed in
figures.




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1876-1900

The recognition of the advantages of local transfers has
gradually spread. In recent years local transfers have had
the greatest increase. From 1893 to 1900 a the amounts received in local transactions have risen from 10,400,000,000
to 24,200,000,000 marks. The share represented by local
transfers has risen in the same time from 25.3 to 29.5 per
cent.
Local differences of development,—A complete picture of
the development is gained, however, only when one probes
somewhat deeper into details. The soil for local transfers
is favorable if the number of local payments is large and
if the total monetary operations of a large district concentrate in a common centre. The more nearly these conditions are approached the more rapidly can local transfers develop in proportion to distance transfers. The
necessary conditions for a large local business were present
from the beginning in those " b a n k places" where the
Reichsbank established clearing houses in the eighties, on
account of the profitable business existing there (cf. p. 115).
If these places be contrasted with the remaining offices,
the following result is obtained:
At the ten places with clearing departments, 31 per
cent of the total business in 1893 and 35.7 per cent in
1900 was represented by local transfers, and 22.9 and
25.6 per cent, respectively, by distance transfers. The
proportion was exactly the reverse at other branches.
Here we have in the two years a percentage of 11 and 18.1,
respectively, for local transfers, and 36.6 and 40.1,
respectively, for distance transfers. The difference is
a
Only the comparisons since 1893 give a true picture, as the booking of
local transfers previous to this was made according to other principles.




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self-evident; but one observes, if the years 1893 and
1900 be compared a in both groups of branches, a
certain tendency to level down this difference. Local
transfers have increased considerably more at branches
without clearing departments than at those with
clearing departments, and much more than distance
transfers in both groups. Of all local transfers, only 12.4
per cent belonged in 1893 to branches without clearing
departments, as contrasted with 21.1 per cent in 1900,
while the share of these branches in distance transfers increased, but only from 38.7 to 45.4 per cent. This displacement is caused partly by the fact that local business
at places with a well-developed banking system had increased rapidly soon after the beginning of the transfer
system, whereas at other places the development was
gradual.
Of like interest with the comparison of these two groups
of banking institutions is a comparison of the transfers of
the main branch at Hamburg and all the other branches.
The Hamburg transfer system can serve, since the commercial houses there have used the system for a century,
as a pattern for other branches. Whereas in 1876 the
cash payments in Hamburg amounted to 11.5 percent,
they amounted at other branches to 54.4 per cent. h Local
a Only the records since 1893 give a true picture in the comparison, as the
booking of local transfers previous to this was effected in accordance
with other principles.
b In judging these figures, we must take the following into consideration:
since 1893 only the sums actually paid in cash, and bills collected for
current accounts, have been booked as cash payments. Lombard loans
etc., were also entered to the credit of accounts. Until 1885 the amounts
of discounted bills were entered to the credit of accounts.




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1876-1900

transfers, on the other hand, represented in Hamburg
81.3 per cent, at other branches only 13.i per cent.
Up to 1900 the following changes have occurred, as compared with 1876. Cash payments have decreased in Hamburg from 11.5 per cent to 5.8 per cent, at all other branches
from 54.4 per cent to 18 per cent. Local transfers at Hamburg have declined from 81.3 per cent to 65.1 per cent, and
risen at other branches from 13.1 per cent to 26 per cent.
Distance transfers have in Hamburg increased from 7.1
per cent in 1876 to 19.9 per cent in 1900, and at other
branches have declined from 32.4 per cent to 31.8 per cent.
Hence, the transfer transactions of other branches of
the Reichsbank approach the figures of Hamburg, where
this method of payment was well developed before the
establishment of the Reichsbank; herein is shown how
the methods of payment in all Germany are gradually
being adapted to the facilities of transfers offered by the
Reichsbank.
It follows that the average amount on red checks,
which serve only for transfers, has declined from 12,500
marks in 1876 to 7,500 marks in 1900. The average cash
deposit and the average local transfer shows a similar
decline. In contrast to this, the average amount of the
white check, which is used for cash withdrawals, is still as
high as in 1876, namely, 15,000 marks. Whereas the
check system penetrates very slowly into the circle of small
business houses, holders of accounts are rapidly learning
the sensible use of transfers. As a result of this, the cashsaving effect of transfers increases, while the movements
of transfer balances increase, and transfer transactions




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become more and more valuable to the Bank as factors in
discounts.
Increased use of transfer accounts.—The great economic
gain resulting from the development of transfers can be fully
estimated only when we compare the increase of transfer transactions with that of transfer accounts (cf. Table
38). Whereas the total transfer transactions on private
accounts increased from 16,700,000,000 marks in 1876 to
135,200,000,000 marks in 1900, that is, eightfold, the
average amount on private accounts shows only a fourfold increase from 70,600,000 to 333,700,000 marks.
Thus on each mark of the average balance there was
in 1876 a total turnover of 237 marks, as contrasted
with 405 marks in 1900. The same fact comes to light
in the following development: the average balance on the
different accounts rose from 21,748 marks in 1876 to 23,690
marks in 1900, that is, by about 11 per cent; against this
the average turnover per account in the same time increased from 5,100,000 to 9,700,000 marks, that is, nearly
double. The increased rate of the return of sums handled
in transfer transactions is shown by the average time for
which amounts received from private persons on the accounts in question have been left, decreasing from 3 days
in 1876 to 1.47 days in 1900.
The utilization of transfer accounts has thus considerably increased; a balance of the same amount serves
to-day for a considerably larger number of transactions
than twenty-five years ago. The saving in currency is
likewise greater. In the total transactions on private accounts and accounts of states, cash payments were saved




no

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Retchs

bank,

1876-1900

to the extent of 41,100,000,000 marks a in 1886, and
136,200,000,000 marks in 1900. Thus on each mark of
the average balance there was in 1886 a turnover of 173
marks, effected by crediting, debiting, and transferring,
and of 266 marks in 1900.
TRANSFER ACCOUNTS AS WORKING CAPITAL FOR THE REICHSBANK.

It must not be forgotten that the balances, through
which so many payments are adjusted, are by no means
at hand to their full amount in metallic money. These
balances, as already observed, have originated partly
from credit granted, in that the value of discounted bills
and loans on collateral are not paid out, but entered to
the credit of the account. The balances arising from
cash deposits can be used in granting credit without
increasing the circulation of uncovered notes.
This latter use of moneys on transfer accounts is
justified, for the Bank need never fear that all or most
of these moneys will be suddenly required (cf. p. 87).
A special guarantee against this possibility is the requirement of keeping a certain minimum balance, even though
this is not always numerically fixed. These minimum
balances can not be drawn from the Bank if the transfer
customers do not wish their accounts closed; in the
retention of these, especially in difficult and critical
times, they themselves have the greatest interest.
The Bank can always depend upon an amount of
transfer account deposits considerably in excess of the
prescribed minimum balances. In ordinary times, parfl
A comparison is possible only since 1886, because formerly payments
effected by entries to accounts were booked with cash payments.




in

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Commission

ticularly if the number of transfer accounts is large, the
movements on accounts counteract one another; withdrawals and debits on the one are met by deposits and
credits on the other.
This compensating effect is shown also in groups of
accounts. Above all, the movements of private and
public deposits follow different laws. Frequently one
group increases while the other decreases, whereby compensations are brought about.
In one of these groups, namely, public deposits, certain
considerable fluctuations are to be noted, which, however, are explained by the composition of these balances.
Of their total amount of 146,200,000 marks (on May 7,
1900) as much as 104,800,000, or 71.7 per cent, belong
to 9 accounts of more than 1,000,000 marks; 82 accounts
were between 100,000 and 1,000,000 marks, with a
total of 24,000,000, or 16.4 per cent of the total public
balances. The remainder of 11.9 per cent was distributed over 1,685 accounts. Owing to this unequal distribution, a reciprocal leveling of movements takes place
only in a small degree. On the other hand, the fluctuations of public moneys take place, on the whole, with
great regularity. The close of each month brings, temporarily, heavier withdrawals. Above all, public moneys
accumulate gradually in the course of the quarter,
reach their zenith in the last week but one, and sink
pretty rapidly to their lowest point shortly before and
after the close of the quarter.
The steadiness of private balances is clearly much
greater. Their movements do not take place with the
great regularity of public moneys; the fluctuations are




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1876-1900

within much narrower limits. The greatest ranges
occurring in 1900 between the highest and the lowest
amounts were in the case of private accounts between
387,000,000 and 281,000,000 marks, in public accounts
between 291,000,000 and 110,000,000 marks.
The greater stability of private balances is due chiefly to
their more equal structure. On May 7, 1900, 73,600,000
marks were deposited on 21 accounts, with balances of
more than 1,000,000 marks each—that is, only 30.4
per cent of all private balances. These are almost
exclusively the balances of banks and bankers. On
561 accounts there were balances between 50,000 and
1,000,000 marks, which represented 90,900,000 marks, or
37.6 per cent of all private balances; they are likewise
mainly bank accounts. The 13,168 accounts, with
balances from 1,000 to 50,000 marks, represent 77,300,000
marks, or 31.9 per cent. These numerous accounts—so
trustworthy for this reason for the Reichsbank—of the
middle merchants, and of the industrial and agricultural classes are important elements for maintaining the
regularity of balances.
Of especial importance is the fact that not only do
transfer payments to a certain degree counteract one
another in their effect upon the amount of the Bank's transfer moneys, but a similar equalization takes place between
the customers' moneys on the one side and note circulation on the other. For the policy of the Bank the
greatest possible regularity of demand liabilities, including note circulation, is desired; the greater the fluctuations the more difficult the Bank's task of making the
greatest possible use of the funds at its disposal (which,
82302—10




8

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Monetary

Commission

after all, is to the interest of the entire economic system) and of maintaining in all cases a sufficient cash
reserve. The total daily obligations of the Bank have
been greatly augmented by transfers; in 1900 there was
added to an average note circulation of 1,138,600,000 marks
an average amount of customers' moneys of 512,700,000
marks, so that the sum of demand liabilities wTas
1,651,300,000 marks. On the other hand, the fluctuations
of total demand obligations have not increased correspondingly. The movement of customers' moneys is
dependent on factors other than those on which depends
the movement of the note issue; the high and low points
in these two most important liability items occur at
different times. The result is far-reaching and compensating. The difference between the highest and lowest
amount of all demand obligations was, with the exception
of one year, smaller according to percentage than the
difference between the maximum and minimum of note
circulation. In seventeen out of twenty-five years the
absolute difference was smaller in the case of the total
demand obligations than in the case of notes.
The compensating effect is still more striking when we
compare the note issue not covered by reserves with the
demand liabilities likewise not covered by reserves
(Barvorrat; see footnote, p. 80). With the exception of
two years (1884 and 1899), the difference or "range''
is greater in the case of note circulation than in the
case of notes and customers' moneys. The most farreaching compensation took place in 1892, in which the
"range" of uncovered note circulation amounted to
415,000,000 marks, while that of uncovered notes and
customers' moneys together was only 197,000,000 marks.




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1876-1900

Thus the moneys of transfer accounts are not only
subject to proportionately small variations, and therefore
capable of an intensive use in granting credit, but they
increase the steadiness of all the funds at the disposal of
the Bank, and render possible a more rational use of
note issue.
The same balances which form the basis of transfer
transactions of 164,000,000,000 marks have raised the
funds at the disposal of the Bank for granting credit by
hundreds of millions of marks. They have made possible
to the Reichsbank the great expansion of its bill and
collateral loan business, which was rendered necessary by
the rapid and brilliant development of German economic
activity during the last quarter of a century.
CLEARING HOUSES.
T H E DUTIES OF A CLEARING SYSTEM.

The transfer system received an exceedingly important
complement through the method of clearing suggested
and carried out by the Reichsbank. Settlements can be
facilitated through transfers only in so far as the payment operations are concentrated at a single bank. The
replacing of cash payments by transfer transactions on
transfer accounts—i. e., by entries to the accounts—is
possible only between clients of one and the same bank.
But where several great banks at one place, each with an
extensive clientele, share in the monetary transactions
the transfer system is not sufficient. Here it is a question of facilitating the settlement of claims and obligations continually arising between a number of banks.




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Such a need has been felt at those places where the public
intrusts the management of its accounts to banks, and
makes most of its payments pot in cash, but by checks
on its bankers. This is especially true of England and
the United States of America, and therefore at an early
date the clearing system was organized in these countries.
In Germany, on the contrary, the check system has
developed slowly. Apart from Hamburg, the check
system has not established itself in small business
circles in the same degree as has the transfer system
of the Reichsbank. This development is due to the fact
that payments through German banks are based chiefly on
the transfer system of the Reichsbank, in whose extended
network of branches transfers find a strong support.
The lack of a German check law proves to be a further
obstacle to development. The steps taken to bring about
a legal regulation of this subject and the passage of a
check act have thus far not met with the desired success.
ESTABLISHMENT AND ORGANIZATION OE CLEARING
GERMANY.

HOUSES

IN

Through these circumstances the systematic arrangement of a clearing system has been delayed in Germany,
until in 1883 the Reichsbank, in developing further its
transfer system, seized the opportunity of establishing
a system of clearing offices. The principle of this arrangement is that the representatives of the participating
banks meet at a certain place (the clearing house) at a certain time, exchange their bills, checks, etc., and after an
examination of the same at the home bank, credit and
debit one another at a second meeting, so that not each
single item, not even each single " charge," need be paid in




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1876-1900

cash; only the final balances need be adjusted by cash
settlements.
In this way a single bank does not, as in the transfer
system, act for all others, but all participating banks
take part in an equal manner, and in common procedure,
in winding up the business. The Reichsbank is a creditor
and debtor at all clearing places; that is, demands for and
against the Reichsbank come up for settlement. It acts,
besides, as a leader of the clearing system and as "the
bank of banks," since the final balances are adjusted by
crediting and debiting the transfer accounts of the Reichsbank, so that no cash payment whatever takes place.
The first clearing house was established in Berlin according to the agreement of February 14, 1883. Frankforton-the-Main, Stuttgart, Cologne, Leipzig, Dresden, and
Hamburg followed suit by establishing similar institutions
in the same year; in 1884 Breslau and Bremen did the same.
The last to be established was in Elberfeld (1893). These
clearing houses are legally bound by mutual contracts to
all the other banks and to the Reichsbank. The Berlin
plan was a pattern for all. The consideration of special
local circumstances has, however, caused numerous differences, which consist in the limitations of clearing matter, in the number of daily meetings, and so on. The
principle is that each creditor first clears directly with his
debtor; the final settlement of the remaining outstanding
claims is made—as already mentioned—not in cash
but by means of transfers on the Reichsbank. The delivery of an item is regarded as due presentation for payment within the meaning of the civil law, and its settlement in the clearing procedure is regarded as payment.




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A "return," therefore, need not be presented again at the
debtor's place of business, but can be immediately protested for nonpayment. The representation of the members by specially designated deputies or clerks is permitted.
The Reichsbank provides the business premises, the other
costs being borne equally by all participating banks.
The banks taking part at clearing houses have, in
an attempt to find a substitute for the nonexistent check
act, agreed upon a common form of check (draft). By
means of the written or printed addition " t o be debited
only" ("Nur zur Verrechnung") crosswise through the
text, the character of an "order-to-book" draft can be
conferred on the check; that is, it may not be paid in
cash, but may be applied only to debiting the account
of the drawee or of another member of the clearing house.
In close connection with the above is the provision the
special purpose of which is to increase the check business,
according to which the members bind themselves to
accept checks on other members of the clearing house, not
merely from their customers but also from other firms
in the locality.
The establishment of clearing houses has been carefully
provided for; the regulations of the Reichsbank regarding
bills remitted for collection for transfer accounts, and
especially the rule that acceptances by holders of transfer accounts shall be made payable at the Reichsbank
or at a bank which clears daily with the Reichsbank,
help to compensate for the activity of these institutions.
This organization, like the whole arrangement of clearing houses, has turned out extremely well. The cool
attitude, opposition even, of banking houses at various




118

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1876-1900

places has led to the general conviction that clearing
houses represent a salutary and important step forward
in monetary transactions and have become indispensable for economic life.
DEVELOPMENT OF T H E CLEARING SYSTEM.

The returns which are published monthly in the
Reichsanzeiger for all ten clearing houses, along with the
weekly statement of the Reichsbank, show a slow but
steady increase in the number of items and, apart from
the temporary decline of 1890 and 1892, in the amount
of debited sums. Whereas in 1884 the number of items
amounted to 1,979,012 and the value to 12,100,000,000
marks, the year 1900 showed 5,186,237 items for
29,500,000,000 marks, the number of members having
increased in the same time from 112 to 126.
The compensating effect has also improved. Its extent
is very different at the various clearing houses. It is
greatest at Hamburg, where in recent years about 94
per cent of all deliveries counterbalanced, so that it was
necessary to settle only 6 per cent on transfer accounts.
If German clearing houses have thus far remained behind their prototypes, the English and American clearing
.houses, in their development, the reason lies in the fact
that checks become naturalized slowly in Germany,
whereas in those countries they have already become a
normal medium of payment. In distance transactions it
will never be possible for checks to become in Germany a
prevalent medium of payment. In Germany settlements
from place to place are carried out through transfers by
entries in the books of the Bank, while in those countries




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settlements are effected by checks, payment on which
is obtained through the clearing house.
Transfers and clearing houses are mutually complementary and form a complete unit. All payment transactions, if they pass through the hands of bankers at
clearing houses, are effectively examined, and, so far as
they do not counterbalance, are finally adjusted on the
transfer accounts of the Reichsbank.
DEPOSITS AND DRAFTS.

In addition to transfers, the Reichsbank carries on a
number of related liability transactions, the importance
of which, however, in consequence of the development
of transfers, has been forced more and more into the background.
ACCEPTANCE OF DEPOSITS.

The Reichsbank is, as in the case of sums for transfer,
unrestricted in receiving deposits bearing no interest,
but in the case of interest-bearing deposits it is limited
to the amount of its capital stock and reserve.fund. In
the contract of May 17-18, 1875, concerning the cession of
the Prussian Bank to the Empire, the rights and duties
of the Bank, existing since October 5, 1846, regarding the
investment of trust moneys, and of the funds of churches,
schools, hospitals, charitable foundations, and public institutions, had been transferred to the Reichsbank, the right
of giving notice being reserved to both sides. The Reichsbank at first accepted voluntarily, as the Prussian Bank
formerly did, deposits from guardians, legally appointed
trustees (Pfleger), and private persons. The rate of interest for the different classes of deposits varied, and ran to




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1876-1900

2 and 3 per cent. As early as February i, 1876, however, notice of withdrawal of trust moneys was given
to the Reichsbank by the Prussian government. As mentioned (cf. p. 88), the withdrawal of these funds was
one of the reasons for a speedy reorganization of the
transfer system. In consequence of the rapid development of this new branch of business and the influx of
noninterest-bearing moneys, the Bank soon had no proper
use for the interest - bearing deposits remaining with
it. On November 26, 1878, it therefore made use of
its right to give notice to the government of Prussia
with regard to these deposits, and the sums in the Bank's
hands were paid out during the year 1879. Since that
time the Reichsbank has had only noninterest-bearing
deposits.
These are distinguished from transfer moneys in that
they are not demand liabilities; an eight-day notice of
withdrawal is necessary for their repayment. The difference is, however, of a purely formal nature, as the bank
officers are authorized to allow depositors to dispense
with the observance of this notice, and these moneys have
up to the present always been promptly paid at the desire
of depositors.
Furthermore, deposited money can be withdrawn only
at the place where it was deposited. With the depositing of moneys at the Bank and the disposal of them by
the depositors traditional formalities are connected.
This whole branch of business has been retained along
with the transfer business in order to serve such persons
and public authorities who want to have their capital in
safe custody for a short time without demanding interest




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or further service of any kind from the Bank. Since transfer accounts, because of the more convenient and
extended right to dispose of the moneys, are far more advantageous than noninterest-bearing deposits, the importance of the latter was certain to disappear gradually (cf.
Table 43). The amount of noninterest-bearing deposits
diminished from 1,164,172 marks at the close of 1876 to
319,882 marks at the end of 1900. The temporary increase of deposits and total transactions in the years
1885-1896 is attributable to the fact that since 1885 money
has been deposited for the royal general lottery treasury
(Konigliche Generallotteriekasse) by persons keeping lottery offices; since 1896 transfer accounts have been opened
for the latter, and deposit business has in consequence
sunk to its present low state.
At the end of 1900 the deposits were distributed over
191 accounts, of which 92 were kept in Berlin and 89 in
Cologne, while only 10 belonged to all the other branches
of the Bank. In Cologne the deposits are mainly residues of trustee funds; a few are private deposits by persons
of whom all trace has long since been lost. The amounts
are insignificant, only a few exceeding 100 marks; one
account is for 10 pfennige, another for 5, and a third for
only 3.
The Civil Code has allowed (section 1808) that cash
sums belonging to minors or wards be deposited at the
Reichsbank under certain conditions (cf. p. 332).
DRAFTS.

Drafts which permit the paying in of a sum in order to
have it paid out again facilitate payment operations for
those for whom a transfer account is not worth while.




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1876-1900

Drafts had been fairly important at the Prussian Bank.
But several objections, especially forgeries and losses, have
had the effect of limiting the employment of drafts as
orders to pay at sight and of substituting for them another
method. All independent branches of the Bank and those
suboffices managed by two officials accept since 1876,
at a charge of one-fifth per thousand, just as do postoffices in issuing postal orders, sums to be paid to third
persons through another of the branches. But no longer,
as formerly, does the Bank hand to the person paying
in the sum a draft (or order) which can be given to
the third person and through which the latter can
obtain the amount at the given branch. The person paying
in the amount receives only a receipt, and the receiving branch arranges for payment to the proper person
through a letter of advice to the paying branch. Drafts
are now supplied to the public only in exceptional cases
and on special request.
This whole branch of business, which for simplicity we
may call the '' draft system'' (Anweisungsverkehr), has not
attained great proportions in the case of the Reichsbank. The most important receivers of payments
make use of transfers, and for them this inconvenient
procedure, involving a fee, is superfluous. Since 1891 the
sums dealt with have increased, owing to the fact that for a
time this branch of business was extensively used by the
treasuries of Prussia and by the Rentenhanken (royal
banks endowed with state money for making loans for the
improvement of land). A larger increase in 1895 is partly
attributable to changes in booking. But through the
gradual but constant connection of public treasuries




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with the transfer system, transactions in this line have
again considerably declined. The lowest return was
36,700,000 marks in 1884, the highest 348,200,000 marks
in 1895; in 1900 the return was only 58,000,000 marks.
L E T T E R S O F CREDIT.

Little use has been made up to the present of another arrangement, the letter of credit. The Reichsbank grants simple and circular letters of credit with a
validity of at most six weeks on all its independent
branches. The letters are granted to persons applying for
them not only on cash payment in advance, but also on
credit created by deposits of loanable securities and discountable bills. These letters of credit are recommended
in cases where a business man, in the course of business at
one or more places abroad—for instance, at the wool markets—has to make cash payments, the amount of which
can not for the time being be exactly determined.




124

CHAPTER V.
THE PURCHASE AND COLLECTION OF BILLS
AND SECURITIES.
IMPORTANCE OF BII.lv PURCHASES FOR THE REICHSBANK AS
THE CENTRAL BANK OF ISSUE.

The most important assets of banks of issue are discounts on bills. Their notes may be presented daily for redemption, and the sums deposited with them, principally
through transfer transactions, may be redemanded daily.
Since in experience, however, such presentations and
demands are not made all at once and suddenly, the
banks are not forced to hold full cash cover for all demand
liabilities, but can invest at interest a part of such moneys
and notes. This investment must, however, be safe, and
the banks may put out their funds only for short periods,
in order that, on the one hand, their claims becoming due,
and, on the other, the presentation of notes and the cash
withdrawals may balance so far as possible. That is attained most easily by investing in bills which have only a
short time to run. The Bank Act therefore prescribes
(sec. 17) that the Reichsbank must hold ready, for its
notes not covered by cash, discounted bills maturing at
the latest in three months, on which, as a rule, three, but
at least two, solvent parties are liable. Departing from
the Prussian Bank regulations of 1846, which admitted as
cover for one-sixth of the notes in circulation not only
bills but also claims on collateral loans (Lombardforder-




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Commission

ungen), the Bank Act recognizes in addition to cash holdings (see footnote, p. 80) only bill investments as subsidiary cover for notes (cf. p. 29ff.).
The Reichsbank purchases bills both on inland and
foreign places. In the nature of things and of the general
national economic tasks of the Reichsbank, most of the
bills (on an average about 99 per cent) in its possession
are payable at home.
The mission of the Reichsbank is, first of all, to satisfy
the domestic demand for credit, and to utilize by bill purchases for domestic enterprises the moneys flowing to it
during national economic activity. The principle of not
buying bills from foreign firms must also be judged from
this national economic point of view.
The Reichsbank has never made use of the right conferred on it by the Bank Act (sec. 13) to dispose of its bills
on inland places. Endowed as a central bank of issue
with considerable funds of its own and with far-reaching
powers, it is the strongest and last source of credit in the
land; it can not, like other banks, make claims for credit
on a higher institution (cf. p. 41).
The Reichsbank must publish its current rate of discount (Bank Act, sec. 15). The central committee must
be consulted regarding the discount rate to be fixed by the
Reichsbank Directorate, and the changes in the regulations and periods for which credit is granted; the weekly
statements of holdings in bills must also be submitted to
the committee for inspection (sec. 32).




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1876-1900

GENERAL PRINCIPLES.

The general principles according to which credit is
granted by the Reichsbank in the purchase of bills correspond almost exactly to the old regulations of the
Prussian Bank. In one important particular, however,
the Bank Act of March 14, 1875 limited the more liberal
regulations of the Prussian Bank Act of 1846.
MORE THAN ONE PARTY LIABLE ON A BILL.

The following provision held good for the Prussian
Bank, namely, that of the parties liable on each purchased bill, three as a rule must be known to be solvent.
Whereas in the Prussian Bank Act departures from
this rule were not subject to restricting regulations, and
the Bank might therefore in exceptional cases discount
bills with only one signature, the Bank Act of March
14, 1875, prescribed the guarantee of at least two parties.
The ordinance of the head of the Prussian Bank in section
5 of the official instructions of November 24, 1829, permitted the Prussian Bank to purchase unaccepted drafts
from reliable parties. This regulation was not affected by
the Bank Act of 1846, and was finally set aside by the
provision of the Bank Act of 1875. I*1 this innovation
lies greater security of the Reichsbank's bills as compared
with that of the Prussian Bank. The unconditional
insistance upon the liability of several, at least two,
guarantors, who may not belong to the same business
company, reduces the risk for the Bank.
The provision reckons with the possibility that the
most careful and wealthy debtor may, before the day of




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maturity, get into a position which makes doubtful the
prompt fulfillment of his liabilities.
COMPULSORY ACCEPTANCE.

The Reichsbank insists, just as did the Prussian Bank,
that a bill reaching its office be supplied with the acceptance of the drawee. All bills payable at the place of
purchase, also bills domiciled for consignment, must be
accepted when handed in. On the other hand, the Reichsbank presents consigned bills, which are payable at the
residence of the drawee, for acceptance after purchase.
It need not be said that the bills purchased by the Bank
must agree with all provisions of the bill regulations
and the legal regulations with regard to bills at foreign
places. Whereas the Prussian Bank Act (sec. 2) of 1846
expressly permitted the discounting of drafts, the Reichsbank is not allowed to purchase such drafts, letters of
credit drawn on one person at one place (Accreditiven),
mandates, and other orders to pay, which are not bills.
CREDIT CAPACITY OF T H E PARTIES LIABLE ON BILLS.

Besides the number of signatures, the test of solvency
(bonte) of the parties liable on the bill is of greatest
importance to the Reichsbank; the security of claims
acquired through bills depends in the first place upon
the ability of the party to pay. This gives the Bank
the assurance that the bill will be paid in cash on the
day of maturity. The persons taking credit must be
well known to the executive officers and must be known
as reliable. For this reason, the branches may, as a rule,




128

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bank,

1876-1900

discount bills only for such credit-seeking persons whose
residence is in their business circuit.
As to the amount of personal credit which the Reichsbank grants to persons or firms enjoying its discount
policy, the pecuniary circumstances and the personal
qualities of the persons, also the nature and extent of
business, are determinative. The branches must send
to the Reichsbank Directorate suggestions for the determination of credit. When it is a question of larger
credits in provincial branches, the advice of the deputies (Beigeordneten) of the main branch in the circuit
to which the branch in question belongs must be sought.
Credits are finally fixed by the Reichsbank Directorate. Firms which, according to their circumstances or
the character and reputation of their members, are not
deserving of confidence are not allowed to do business
with the Reichsbank.
A well-organized information bureau at the various
branches determines the "capacity for credit." Information is gained through personal relations of the executive
officers with the commercial class, by inspection of the
balance sheets of the persons obtaining credit, and by
other means. The officers observe the strictest silence
with regard to any matters of credit coming to their
knowledge.
CONTROL OF CREDIT.

The branches keep perfect control, through their books,
of the actual use of the personal credits granted, and this
control permits at all times a survey of the total liabilities on bills of each person taking credit at the Reichs-

82302—10




9

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Commission

bank, also of the total sum for which each person is
debited with bills.
CONSIDERATION OF T H E BUSINESS NATURE OF T H E BILL.

The actual censorship of bills by the Bank extends not
only to proving the solvency of the parties liable on the
bill, but also to the business origin (the nature, causa) of
the bill offered for discount. The knowledge of the economic purpose of the bill, also of the circumstances to
which it owes its existence, is of great importance in
judging the certainty of its redemption on the day of
maturity. In general, the requirements of the Bank are
met only by a bill which, in the moment of its formation,
starts from a completed transfer of property between the
parties liable on it and is destined on maturity to balance
this transfer. This is especially true of so-called merchandise bills (Warenwechsel). Such bills, which originate in
the purchase or sale of merchandise, are an investment specially suitable for the Reichsbank, since the goods which
are delivered into the hands of the debtor as equivalent
for the bill are by nature suitable for quick turnover.
The resale of them gives the debtor funds for the redemption of the bill on maturity. Under similar conditions,
bills based on purely credit transactions (Kreditwechsel)
are unobjectionable to the Reichsbank for discount,
even though the significance of the credit operation expressed by the bill is not always easy to determine; special
care is therefore necessary in the purchase of such bills.
On the other hand, the Reichsbank must try to exclude
from its portfolio all bills which do not arise in the abovementioned transactions. It has, like its predecessor,




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bank,

1876-1900

declined to purchase accommodation bills, jobbing bills,
and financial bills, the creation, acceptance, and indorsement of which are solely to get the necessary number of
guarantee signatures for raising funds or for speculation
purposes. This definition includes also direct drafts
drawn with the same intention between banking houses
for long terms, also those bills which can not be based
on business transactions on account of the vocation or
business of the guarantors.
MODIFICATIONS.

These principles were subjected at the time the Reichsbank began its activity to certain modifications introduced from the Prussian Bank. Those most noteworthy
(from the year 1856) facilitate considerably the transactions of farmers with the Bank. Bills proceeding from
rural trades, i. e., the purchase of grain and potatoes for
distilling, of oil seeds for oil mills, or the sale of wood,
grain, spirits, etc., may, even without a business man as
guarantor, be discounted for landowners when the security is unquestioned. In exceptional cases, during times
of an ordinary demand for money among landowners,
the Bank may buy also such bills as do not proceed from
agricultural business, but are drawn only to meet temporary money needs.
FURTHER DEVELOPMENT OF PRINCIPLES IN ACCORDANCE
WITH ALTERED CIRCUMSTANCES.

The innovations and changes effected during the last
quarter of a century in the principles governing the granting of credit in accordance with the terms of the Bank




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Act, served to consolidate and perfect the system, and to
adapt the latter to the needs of business, which was ever
developing and changing. Above all, the Reichsbank had
to guard its position as central bank of issue, and to assure
itself of a considerable part of the domestic circulation of
bills, not only with the intention of keeping its invested
capital and its profits at a corresponding height, but
chiefly to carry out the tasks assigned to it. For this
purpose it must have an adequate and continuous insight,
gained from its 6wn observations, into credit demand and
credit supply.
DISADVANTAGES TO T H E REICHSBANK OE MUTUAL COLLECTIONS O F
PRIVATE BANKS.

This insight was, however, threatened in the first years
of the Bank's existence by the so-called interchange of collection (Inkassoaustausch) of private banks and bankers,
and also by the increased competition of private discounters, above all of private banks of issue.
Previous to 1876 private banks and bankers used to discount at the Prussian Bank, shortly before maturity, all
bills which were drawn on Bankpldtze (bank places,
places possessing a branch authorized to deal in bills) and
which were not payable at the place of purchase. Although such bills were liable to a discount of at least ten
days, the discounting was recommended in those cases in
which the seller was concerned more in cashing the bill than
in obtaining credit, since an equally favorable medium for
collecting did not exist elsewhere. A complete revolution
took place after the establishment of the Reichsbank's
transfer system. Many private banks and bankers at
various places combined in a sort of cartel in order to




132

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Reichs

bank,

1876-1900

send to one another for collection, for an extremely small
commission, their bills on the places in question. The
conveyance of the equivalent, which hitherto had caused
considerable outlays for postage, could now be effected
without cost by entries on transfer accounts by means of
red checks. Moreover, many banks did not even put
themselves to the trouble of having the bills presented
by their own messengers, but turned them over to the
Reichsbank for gratuitous collection and for entry on the
transfer account (cf. p. 96).
The short bills previously allowed to the Prussian
Bank as material for discounting were almost entirely
withdrawn from the Reichsbank, its discount profits
were diminished, and the survey of important credit
operations was rendered difficult; the real expenditure
of trouble, however, was in many cases demanded the
same as before. The banks themselves were urged to
adopt the procedure described, whenever a need for
credit caused them to discount since the collection could
be made much more cheaply through the interchange
than by negotiation at the Reichsbank with a deduction
of ten days' discount. For the Reichsbank, therefore,
the arrangement became uncomfortable, especially in
times when money was plentiful, even though the intrinsic worth of the new, practical, and advantageous arrangement could not be mistaken.
COMPETITION OF PRIVATE BANKS OF ISSUE.

The leading position of the Reichsbank in the money
market was threatened, especially in times of easy money,
by the competition of private banks of issue more
than by the interchange of collections. The economic




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Commission

standstill at the end of the seventies resulted in money
being plentiful, and private financiers put the moneys
coming to them at the disposal of the market in bill
purchases, at interest rates much lower than the official discount rates of German banks of issue. Even
foreign central banks of issue, the Belgian Bank and the
Bank of Austria-Hungary, had invested large amounts
in the German market at low discount rates, and had
thus forced the Bourse discount still lower. Several
private banks of issue, mostly South German, had adopted
the pactice of using, in addition to the interest rates
published by them in accordance with the provision of
the Bank Act, also a reduced rate, almost the same as
the discount in the open market, at which they discounted
large bills at long date from so-called "first houses."
The result was that the funds of the Reichsbank lay idle,
and its insight into the credit transactions of the land
was considerably limited by the fact that the largest and
best bills did not come into its hands.
INTRODUCTION OF A PRIVATE RATE FOR T H E REICHSBANK.

If the Reichsbank did not wish to be forced out of the
bill market, it had to adopt the practice of the private
banks of issue; this appeared all the more imperative
since it might hope to attract also such bills at long date
which, as a result of the interchange of collection among
private banks of issue, no longer came into its hands
shortly before maturity. The innovation was, at its
introduction in January, 1880, at first limited to those
branches where there was a Bourse-like trade in bills,
but was extended shortly afterwards, according to the




134

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Reichsbank,

1876-1900

wishes of many chambers of commerce, to all independent
branches. Even through the agency of suboffices, bills
might be handed in for discount below the official bank rate;
this was at first allowed, however, at somewhat higher rates
than at the independent branches. At first, the fixing of the
preferential rate, which could be employed only in the
purchase of bills "good" on the Bourse, was permitted
to the branches provided that the rate in no case be
lower than the current rate on the Berlin or Frankfort
Bourse. The latter obtained only for places in South
Germany. As early as April of the same year, however,
this regulation, which was being abused, was rescinded,
and the fixing of the authoritative minimum discount
below the Bank rate was made uniform for all branches
by the Reichsbank Directorate. The requirements regarding the quality of the bills purchased at the preferential rate were also made uniform as early as 1880;
after several changes the requirements provided that
only such bills, which, as a rule, have fully six weeks to
run, which are for not less than 3,000 marks, a and which
have signatures representing a high "credit capacity/'
could be purchased below the official bank rate.
The purchase by the Reichsbank of bills below the
official rate encountered strong hostility, particularly
from those bankers with whom the Reichsbank entered
into competition in the purchase of such bills; the bankers
had formerly been alone in the market as purchasers for
their own and their patrons' accounts. This point of
0 These principles could be departed from only in exceptional cases—
when large bundles of bills were handed in, among which were odd ones
with a somewhat shorter time to run or for somewhat smaller amounts,




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view also found eloquent support in the Reichstag.
The fact was disregarded, however, that not the least
of the reasons which had compelled the Reichsbank to
employ cheaper rates in discounting was just this interchange of collections among bankers; after the procedure of private banks of issue, no other course was
open to the Bank than to follow the practice carried on
by them if it wanted to invest safely and properly its
idle funds and retain its previous influence on the money
market. Nevertheless, the Bank has, from the beginning,
regarded it as a duty not to seek bills for purchase below
the bank rate, but to have such bills come of their own
accord, and to avoid even the appearance of seeking such
bills. Drafts on bankers, which we may assume are only to
provide working capital at a low interest rate for the person
offering them for discount, are excluded on principle from
purchase at the private discount. Furthermore, the
Reichsbank has never bought bills at its chief office in
Berlin at a rate lower than that of the prevailing official
bank discount. Since 1881, in fact, it has always discontinued purchases at the preferential rate on those occasions when its Official bank rate had risen to 5 per cent
or higher, or when foreign rates of exchange allowed
shipment of gold abroad.
There can be no doubt that the discounting of bills below bank discount has by careful management helped to
maintain for the Reichsbank the survey of bill circulation
so necessary for a central bank of issue. The easily
regulated private rate of discount enabled the Bank to
be in constant touch with the money market and to influence the movements of the latter according to the exi-




136

The

Reichsbank,

1876-1900

gencies of the case. Its sway over the market will be
all the greater, however, the more it follows the movements of the money market and the more the demand
for credit becomes accustomed, even in times when money
is plentiful, to seek and find satisfaction at its hands.
Only when the discount transactions of the Bank are
heavy in times of easy money, can we be sure, in case of
a threatened drainage of gold or under other circumstances which make the raising of the interest rate desirable, that the Bank will exercise the desired effect on the
discount rate of the Bourse.
T H E GRANTING OF CREDIT TO SMALL BUSINESS PEOPLE.

From the very first the Reichsbank has, like the Prussian
Bank, recognized its duty of serving, so far as indispensable conditions are fulfilled, the national economic system
uniformly at all its branches. The Bank has therefore not
confined itself to the fields of commerce and industry, but
has expressly directed that craftsmen, artisans, and persons following similar occupations, that is, the small industrial middle class, be admitted to direct bill business as well
as merchants and manufacturers, although the Bank did
not fail to see the difficulties which were sure to appear.
At an early date (1878) its terms for credit were made
easier. This change was chiefly for the good of the above
classes, since it reduced considerably the minimum amount
of security required for the granting of credit. In reality,
however, direct discounts with small tradespeople remained
within narrow limits. The reduction in the requirements
with regard to wealth benefited only the more wealthy of
them; it was impossible to help them further on account of




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Commission

note issues. Moreover, the occasions for direct discounts
with smaller tradespeople are rare, for these persons have
practically no suitable material for discounting. The
formal lack of a second signature, which was frequently
the case with such bills, made impossible for the Reichsbank the direct purchase of bills from small trades, that
is, of bills originating in the lowest stratum of industrial
life. The immediate satisfaction of the credit requirements of these classes, so far as bill discounts are concerned, must therefore be left by the Reichsbank to other
factors.
BILLS FROM COOPERATIVE SOCIETIES.

Indirectly, however, the advantages which the Reichsbank can grant could be supplied to these small business
people and to farmers—who in this matter are on the
same level—not only in that the Reichsbank discounted
for private bankers bills coming from the aforementioned
classes, but above all in that it paid the greatest attention
to the system of cooperation. The Prussian Bank had
shown special willingness to oblige cooperative societies
(Genossenschaften) by conceding to them an exceptional
position. It is true that in the case of cooperative societies
their own wealth, original shares, and reserve fund, remained the real foundation for credit; at the same time,
however, the unlimited joint liability of the members could
be taken into account and credit could be granted up to a
considerably greater quota of the wealth of the cooperative
society.
The new act of May i, 1889, concerning industrial and
economic agricultural cooperative societies (Erwerbs und
Wirtschafts-Genossenschafteri) disregarded the principle




138

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Reichs

bank,

1876-1900

of the unlimited liability of societies by putting those
societies with limited liability on the same footing as those
with unlimited liability. In the case of the limited liability
societies, the Reichsbank had at first acted in accordance
with strict general principles—a procedure justified as
long as experience with this new matter was lacking.
These experiences, however, proved to be favorable.
Numerous cooperative societies, especially loan societies
(Vorschussvereine), were transformed into societies with
limited liability, without experiencing any deterioration
in their condition. On the contrary, it was often perceived
that through energetic exclusion of unsafe elements and
the admission of numerous well-to-do persons who, not
unjustly, had fought shy of the former unlimited liability,
the associations gained strength. There was no further
ground for differential treatment; since 1896 the Reichsbank has ceded to the larger cooperative societies of the
new kind the same exceptional position as in the case of
the larger cooperative societies with unlimited liability.
The facilities mentioned have obtained from the very
first for cooperative associations with unlimited contributory liability {Genossenschajten mit unbeschrdnkter
Nachschusspflicht).
EXTENSION

OF T H E

NETWORK OF BRANCHES AND COLLECTING
DISTRICTS.

The Reichsbank's business in bills was also sure to
increase through steady extension of its network of
branches, especially through the establishment of numerous suboffices. Many business people have always obtained discounts from the branch of their circuit even when
they have not lived in the town itself. These discounts




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Commission

are readily and frequently granted by the Bank, but they
are, it must be admitted, rendered difficult by the necessary form of correspondence. These business connections
are greatly facilitated by the establishment of a suboffice
at the customer's actual place of residence. It is of greatest importance that just at these small branches the close
and permanent relations with the business world, and the
direct knowledge of personal qualities and pecuniary circumstances, so important for a credit system, are greatly
advanced. Not only does the discount business at the
place increase, but the place itself becomes a " b a n k
place'/; bills on the place become "bankable," and
thus, simultaneously, the material for discount at the provincial branches is increased. This is an advantage not
only for the Reichsbank itself, but also for trade generally.
Not less important for an increased claim on the services
of the Bank in discount business was the extension of the
so-called collecting circuits (Inkassobezirke) of the various
branches. The number of streets in which the Reichsbank does not present bills for payment has in the course
of time become smaller and smaller. The Bank has in
numerous cases been ready to include outlying suburbs in
its collecting district.
ACCEPTANCES OBTAINED GRATIS.

A further concession to the public served to counterbalance in discounts a difficulty caused by the Bank Act.
The provision that only bills with at least two signatures
may be discounted has made it impossible for the Bank
to purchase unaccepted drafts direct from the drawer.
The Prussian Bank, which was allowed to do this (cf. p. 127),
insisted, on bills payable at the place where the purchasing




140

The

Reichsbank,

18 7

6-1900

branch was situated, that the drawer—resident at the
place—previously obtain acceptance. In the case of
consigned bills (Versandtwechsel), that is, those payable at another branch, it collected the acceptance subsequently, just as in the case of other unaccepted bills,
even when several parties were liable on these bills. This
caused the Bank much less trouble than the drawer, as
in any case it sent the bills immediately after purchase to
the branch office at the place of payment. The offices of
the Reichsbank sought to do away with the inconvenience
to its discount customers in the new legislation by taking
for previous gratuitous acceptance bills destined for discount and discounting for the drawer only when advice
of the effected acceptance had arrived from the office at
the place of payment. This procedure, after being for a
long time limited to exceptional cases on account of excessive burdens in many offices, was expressly and universally permitted in 1886. The Reichsbank acted on the
theory that it must counterbalance by greater efforts the
difficulty created by the act if it would not suffer a curtailment of its material for discount.
REDUCTION OF T H E MINIMUM TIME THAT BILLS HAVE TO RUN AND OF
T H E MINIMUM DEDUCTION IN DISCOUNTING,

Other facilities in the purchase of bills, which are of
importance not only in banking but also in general economic policies, followed in the year 1886.
For consigned bills—that is, bills not payable at the
place where discounted—which are of an individual value
of 20,000 marks and more, or in lots of at least 30,000
marks with an individual value of not less than 5,000 marks,
five days' interest was to be the minimun, instead of ten




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Commission

as formerly. A year later this favorable rule was extended
to single bills for at least 10,000 marks and to lots of at
least 20,000 marks. For local bills (Platzwechsel), the minimum deduction, formerly customary at the Prussian
Bank, of four days' interest for shorter bills, was retained.
The smallest deduction for each single "appoint" of 100
marks or less was reduced from 60 to 30 pfennigs both for
local and consigned bills, and to 50 pfennigs for all
other bills. The Reichsbank hoped through these facilities to attract just before maturity those large bills
which were not given to it at long date, without interfering in any way with the competition of other banks
for bills of longer date. Only by assuring itself of a certain
share in the German bill trade could the Bank maintain
and strengthen its dominating position over the money
market. Through the reduction of the minimum the
mutual interchange of collections between private banks
was decreased in the interest of the Reichsbank, while
the discounting of those bills—that is, the immediate payment, or crediting an account, of the amount of the bill
less the insignificant minimum interest to be deducted—
was as advantageous as crediting the account, without
commission, for the whole amount on the day of maturity.
Thus the Reichsbank intended through these measures to
achieve the success which the Bank of France had attained
decades ago, namely, to concentrate at its own offices the
total traffic in short bills, not only because it obtained
a full survey of commercial transactions, but chiefly
because short bills form the most liquid and therefore
the most suitable interest-bearing investment for a large
bank of issue.




142

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Reichsbank,

1876-1900

In addition, a social-political point of view caused the
Reichsbank to reduce the minimum rate for bills of ioo
marks and under; it intended through this regulation to
facilitate business in small bills, as far as lay in its power,
in order to urge upon German retail business the employment of short bills for the settlement of debts in place of
the universally customary credit system—the settlement
by means of book debts. At the same time it made it possible'to collect smaller bills, which is far more advantageous
than collections through the mails by means of the so-called
postal order (Postauftrag). Not only is the latter considerably dearer but it is coupled with a small loss of
interest, since the post-office pays the equivalent only on
receipt of the amount of the bill, whereas the Reichsbank
pays earlier, immediately on discounting. Above all,
however, the post-office, in contrast to the Reichsbank,
gives no guarantee for protesting the bill in due time and
in proper form in case of nonpayment.
REPEAL OF A SEVERE OBSOLETE PROVISION.

Of far less importance than these facilities in discounts
was the repeal, in accordance with changed business customs, of a severe measure taken over from the Prussian
Bank—a measure which combatted an abuse deeply rooted
in business life. According to this measure unaccepted
bills under 150 marks, even when they bore the clause
" i n case of nonacceptance do not protest" (Mangels
Annahme ohne Kosteri), were protested in case of nonacceptance. Such bills, which were free from stamp duty
until the passage of the law of the Confederation of June
10, 1869, were, even after the introduction of compulsory




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Monetary Commission

stamping, frequently used solely for procuring money.
The many small drafts remaining without acceptance,
especially those on bankers, were a veritable plague.
Since this regulation attained its purpose even in the days
of the Prussian Bank, the Reichsbank found it possible to
repeal it in 1876. Only in the Rhineland and Westphalia,
where the old abuse was not yet done away with, was it
necessary to maintain the regulation for a time; in 1880,
however, it was dispensed with even here.
PRECAUTIONS AGAINST T H E FORGING AND MISUSE O F DOMICILED
BILLS.

If, on the one hand, the Reichsbank, through the above
measures and through other facilities and regulations of
its discount business, had taken into account the altered
conditions of business, it could not, on the other hand,
neglect to meet effectively an improper or fraudulent use
of its arrangements. Precautions were necessary against
the forging of domiciled bills, through the purchase of
which the Reichsbank has repeatedly met with considerable losses. Bills of that kind, supplied with a forged
acceptance and intended for "kiting'' purposes (Geldmacherei), are generally made payable to the drawer
himself or to another person having connections with
him. Even in case of repeated prolongation the forgery
could remain undiscovered, as the bills were taken up
again and again by the drawer himself or by that third
person, ostensibly in the name of the drawee, and so the
drawee himself knew nothing of the whole affair. The
insolvency of the drawer first revealed the "kiting'' and
often a long succession of forgeries; the Reichsbank itself
suffered particularly heavy losses when it had bought the




144

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Reichsbank,

1876-1900

bill direct from the drawer without a further guarantee
signature, in the belief that the acceptance was genuine.
Even before this time the attention of the Bank had been
repeatedly drawn to such bills; the Prussian Bank had
already taken precautionary measures. The Reichsbank
was forced to take sterner action, and in 1892 directed
that in the case of these bills the drawee be informed of
the existence and the purchase of the bill by the Reichsbank. These provisions have met with strong approval
in those circles of the business world having connections with the Reichsbank, as they secure not only the
Reichsbank but also the public against forgeries involving
great losses.
The discounting of domiciled bills requires a specially
watchful eye for another reason. Bills are sometimes
made payable without any discernible cause at a "bank
place" far distant from the place of residence of both
the drawer and the drawee, in order to hide impure
credit operations, bill jobbing, and the like, and to deprive the officers of the Reichsbank of the insight into
the conditions and credit transactions of the circuit.
In all such cases since 1883 appropriate information is
sent from the purchasing branch to the branch in the
circuit of the drawer and the drawee, so that on the
whole the necessary survey is assured.
THE BILL HOLDINGS OF THE REICHSBANK IN THE BILL CIRCULATION OF GERMANY.

The position which a central bank of issue takes in
the money market of its country is essentially dependent
on the number of circulating bills which it concentrates
82302—10




10

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Monetary

Commission

in its portfolio. The greater this number the greater will
be the control of the bank over the market and the more
successful its discount policy. As the wealth of a land
increases the influence of its central bank of issue will
naturally decline; the more capital there is produced in
the country and the more this capital collects in the most
varied hands the less will the demand for capital seek
satisfaction at the central bank.
In contradistinction to other banks of issue, the discounting of bills forms in the case of the Reichsbank
the principal asset, not only occasionally, but constantly,
and the strongest basis for its existence. In 1900 the
average holdings in bills amounted to 42.3 per cent of
its total assets. The interest-bearing liquid invested
capital of the Reichsbank has always consisted for the
most part of inland bills. Advanced loans and discounted effects are always greatly exceeded by bill
investments. In the average of the last twenty-five
years the ratio of the capital invested in bills to the
total liquid invested capital, fluctuated between 79.5 per
cent in 1881 and 88.3 per cent in 1876. In 1900 it
amounted to 85.9 per cent.
Accordingly, the bills which the Reichsbank concentrates in its portfolio by means of discounting, are also
a considerable part of all of the bills that are drawn in
Germany. The organization of capital in Germany has
made great progress within the last twenty-five years,
and one might believe that, with the increasing wealth
of the country and the growing competition of numerous private banks, the ratio of the bill portfolio of
the Reichsbank to the total circulation had also




146

The

Ret

chs bank

, 187

6-1900

become smaller. That is not the case, however. The
Reichsbank has managed to increase its share in the total
bill circulation of Germany. Whereas in 1876 the
Reichsbank purchased 33.3 per cent—that is, exactly
one-third of all bills put in circulation during this year—
this share, after many fluctuations, rose by 1899 to 39
per cent, and declined in 1900 to 36.7 per cent. Thus
in 1899 nearly two-fifths of all bills drawn in Germany
were discounted at the Reichsbank. The ratio of
the average bill investments to the total bill circulation is smaller, but "still important enough to assure
to the Bank a domination of the market. It has
fluctuated between 11.3 per cent in 1881 and 15.8 per
cent in 1893. In 1900 it amounted to 13.3 per c e n t more than an eighth of all bills in circulation. In
times of brisk demand for money within the various
years—for instance, at the close of the quarters—this
share increases considerably, while in times of easy
money it becomes smaller. The fact that the ratio
of the average portfolio holdings to the total bill
circulation (in 1900, 13.3 per cent) is so much
less than the ratio of all bills discounted by the
Bank to the total amount of the bills coming into circulation in Germany (36.7 per cent), is explained by
the fact that the length of life of the bills circulating
in Germany averages some ninety days, while bills
purchased by the Reichsbank average for much shorter
periods. Their time to run, calculated from the day of
purchase until the day when due, fluctuated in the last
twenty-five years on a yearly average between thirty-




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Monetary

Commission

three a n d forty-one d a y s ; it a m o u n t e d on an average
in 1900 t o thirty-three days.
BILL PURCHASES OF THE REICHSBANK AS A SYMPTOM OF
THE ECONOMIC SITUATION.
I n general, t h e Reichsbank a t t r a c t s in times of increased
economic development, in which t r a d e needs larger
amounts of money, a higher percentage of t h e t o t a l bill
circulation t h a n in times of standstill or decline, which
are noted as times of plentiful money. Thus t h e Prussian
Bank had concentrated an average of 15.5 per cent of t h e
total German bill circulation in its hands during t h e high
s t a t e of economic activity and in t h e crisis of 1873. I*1
1875 t h e share of t h e Bank in bill circulation h a d again
declined t o 11.1 per cent. There are m a n y explanations
for t h e fact t h a t t h e Bank's share in German bill circulation has not diminished, b u t advanced, since t h e establishment of t h e Reichsbank, in spite of t h e growing wealth
of Germany, in spite of t h e concentration of great capitals
in t h e hands of numerous newly formed credit b a n k s . On
t h e one hand, owing t o t h e rapid development of G e r m a n
economic activity, t h e demand for credit and means of
p a y m e n t has continuously risen; on t h e other hand,
through t h e discontinuance of numerous private b a n k s of
issue and through t h e establishment of t h e transfer
system, t h e Reichsbank obtained large funds with which,
through t h e extension of its network of branches, it could
satisfy t h e increased credit requirements b y means of its
discounts.
The Reichsbank's average investments in inland bills
have, on t h e whole, increased considerably, corresponding




148

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Reichs

bank,

1876-1900

to this general development. The fluctuations in
the economic situation are clearly reflected in their
changes. The claims on the Bank reached the lowest
point in 1879 with an average investment of only
324,700,000 marks in inland bills, and with total purchases of 2,367,915 pieces to the amount of 3,369,400,000
marks. Since that year, which was a time of deepest
economic decline for the German industrial world, the
Bank has increased its bill transactions to more than
double those amounts. In the last year, which forms
the conclusion of its twenty-five years' development,
more bills came to the Reichsbank than ever before. For
years the Reichsbank has been far ahead of all existing
central banks of issue in average investments in bills,
and, with the sole exception of the Bank of France, none
of these banks bought so many bills last year for such a
high total sum as the Reichsbank. With an average
investment of 773,000,000 marks in inland bills, the Reichsbank in 1900 bought 4,416,417 bills for a total amount of
8,551,800,000 marks.
COMPOSITION OF B I I X INVESTMENTS.

The Reichsbank divides inland bills purchased by it
into local bills (Platzwechsel)—that is, such as are payable
in the circuit of the purchasing branch—and consigned
bills (Versandtwechsel), which are payable at any other
"bank place."
LOCAL AND CONSIGNED BILLS.

Since 1876 the percentage of local bills in the total
bill holdings has risen, that of consigned bills has correspondingly fallen. In 1876 consigned bills predomi-




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Monetary

Commission

nated with 56.7 per cent of all bills purchased on
inland places; in 1900 the inverse ratio was observed.
Local bills had risen to 56.3 per cent, while consigned
bills represented only 43.7 per cent of all inland bills
purchased. The average funds invested in consigned
bills fluctuated within the past twenty-five years between 163,400,000 and 352,800,000 marks, that in local
bills between 149,700,000 and 445,200,000 marks.
BILLS PURCHASED AT PRIVATE DISCOUNT.

The ratio of bills purchased at the private discount to
all inland bills purchased by the Reichsbank was naturally
subject to great fluctuations, if only for the reason that the
number of days on which the Bank bought bills at the
preferential rate has varied very greatly in the different
years.
During the whole of 1891, also from April
2 of 1896 to the present time, the Bank has discounted no
bills at preferential rates. In 1890 such purchases were
made on only seventy-six days. Such purchases were
most constant in 1883, 1884, 1886 to 1888, 1892, and 1894,
in which the number of days on which the Bank annually
discounted bills at the private rate fluctuated between 323
(in 1888) and 350 (in 1884).
DENOMINATION.

The denomination of purchased bills allows interesting
conclusions as to the extent to which those who claim
credit for small amounts participate, directly or indirectly, in the bill business of the Reichsbank (cf. Table 51).
From statistics which have been collected for all bills falling due from April 1 to June 30, 1900, and purchased by
the Reichsbank, it has been found that far more than half




150

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Reichs

bank,

187

6-1900

of all bills, namely, 55.5 per cent—in the case of local bills
43.2 per cent and of consigned bills over 60 per cent—
were for amounts of 500 marks and less; 72.3 per cent of
all bills did not exceed 1,000 marks, and only 11.2 per cent
were for more than 3,000 marks. By far the most bills
under 1,000 marks, however, originate among the middle
classes and small tradespeople, who make claims on the
funds of the Bank in a particularly high degree, even
though their direct claims are small. The increase of bills
for less than 100 marks is especially noticeable, both
absolutely and relative to the total number of all bills purchased—a sign that these very small bills multiply in a
higher measure than large ones, and that the bill system
and the credit given on bills by the Reichsbank are used
more and more by small tradespeople. The growth since
1889, though not without interruption, is especially observable in the case of consigned bills; local bills show
a small decrease in percentage.
AVERAGE AMOUNT.

The average amount of all purchased inland bills has
been subject to considerable fluctuations; it was lowest in 1878 and 1879, a time of only weak demand
for credit, and greatest in 1899 and 1900, when the excessively heavy credit requirements led to the drawing of
numerous large bills. The same was true of 1890, a year
in which the climax of a period of unusual economic
activity was attained, when the average value of the
various bills rose to a climax never reached before, namely,
1,727 marks. A particular reason for the advance in the
average amount of bills in recent years is the fact that




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Monetary

Commission

the so-called Acceptkredit, the drafts on banks and bankers
which are almost always for very high amounts, has come
into vogue in an increasing degree. On the whole, the
number of small bills purchased by the Reichsbank is considerably higher and the average amount of all bills considerably lower than is the case with private banks of
issue, with the exception of the Bank of Saxony. This
proves that, contrary to the prevalent opinion, the funds
of the Reichsbank benefit the middle and small business
man more than do private banks of issue.
AVERAGE TIME TO RUN.

The average time to run of inland discounted bills
fluctuated between thirty-three and forty-one days
during the period. Apart from usages prevailing in various
economic districts and from the credit requirements of
the bill, the time is strongly influenced by the existing
rate of discount. In times of a high interest rate the
discounting customers of the Reichsbank offer for sale,
as far as possible, only bills falling due in a short time, so
that even in years of strong credit demand, as in 1899 and
1900, the average time to run amounted to only thirty-five
and thirty-three days respectively, owing to the high rate
of interest, as compared with forty-one days in times of
abundant circulating capital, like 1894, when the average
bank discount was only 3.117 per cent. Bills are more
liquid the shorter the average time which all purchased
bills have to run. Even in 1894, in this respect the
most unfavorable year, in which the average time to
run amounted to forty-one days, the bill holdings met
fully all demands which must be insisted upon for the




152

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Rei

chs bank,

1876-1900

assured redemption of notes, since 25.8 per cent of all the
bills were due in the first fourteen days, 17.3 per cent in the
next fourteen days—that is, 43.1 per cent of all the bills
within the first four weeks. The most favorable ratio
was in 1882, with an average time to run of thirty-three
days; even here 51.7 per cent were due in the first four
weeks. In 1900, with an average time to run of thirtythree days, it was 47.5 per cent.
PERSONS AUTHORIZED TO TAKE CREDIT ACCORDING TO T H E I R
VOCATION AND T H E E X T E N T OF T H E I R CREDIT.

The average value, and the average time to run, of
the various bills was considerably higher in local bills
than in consigned bills. Both are naturally much greater
in bills purchased below the bank rate, if only for the
reason that the Reichsbank purchases at a private rate
only bills amounting to at least 3,000 marks and with at
least forty-two days to run.
The number of firms and persons directly or indirectly
admitted to the discount business of the Reichsbank was
in April 1896, 55,027, in December 1898, 58,988, and in
August 1900, 62,763. Those are regarded as directly
admitted who discount personally at the Reichsbank, and
as indirectly admitted all other persons and firms liable
on bills purchased whose solvency is unquestionable for
the Reichsbank in the purchase of the bills.




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Monetary
August, 1900.

Credits to the extent of—

1,000-10,000 marks _
11,000—20,000 marks. _
21,000-30,000 marks _ _
31,000-60,000 marks- - .
61,000-100,000 marks
101,000-500,000 marks
501,000 and more marks-_
Total

Commis s ton

December, 1898.

Admitted
to credit.

Per
cent.

24,943
14.155
6,795
7.754
3.872
4,596

40
23
11
12
6

648

7
1

62,763

100

Admitted
to credit.

April, 1896.

Per
cent.

Admitted
to credit.

40

21,742
12,547
6,237
6, 920
3,214
3.826

23,288
13.519
6, 641
7.274
3.528
4.158

23
11
12
6

580

7
1

58.988

100

54i

Per
cent.
40
23
11
12
6
7
1

55,027

AMOUNT O F CREDIT GRANTED.

The first group of small credits comprises by far the
most firms and persons with 24,943, or 40 per cent of all
credits; nearly three-fourths (74 per cent) of all persons
authorized to take credit are below 30,000 marks. On
the other hand, bill credit of more than 60,000 marks
is given to only 9,116 firms, or 14 per cent of all firms admitted, a clear proof of the high extent to which the funds
of the Reichsbank are at the disposal of middle and small
businesses.
It is interesting to note the different industrial classes
which enjoy bill credit at the Reichsbank.
The terms on which the Reichsbank grants credit by
the purchase of bills are, to be sure, the same for all
branches of industry, if the above-mentioned facilities
granted to agriculture, craftsmen, and cooperative societies be disregarded. Bills originating within the different
branches of industry are not, however, suited in an equal
manner for the Reichsbank, for the needs for personal
credit vary greatly with regard to the amount, length of




154

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Reichsbank,

1876-1900

time, and origin. Accordingly, the credit of the Reichsbank through discounts is not equally at the disposal of
the various industrial classes, and is not claimed equally
by them.
TRADE.

According to the statistics of August i, 1900, most
authorized credit takers (43.4 per cent) are among the
mercantile class (including banks and bankers). That
the mercantile class takes most advantage of the bill credit
of the Reichsbank, in comparison with other industrial
classes, is explained by the fact that the bill business has
spread most in this branch of industry, even in small
businesses. That is also expressed by the fact that some
51.9 per cent of the tradespeople admitted to the bill
business of the Reichsbank must content themselves with
credits of not more than 10,000 marks. The participation
of trading classes in the bill credits of the Reichsbank is
naturally greatest in those town and districts in which
business flourishes and surpasses in importance other
branches of industry. That is particularly the case in
western and southern Germany, also in the "free" cities.
In Bremen, for instance, 74 per cent of all persons entitled
to credit at the Reichsbank belong to the trading class.
It is of particular interest to determine what share banks
and bankers take in the bill transactions of the Reichsbank; 3.8 per cent of all persons and firms admitted to
bill business at the Reichsbank are among these. They
make claims on the bill credit of the Reichsbank, in contrast to other trades, to industry, and to agriculture, principally in the higher stages of credit. Whereas only 28.8
per cent of all banking houses authorized to receive credit




155

National

Monetary

Commission

get credits below 30,000 marks, 71.2 per cent of the banks
authorized to receive credit enjoy bill credits which, for
the most part, considerably exceed this amount. In estimating the position of banks and bankers in the credit
business of the Reichsbank we must always remember
that they are the greatest intermediaries for credit, and
that the credit given to them by the Reichsbank benefits
indirectly the other branches of industry. Many of the
bills discounted at the Reichsbank by banking firms conform with the requirements of the Bank Act (sec. 13, p. 2)
for discounts of the Reichsbank through the transfer system
of the banking house in question, and the banks themselves
discount these bills only on the possibility of rediscounting
them at any time through their transfer account at the
Reichsbank. As commerce and industry maintain banking
connections more than agriculture, the ratio of banks to all
firms and persons enjoying credit at the Reichsbank is considerably smaller in the agricultural provinces east of the
Elbe than in the southern and western parts of the Empire.
INDUSTRY.

Industry and industrial companies represent 30.4 per
cent of the total number of firms and persons authorized
to take credit in the bill system of the Reichsbank. This
average percentage rate for the whole Empire is considerably exceeded in industrial districts, particularly in the
Rhine provinces, in Westphalia, and in the Kingdom of
Saxony. Thus in Crefeld (velvet and silk industry) 61
per cent, in Aachen (cloth and chemical products) 53
per cent, in Dortmund (coal and iron) 49 per cent, in
Chemnitz (spinning, weaving, and machine industry) 60




156

The

Reichsbank,

1876-1900

per cent, and in Plauen (textile industry) 66 per cent of
all persons and firms admitted to the bill business at
the branches of the Reichsbank belong to industrial
circles.
AGRICULTURE.

Agriculture (inclusive of rural trades and factory industries) takes the least share (not quite 14 per cent) in the
bill transactions of the Reichsbank. There is a natural
reason for this, since this branch of industry takes little
part in bill transactions in general. Where the agriculturist can make use of personal credit for obtaining and strengthening his working funds, he needs it
mostly for long periods, so that only in exceptional cases
is the Reichsbank of use to him as a source of credit, in
spite of the facilities granted to landed proprietors. It
may appear strange that in agriculture the small and
middle proprietors participate to a much higher degree
in the bill business of the Reichsbank than is the case in
trade and industry; 56 per cent of the agricultural credit
takers enjoy credits up to 10,000 marks, against 52 per
cent in the case of trade (inclusive of the banking), and
29 per cent in industry. This is to be explained by the
fact that even to-day operations on a small and medium
scale are much more common in German agriculture than
in both the other productive classes. In proportion to
other callings the Reichsbank serves agriculture most
in the eastern and northern provinces. Thus, for example, in the circuit of the branch at Insterburg, 51 per
cent of all persons authorized to take credit belong to the
agricultural class, in Flensburg 50.5 per cent, in Tilsit 47.5




157

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Monetary

Commission

per cent, in Stolp 39 per cent, in Graudenz 38 per cent,
in Thorn 37 per cent, and in Posen 36 per cent.
Inquiries have been instituted to ascertain what claims
have actually been made on the funds of the Reichsbank,
especially with regard to agriculture, for two years,
namely, from April 8 until April 7 of the years 1893-94
and 1897-98. Not in all cases in which the Reichsbank
gives credit to farmers does this fact come to the
knowledge of the farmer taking credit, as the latter
arranges his debt on the bill with the first buyer of the
bill. The bill, mostly domiciled at a "bank place,''
reaches the Reichsbank at second or third hand. Its
grants of credit to agriculture are therefore in many cases
indirect. As the bills made by farmers are seldom
bills on merchandise (Warenwechsel), but mainly pure
credit bills, they occur almost entirely in local bill transactions of the Reichsbank, particularly since the credit
which the farmer enjoys is mostly limited to a certain
territory, and his capacity for credit can be tested only at
that place or in the vicinity.
Still, the bills purchased directly from farmers, agricultural industries, and manufactories amounted in 1897-98
to 68,500,000 marks against 23,800,000 marks four years
previously—an important advance, especially if one
considers that the amount of all bills purchased in the
German Empire has in the same time increased by only
25 per cent. The sum of all bills purchased with the signatures of farmers, agricultural cooperative societies, and
agricultural manufactories rose from 1893-94 to 1897-98
from 216,000,000 to 280,000,000 marks. The sum of all
bills in connection with agriculture was 348,000,000 marks




158

The

Reichsbank,

1876-1900

in 1897-98 against 240,000,000 marks in 1893-94—that
is, 5.1 per cent against 4.3 per cent of all bills discounted.
Of these, nearly two-thirds belonged to the six eastern
provinces of Prussia (excluding Berlin), namely, 203,900,000
marks, or 20.2 per cent, of all bills purchased there, against
157,900,000 marks, or 19 per cent, in 1893-94. At various
branches the sum of agricultural bills—that is, such as
bear the signatures of farmers—is more than half of
all bills discounted, and at others it is nearly half. It
amounted, for instance, in 1897-98 in the circuit of the
Reichsbank in Flensburg to 58.5 per cent, in Zoeslin to
52.2 per cent, in Tilsit 49.3 per cent, and in Posen 41.4
per cent.
COOPERATIVE SOCIETIES.

Owing to the special interest which the Reichsbank has
always taken in cooperative societies, because they represent the form in which bank credit can benefit the less
wealthy classes, and in consideration of the facilities
afforded them in accordance with the terms of the Bank
Act, statistical inquiries into the credits given to cooperative societies have also been made; 1.2 per cent of all
firms admitted to the bill business at the Reichsbank are
cooperative societies of various kinds. According to the
last report on German industrial and agricultural cooperative associations, there were in the Empire on March 31,
1900, 17,988 cooperative societies. Of these 773, or 4.3
per cent, enjoy bill credit at the Reichsbank. A much
larger number of cooperative societies is admitted to the
bill business of the Reichsbank, since the cooperative societies combined into unions (Verbande) work partially
with the Reichsbank. The credits at the disposal of the




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Monetary

Commission

cooperative societies are comparatively high. E x a c t l y
half of t h e societies a d m i t t e d enjoy credit within t h e
limits of 21,000 a n d 100,000 marks. No other group, n o t
even t h e banks with 41 per cent, participate t o such a degree in these middle a n d higher credits. T h e sum of t h e
credits actually claimed b y cooperative societies in bill
transactions amounted, from April 8, 1897, to April 7,
1898, t o 203,000,000 marks, which is equal to 3.1 per cent
of all bills purchased b y t h e Reichsbank during this
period.
PURCHASE OF BILLS IN THE VARIOUS ECONOMIC DIVISIONS
OF THE EMPIRE.
The results of t h e distribution of Reichsbank bill
credits among different branches of industry are confirmed b y t h e share taken b y different economic regions
a n d districts in bill transactions of t h e Reichsbank.
The industrially rich West is much more concerned
in bill transactions of t h e Bank t h a n t h e East. I n
1900, for instance, of t h e total a m o u n t of all bills discounted a t t h e Reichsbank, 13.6 per cent were in t h e
Rhine Province, and only 9.8 per cent in t h e agricultural
districts in t h e northeast of t h e Empire (East Prussia,
West Prussia, Posen, Pomerania, Schleswig-Holstein,
Brandenburg, excluding the circuit of t h e main b a n k in
Berlin). The circuit of t h e main bank, Berlin, alone h a d
19 per cent, Silesia 6.2 per cent, t h e free cities 7.6 per
cent, Saxony 7 per cent, Bavaria a n d Baden each 5 per
cent. I n t h e various b a n k circuits t h e economic conditions which prevail in different territories are n o t
difficult to recognize. I n 1900 about half of all bills




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1876-1900

were purchased from the ten most important of the
existing seventy-six independent branches; it was the
same as early as 1876, in which half of all purchases
were made in nine branch offices out of sixty. In 1900
the ten most important branches with regard to bill
purchases were, in order of importance, Berlin, Frankforton-the-Main, Hamburg, Leipzig, Mannheim, Cologne,
Breslau, Munich, Elberfeld, Dortmund. Since the establishment of the Reichsbank, noteworthy changes have
occurred in the territorial distribution of bills. The
extension of the Reichsbank to the whole of non-Prussian
Germany took place as early as the establishment of the
Reichsbank, in fact, even earlier, in the time of the Prussian Bank. Especially in those provinces outside Prussia
in which private banks of issue still existed and partly
still exist, the Reichsbank could only gradually assure
itself of an influence over the markets of the various
provinces corresponding with its position as central bank
of issue. This is seen if one compares the share taken
by the branches in Prussia in the bill transactions of the
Reichsbank with that of branches in other parts of
Germany during their twenty-five years of development. Whereas in 1876, 78 per cent of all bills discounted
by the Reichsbank belonged to Prussia (inclusive of the
Thuringian states, Oldenburg, and Brunswick), this share
diminished by 1880 to 68.2 per cent, by 1885 to 66.6
per cent, and by 1890 to 64.5 per cent, while conversely
the share of branch offices in other parts of Germany
increased. In the last decade there has occurred a trivial
movement in the opposite direction in favor of Prussian
domains, so that the share of Prussia rose again by
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Commission

1900 to more than two-thirds of the total purchases.
The movement of bills discounted at branches during
the last twenty-five years corresponds with the development of economic intercourse. Consideration must be
taken of the fact that in many cases the establishment
of new suboffices and the division of larger independent
bank circuits has brought the Reichsbank more requests
in many provinces. This has been of importance for the
bill holdings of numerous branches. Many local changes
in the use of bank credit have arisen in this way.
Fluctuations of profits in discounts have not been
parallel with the amounts of bills purchased in various
economic districts. Where the economic activity requires
credits for long periods, where accordingly the average
life of purchased bills is long, the ratio of the profits of
these districts to the total profits will be larger than the
ratio of bills purchased in those districts to the total
amount of bills purchased. Therefore the eastern provinces of Germany, in which agriculture produces bills
with a relatively long time to run, participate to a greater
extent in the total profits than in the total amount of discounted bills.
PROFITS AND LOSSES IN DISCOUNTS.

The profits of discount transactions of the Reichsbank
since its foundation gives on the whole a representative
picture of the economic development of Germany. Declining continuously in the first four years the discount
profits rose from 1880 to 1882 nearly to the height in 1876,
sank by 1886 almost uninterruptedly with decreasing dis-




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1876-1900

count rates to its lowest level of 10,500,000 marks.
The rapid economic development, which found its zenith
in 1890, brought almost uninterrupted advances up to
the previously unattained height of 23,000,000 marks.
The succeeding depression also finds expression in the
decline, interrupted only once, of discount profits until
1895. The following unexampled advance made itself felt
in an extraordinary rise of interest proceeds, which increased far more rapidly than the accompanying rise of
interest rates. This is attributable, first of all, to the important increase of purchases and only in a moderate
degree to the higher discount. It may be mentioned that
in 1880, with an average discount of 4.24 per cent, discount profits amounted to only 13,400,000 marks, and in
1898, with approximately equal interest rates (4.267 per
cent), to 28,800,000 marks. Whereas in 1890, with an
average rate of 4.5 per cent, 23,000,000 marks were
obtained, the somewhat higher proceeds of 23,700,000
marks in 1897 were obtained at an average rate of 3.8
per cent.
The number and sum of bills not paid at all or not
paid at the proper time by the drawees—in which the
other liable parties must first be held responsible—fluctuate according to business usages, economic conditions
of the various districts, times, and callings. In 1900,
4.37 per cent according to number, and 1.08 per cent
according to amount, of all bills purchased were not paid
or not paid at the proper time—a sign that the smaller bills
are concerned more than the larger. This fact is particularly striking in the case of bills under 100 marks, of
which 8.65 per cent of the total remained unpaid. The




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Commission

reason for this lies in the fact that great merchants are
prompter in their payments and guard more zealously
their reputation of full solvency than smaller tradespeople; furthermore, the drawees of large bills are much
shyer of protest than those of small ones. Also the Bank
admits no large bills without acceptance, but admits small
ones when they have not much time to run. An unaccepted
bill, however, is allowed by the drawee to go back for nonpayment sooner than an accepted one. For a similar
reason, the ratio of bills remaining unpaid to the total sum
of all bills presented for payment was more favorable in
the case of local bills than in that of consigned bills;
the former must, without exception, be supplied with
acceptance at the time of discounting, while the latter need
not be. Of local bills, 2.71 per cent according to number,
and 0.69 per cent according to amount, were either not
paid at all or not paid in time, as against 5.06 and 1.32,
respectively, in the case of consigned bills.
The sum of so-called Stockwechsel—that is, those bills
which, on maturity, could not be paid even by other
parties liable on them, and which were therefore held
on the books—amounted during the twenty-five years
of the Reichsbank's existence to only 11,800,000 marks,
or 96.10 marks on each 1,000,000 marks of bills purchased, and most of these have subsequently been
paid.
The losses of the Reichsbank in bill discounts have consequently been quite insignificant. The total loss in the
annual average of the twenty-five years of the Reichsbank's existence has been 152,803 marks—that is, only
0.81 per cent of the average profit, amounting to




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1876-1900

18,802,671 marks. On each 1,000,000 marks of bills purchased, t h e Reichsbank has suffered a loss of 31.2 marks.
I n connection with this, we must remember t h a t the
Reichsbank in the twenty-five years of its existence has
been free from great political and serious economic
crises.
THE PURCHASE AND SALE OF FOREIGN BIIXS.
The buying and selling of foreign bills is allowed to
the Reichsbank by the Bank Act under t h e same conditions as those of inland bills (sec. 13, no. 2). In the n a t u r e
of things, however, t h e Bank must employ in this branch
of business more severe, and, in part, different principles.
Great precaution is more necessary because information
about foreign parties liable on bills is imperfect and hard
to obtain, t h e fluctuations of foreign rates of exchange
are violent, and the laws and usages in individual
countries vary greatly. On the other hand, however, it is
desirable t h a t the Reichsbank hold a certain stock of
foreign bills. Such a stock is, in times of significant
scarcity of money abroad, a preventive against t h e rise
of the rate of exchange and against t h e outflow of gold,
and in times of economic and political crises at home a
means of drawing gold from abroad. Through its foreign
bills of exchange (Devisen) the Reichsbank is not only
able t o give u p bills from its portfolio for making payments
abroad, and so to relieve t h e price-raising sudden call on
the market, b u t if need be to oppose successfully through
increased offers on t h e Bourses an advance of t h e rates of
exchange beyond a certain point. The strength of this
influence is directly dependent on t h e ratio between




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foreign-bill holdings of the Bank and the current demand.
Although, as a rule, such an influence can be only temporary, yet the Reichsbank has in this way repeatedly
succeeded in preventing threatened exportations of gold,
or at least in postponing them for a certain time and in
limiting them in duration and extent.
On the other hand, the Reichsbank must hesitate to
increase its holdings of foreign bills beyond a certain
measure. Apart from the above-mentioned test of the
credit capacity of foreign firms—a test which is not
always easy or reliable—the Reichsbank needs its
legally limited funds for satisfying legitimate domestic
claims. The stock of foreign bills is, moreover, limited
and dependent upon commercial transactions within the
agreements between the tcountries in question. If the
Reichsbank entered the market as competitor in the
purchase of too many bills, it would necessarily advance
the rate of exchange and cause an outflow of gold from
the country—the very opposite of what it wanted to
attain. The purchase of bankers' drafts, which rest upon
pure credit, would be useless, as the drawer himself must,
as a rule, first provide cover for his draft, and this takes
back to the foreign country the amount of gold collectible
on maturity of the bill.
The Reichsbank can purchase bills only on such foreign
states whose standard appears sufficiently assured. It
must keep out of its portfolio bills which are subject
to heavy fluctuating rates of exchange. The number of
countries on which it buys bills has considerably increased
since its establishment. It has been guided mainly by the
requirements of trade, so far as these directly concerned




166

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ank,

1876-1900

it and appeared large enough to form a special business
connection abroad. At the present time it purchases bills
on the more important places of England, France, Holland, Belgium, Switzerland, Denmark, Scandinavia, and
Italy. The terms naturally vary; the principal determining factors are the place of payment of the bills—
whether at a first or a second class city—and, furthermore,
the amount and time to run. In the computation of
the rate, however, only the rate quotation on the Berlin
Bourse is used as basis. On England, checks as well as
bills are bought, as there they possess the character of
bills. The purchase of bills on foreign places has in the
course of time been continuously extended and facilitated.
The purchase fee has been materially reduced; it amounts
to-day to % or i on a thousand, depending upon whether
the long or the short rate is to be used for the bills, but
at least 50 pfennigs for each bill. The Reichsbank sends
foreign bills coming into its portfolio, so far as they are
not sold again at home, to its correspondents abroad, who
collect them for the Bank's account.
The sale of foreign bills is closely related to their
purchase. The Reichsbank always gives up bills on
foreign places so far as they are on hand in suitable
amounts. If suitable bills are not on hand or not disposable, it procures them for a commission at the Bourse,
and in some cases it fills the orders by its own checks
drawn on its foreign correspondents. The fee amounts
to 1 on a thousand; it is not charged in those cases in
which the purchaser raises the money through bill discounts or collateral loan transactions yielding at least
ten days' interest.




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The purchase of foreign bills has on the whole moved
in pretty narrow limits; in 1876 it was only 17,600,000
marks; in 1900, 211,800,000 marks.
Among the countries on which the Reichsbank purchases foreign bills those naturally are foremost which
participate most in the export trade of Germany. Most
purchased foreign bills have always been on England, not
only on account of the active commercial relations with this
country, but mainly because through England are made
most international payments. The percentage of bills
on England in the total of all bills purchased on foreign
places has never sunk below 75.2 per cent (1877); ft w a s
greatest in 1900, when it rose, in consequence of heavy
purchases of English foreign bills on the Bourse, to 95.1
per cent. It was also very high in 1886 and 1899—91.6
and 88.7 per cent, respectively.
Aside from Berlin, those branches are most important
which are in circuits where export industries flourish,
for instance, the Rhine circuits, Chemnitz, and Minister.
Changes in the commercial policy of foreign states
which materially influence exports to those countries
are felt also in foreign bills transactions. Thus the
silk and velvet industry of the Crefeld circuit formerly
exported heavily to North America; considerable amounts
of bills resulted, particularly on England, which were
discounted at the Reichsbank branch in Crefeld, so that
this branch took almost first place among branches
participating in foreign bill transactions. The recent
North American protectionist policy completely crippled this export of silk goods; whereas in 1888 foreign




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Reichsbank,

1876-1900

bills were purchased in Crefeld for over 6,500,000 marks,
this sum decreased almost uninterruptedly to 1,600,000
marks b y 1900.
DISCOUNTING OF SECURITIES.
Closely related to bill discounts, although not comparable to it in economic importance, is the discounting
of securities which fall due after a certain period. The
Reichsbank is permitted b y the Bank Act to purchase
bonds of t h e Empire, of a German state, or of an inland
communal corporation, which are due a t face value
within three months a t t h e most (sec. 13, no. 2). Among
securities purchased b y t h e Reichsbank are mainly
exchequer bills of t h e Empire and of t h e federal states,
also receipts for rebate of taxes
(Steuer-Riickvergutungsanerkenntnisse)
on exported spirits and sugar, and, since
August 1, 1892, export bounty certificates
(Ausfuhrzuschuss-scheine) on domestic sugar. I n general, principles
hold good in this branch of business similar t o those in
t h e purchase of bills, and the same rate of discount is
employed. Since 1882 the Reichsbank has little b y
little begun purchasing securities at a private discount
under conditions corresponding with those customary in
t h e purchase of bills below the official rate of discount.
This branch of business has always, in comparison with
other assets, been of relatively subordinate importance;
t h e average capital invested in discounted securities
has not been large either absolutely or in relation
t o total investments, except in t h e period from 1879
t o 1887, in which it fluctuated between 13,500,000 marks
and 40,900,000 marks, and in relation to t h e total




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Commission

interest-bringing invested capital between 3.2 per cent
and 8.8 per cent. Since that time it has remained
between 1 and 2 per cent.
COLLECTION OF BIIXS, ETC., RECEIVED ON COMMISSION.

In contrast to the purchase of bills and securities for
the Bank's own account, the collection of bills on commission (Auftragspapiere) is a branch of business free
from all risk. The whole responsibility of the Reichsbank consists in fulfilling as commission agent the obligations to which it assents on accepting the paper for
collection. In general no principles of importance to
policies of banking arise; the Reichsbank, supported
by its many branches, performs for trade an important
but mechanical service. All documents are acceptable
for collection which are payable on presentation, or at the
latest within fourteen days after delivery at a bank place,
that is, bills, drafts, and securities of all kinds, interest
coupons, dividend warrants, etc. In the adjustment of
terms in this branch of business, the Reichsbank aims
to attract to itself those papers which do not come to
it in any way as material for discount, either because
they are excluded from discount on general legal grounds,
as, for instance, drafts, checks, receipts, and the like, or
because they are not suitable for purchase on account of
some special deficiency. At the same time, the Bank
must avoid creating a competition with its own discount
business by favoring collection business, especially in bills,
as one of its chief tasks as central bank of issue is the
encouragement of this line of business (discount); besides,
in addition to cash (Barvorrat), only discounted bills are
cover for notes.




170

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Reichsbank,

1876-1900

The terms on which the Reichsbank collects have
been materially modified in the course of time. The
Bank has adapted itself to the increased demands of
trade with respect to fees and the speed of the process.
The fee, because of the absence of all risk, is very small;
it amounts in general to i on a thousand, but at least 50
pfennigs for each document; in the case of interest
coupons one-fourth of 1 per cent, at least 50 pfennigs
for each kind; in the case of securities, expressage must
also be paid. For bills which remain unpaid, a fixed
fee of 1 mark or 50 pfennigs, respectively, must be paid,
depending upon whether they go back with or without
protest. Bills domiciled at the Reichsbank, checks on
another branch (since 1879) or a banking house which
is a member of a clearing house (since 1884), are subject
to a fee of only one-fifth per thousand, but at least 30
pfennigs for each. In this extremely moderate charge
is expressed not only the small expenditure of trouble
in presentation and collection, but also the intention of
the Reichsbank to promote so far as practicable the
payments at its own office and at clearing houses.
The branch at the place of payment collects with all
possible dispatch the papers coming to it and likewise
informs the presenting branch of the effected payment,
so that the equivalent can be immediately received
Suboffices have not the authority to give direct notification, which, on the contrary, is effected through its
superior branch; only since December 18, 1899, is this
permitted and prescribed for suboffices with several
officers.
In the first years of the Reichsbank's existence its
collections did not increase, but decreased appreciably.




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Since 1885, after the establishment of clearing houses
and the development of check traffic, they have rapidly
and steadily increased. The annual total sum of collections on commission has risen since then from 6,000,000
to 125,000,000 marks. In the increase of the average
amount of papers handed in is shown likewise the increase
since 1885 of checks for large amounts. The decrease in
the average amount of papers handed in since 1890 for
collection does not show a decrease of checks, but indicates
that they have penetrated into the national economic
system. They have come into vogue more and more for
smaller payments. Of checks, about one-half were on
members of clearing houses in 1900; nearly a quarter
were checks on the Reichsbank, so that nearly threefourths were collected at the reduced rate of one-fifth on
a thousand. The minimum charge of 30 pfennigs was
employed for about 20 per cent of all checks handed in,
and that of 50 pfennigs in the case of only 4 per cent.
Bills and notes handed in by customers having current
accounts and payable at the place itself (Giroeinzugswechsel), are classed with bills and other securities
collected for the accounts of others. Such paper
must be handed in at the latest on the forenoon of
the working day immediately preceding the day of maturity. The collection is free of cost; only on bills
remaining unpaid is there a fixed fee of 20 pfennigs for
each one.
The Reichsbank also takes papers on foreign countries
for collection. This branch of business, however, has
not yet attained proportions worthy of mention.




172

CHAPTER VI.
LOMBARD LOANS.
(Loans on collateral.)

IMPORTANCE OF LOMBARD LOANS.

Lombard loans—that is, advances on deposited securities—are for modern banks of issue of far less importance than bill purchases, not because they are of smaller
economic value, but because lombard advances can not
be used as cover for notes. So far as rapid and certain
realization is concerned, loans on collateral can not be
compared with bills carefully chosen in accordance with
banking principles; a lombard advance does not always
rest unconditionally on a business basis, as does a business bill, especially the solid merchandise bill (Warenwechsel). A lombard loan, on the contrary, often aims
to supply temporary working capital, whereas the equivalent of a bill must be on hand in the regular course
of production and sale from the origin until payment,
whether the equivalent be goods or, in case these are sold,
proceeds. A certain class of bills also serves in providing
needed capital. The nature of these, however, is not
hidden from the experienced banker. This clearness the
lombard loan does not possess. Characteristics from
which the kind of credit claimed in the lombard loan can
be inferred are, as a rule, wanting. The degree of probability with which the repayment of the loan can be
reckoned upon depends on the manner in which the capital
is employed. These deficiencies in individual lombard




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Commission

loans, and therefore in all lombard investments, can not be
obviated through the safety of the pledge, even by observing the most careful limits in making advances. This
safety and the realization of outstanding claims really
depend on whether the market is in a position to take up
securities in case of a compulsory sale. Experience has
shown that this can not be reckoned upon with certainty;
lombard investments have often turned out to be tied-up
capital in critical times, when central banks of issue, out
of regard for the prompt redemption of their notes and
the repayment of deposits, were obliged to take steps for
the realization of their claims.
For these reasons the Bank Act stipulates that, besides cash, only bill investments, and not lombard holdings, are to be regarded as cover for notes; further, that
the central committee must be consulted as to the highest
amount to which the funds of the Bank should be employed
in making advances (sec. 32, par. 2). The weekly statements of lombard holdings are to be laid before the central
committee for inspection (sec. 32, par. 1). Contango
business (Reportgeschdft), which is economically and
technically related to lombard loans, is forbidden to all
banks of issue (sec. 7, par. 2).
On the other hand, the Bank Act makes it easier for the
Reichsbank to satisfy the need for lombard credit by
allowing it to realize pledges through the sale of deposited
security at public auction, in case the debtor is in arrears,
without legal authorization or cooperation, or to have it
sold at the Bourse price, and to reimburse itself out of the
proceeds for capital, interest, and costs. The Bank re-




174

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chsbank,

1876-1900

tains this right also against other creditors, and against
the bankrupt estate of the debtor (sec. 20).
REGULATION OF LOMBARD INVESTMENTS THROUGH T H E
I N T E R E S T RATE.

The necessity of keeping lombard claims within the
bounds dictated by prudence has led the Reichsbank
and most other banks of issue to charge for these loans
a rate of interest exceeding the bill discount. Only in
rare cases of advances on precious metals, which must
be judged from other points of view, is the interest rate
the same as the bill discount. The difference between
bill and lombard rate of interest has, as a rule, amounted
in the case of the Reichsbank to 1 per cent. Only temporarily was it possible for the Bank to keep the lombard rate of interest at the same height as the discount rate,
or at a rate exceeding the latter by only one-half of 1
per cent. Even the order of March, 1884, which tried to
make easy the disposal of German imperial and state
bonds, and stipulated that the interest of loans on exclusive deposits of this one group of papers was to be calculated at a reduced rate, could not be followed for any
length of time. It was rescinded on July 1, 1897.
As in the purchase of bills, so in lombard transactions,
the adjustment of the interest rate has been the most
important means of which the Bank has availed itself
in the regulation of its investments. With this procedure
the Bank could grant at any time any required loan for
adequate security. It was never compelled to put into
force more or less arbitrary restrictions on the takers of
loans, as did the Prussian Bank, which was hindered




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Commission

until 1864 a n ( i x866 through the Bank Statute and the
usury laws in its freedom of fixing its lombard interest
rate. The current rate at which the Reichsbank grants
loans must be published (sec. 15). Changes take place,
almost without exception, simultaneously with those
of the discount rate. The new rate of interest is valid for
all loans from the day it is fixed.
ORGANIZATION OF T H E LOMBARD SYSTEM.

The principles, hereafter to be described, on which the
Reichsbank grants lombard credit, and the forms in
which this business is executed, are essentially determined by the necessity of choosing suitable security and
of ascertaining its value, by the maintenance of an
effective title to the pledge, and by the highest possible
liquidity of the lombard investments.
T H E DEBTOR.

The circumstances of the debtor are not entirely disregarded, as the loans granted to him must not be disproportionate to his means. The Bank also requires that
the taker of the loan has a good, spotless reputation, and
that all doubts are cleared up regarding his ownership
of the pledge. In order that the credit of the Bank may
not be misused for economically injurious purposes, loans
are made only to persons who are not likely to contemplate speculating. Yet the borrower is so much in
the background that the whole regulation of the business
is governed mainly by the security which the loan is to
find in the pledge. As formerly at the Prussian Bank,
loans are not granted to foreigners.




176

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R ei chsb an k,

1876-1900

STOCKS AND SHARES, BILLS, AND PRECIOUS METALS AS DEPOSITED SECURITY.

The Bank Act, in section 13, paragraph 3, permits advances on gold, silver, securities, bills, and merchandise
stored in the country, in connection with which the several
groups of effects suitable as securities for advances are
exactly described. These are interest-bearing bonds of
the Empire, payable to bearer, also those of German and
foreign states, German communal corporations, other
domestic bonds, in case their interest is guaranteed by the
state, certificates of agricultural, communal, and other
land banks of Germany under state supervision, and of
German joint stock mortgage banks (cf. p. 353). German
state and communal bonds not bearing interest, such as
imperial exchequer bills and receipts for rebate on taxes
(Steuervergutungsanerkenntnisse), are also admissible as
securities if they become due, at the latest, within a
year. Furthermore, loans can be given on interest-bearing priority obligations of inland railways, and those of
foreign railways which are guaranteed by the state, and,
finally, fully paid-up common and preferred shares of
German railway companies whose railways are in actual
operation. All other shares are excluded from lombard
transactions.
TEST OF T H E PLEDGE W I T H REGARD TO ITS SAFETY.

The Reichsbank Directorate proceeds to make a further
choice from these legally admissible papers. It makes
its decisions as a rule on the application of the issuing
body or institution, especially of those which are particularly interested in the suitability of the paper as security; it investigates carefully the legal circumstances of
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Commission

the material security—of the so-called funding {Fundirung)—and especially of its marketability. In these
matters the advice of experts, who are at the service of
the Reichsbank Directorate in the central committee
(Zentralausschuss), is ordinarily taken, although there are
no legal obligations to do so. Foreign securities, which
are in themselves solid, but are not introduced on
German bourses, and the salableness of which is therefore
limited, are excluded from loan transactions. Securities
which fulfill the conditions are put on the list of securities
upon which the Reichsbank may make lombard loans {Verzeichniss der im Lombardverkehr der Reichsbank beleihbaren
Effekten.) Certain home securities, such as the bonds
of many towns and districts, which satisfy the requirements but have only a local market, are often admitted
to loans only with the provision that advances on them
may not be made at all branches, but only at those in the
circuit of the place of issue or in a district near this circuit;
the special consent of the Reichsbank Directorate is necessary for making advances on such securities at the other
branches.
With respect to advances on bills, the Reichsbank holds
fast to the principle that bills which are not discountable
are not to be taken as security for loans.
DEPOSITING OF T H E PLEDGE.

In advances on securities, bills, and precious metals, the
depositing of the pledge offers no difficulties. Valuables
of this kind can be taken directly into the vaults of the
Bank. Great values are kept here in small bulk. The
cost and trouble of transportation of such securities are so




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ank,

1876-1900

insignificant in proportion to t h e value of t h e pledge t h a t
even persons who do not have their residence in t h e city
of t h e branch can bring such valuables, with profit, t o t h e
nearest b a n k place for the purpose of obtaining loans.
MERCHANDISE AS PLEDGES.
TECHNICAL DIFFICULTIES

Advances on merchandise (Kaufmannswaren)
take
another form. Obstacles have constantly stood in t h e
way of this branch of business on account of the nature of
the goods a n d t h e laws. Here it is a question not only
of ascertaining t h e kinds of merchandise suitable as security for loans—which the Reichsbank Directorate undertakes—but also of judging in each particular case whether
the goods are in a condition to warrant a loan being made,
even if t h e category to which they belong is in itself admitted to lombard loans. In this connection attention
must be paid t o t h e depository, whether it is suited for a
lengthy storage of merchandise without injury, whether it
offers sufficient protection against damage, robberies, and
t h e like, a n d especially whether the storeroom admits of
t h e separation of the pledge from goods not pledged,
which is so important for the validity of the title t o t h e
pledge. Furthermore, attention must be paid to t h e
means of preservation, for example, the cask, in t h e case
of liquids. T h e estimate of the value of t h e pledge is also
difficult; t h e determination of the quantity of goods is
often attended with m a n y formalities, and of t h e quality
still more so. The Bank is dependent on t h e more or less
reliable judgment of experts—the regular valuers (Taxatoren). Owing t o dangers in advancing loans on goods,




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the Reichsbank Directorate has in each case reserved
the decision with respect to certain merchandise which it
does not exclude from lombard loans on principle, but
which may, under certain circumstances, be objectionable
because the safety or economic usefulness of the loan is
not established.
As the Reichsbank does not possess rooms of its own
for the reception of goods, the whole transaction is ordinarily completed on the premises of the pledger, in public
storerooms, in warehouses, etc., in which the merchandise already lies—often in bond. The Bank is mainly
dependent on the assistance of another official, the
pledge supervisor {Pfandaufseher), who takes the pledged
objects into custody and watches over them for the Bank.
The functions of valuer and supervisor are often combined in one person. Only reliable experts—whenever
possible those who are already recognized and sworn by
public authorities and courts of law—are permanently engaged for this work. When the pledged objects are lying
in bond, the Board of Inland-revenue acts as supervisor,
and is recompensed for its services according to a fixed
tariff.
In accordance with the " instructions for valuers and
supervisors of pledges at the agencies of the Prussian
Bank" of August 23, 1851, which is in force to-day for
the branches of the Reichsbank, the determination of the
quantity and quality, as well as the assessment of the
value of the pledge, is made upon a written order of
the Bank which supplies the valuer with a list of goods
to be taken in pledge. On the valuation which he fixes
is based the amount of the loan.




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The advantages of collateral loans on merchandise
(Warenlombard) of the Reichsbank are mainly accessible
only to those whose goods are stored at the seat of a branch
establishment of the Bank, or at least in such proximity to
one that the supervision of the pledge is possible from the
office making the advance. In the comparatively thinly
populated eastern and northeastern agricultural provinces
of Prussia, in which the need of advances on merchandise
was great even in the days of the Prussian Bank, and still
is to-day—provinces, however, which can be but poorly
supplied with branches—the advantages of merchandise
loans would therefore benefit only a limited circle of customers if a way had not been created by the establishment
of so-called warehouses (Warendepots). They are established exclusively for the purpose of making advances on
goods at such places in which a branch of the Reichsbank
would not find sufficient profitable activity. The managers (Vorsteher) of the warehouses, as a rule, serve the
Bank as an incidental employment. They are engaged
under the same conditions as other valuers and supervisors of the Reichsbank. Warehouses are placed under
independent branches and act only on special instruct
tions from them. Frequently they act as intermediary
in the purchase of bills, but keep no separate cash
accounts. Warehouses are established by the Reichsbank Directorate, according to requirements, on the application of parties interested. The first warehouse was
established in Ragnit by the Prussian Bank in 1847.
At the beginning of the fifties, when the Prussian Bank
was charged with rendering the assistance which until that
time was effected by state loan offices (Darlehnskassen),




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established by the act of April 15, 1848, but dissolved
again by the act of April 30, 1851, warehouses were
established in quick succession and in great numbers, especially in East and West Prussia, Pomerania, and Posen.
For this purpose the bank offices {Bankkontore) chiefly
affected by this movement were made independent.
Not a few warehouses have in the meantime been discontinued, while others have developed into suboffices or
independent branches (cf. Table 5).
LEGAL DIFFICULTIES.

Legal decisions and legislation have repeatedly exercised an influence on the form of depositing the pledge.
The mere symbolical, not actual, delivery of the security
allowed by the Reichsbank under certain conditions and
with observance of the necessary precautions previous
to the enforcement of the " Imperial Bankruptcy Act for
the domains under the general Prussian common law"
(Reichskonkursordnung im Geltungsbereich des Allgemeinen
Preussischen Landrechts) has since that time no longer
been permitted by the Bank. The pledging of goods
must now be completed at those places where the delivery
of the pledge at the Bank's own premises is impracticable,
in forms which actually transfer possession to the Bank,
maintain it for the period of the loan, and are suitable for assuring to the Bank a valid and effective
lien. The duration of possession obtained through the
acceptance of goods is made known on the exterior
through a label with the inscription " Reichsbank/' as
well as by a special seal. Frequently other measures,
adapted to local circumstances, are necessary in order to
prevent confusion, obscuration of the facts of the case,




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1876-1900

and exchanges and thefts of merchandise. An inquiry is made into the events leading up to the pledging
of the securities. It is hardly necessary to mention that
the pledged goods must also be insured against fire, and
that the claims arising out of damage by fire must be
ceded to the Bank by delivery of the policy.
SPECIAL FACILITIES IN ADVANCES ON CEREALS, SUGAR, AND SPIRITS.

Although a warrant law does not exist in the German
Empire, the Reichsbank has, nevertheless, made it possible,
in the course of years, to introduce facilities in the business
of making loans on merchandise. These facilities chiefly
benefit agriculture. Thus, since 1887, the Bank makes
advances on domestic spirits lying in private storerooms
in bond without requiring a specification, assessment,
delivery, and supervision of the pledge. In like manner
advances have been made in Prussia since 1895 on sugar,
also lying in bond in private storerooms. The quality
of the sugar must be determined by a sworn sampler, and
an attestation of the " rendement" or refining value must
also be brought from a sworn chemist. The attestation
of the quantity of pledged goods is given by the revenue board, which also takes possession of the pledge for
the Reichsbank.
Since 1896 the Bank makes advances on grain which
is still stored on estates, when suitable storehouses are
at hand and a person can be found to act as supervisor. A serious legal obstacle stands in the way of
the increase of loans on grain, since grain already reaped
but still on the property is security for the mortgagees of
the land (Realglaubiger). The claim of the mortgagee
must be satisfied before a loan can be made. For this




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reason a renunciation by the mortgagee must be registered in the land register. At the same time a guarantee mortgage must be registered to the extent of the
loan, for the purpose of getting a first claim against any
mortgagee subsequently registered.
LIMITS SET FOR ADVANCES.

The highest amount to which advances may be made
on security is defined in the Bank Act (sec. 13, fig. 3).
In accordance with this, the highest loan to be made on
German securities, the Class I in the "list of effects
on which the Reichsbank can make advances/' is threefourths of their market value, and on foreign securities,
the Class II of this list, half of their market value. The
limit is somewhat lower in the case of the latter, not only
on account of the lower degree of safety and the greater
market fluctuations, but also on account of the fiscal and
economic policy of the Empire, because advances on
foreign securities are to a certain degree indirect grants
of credit to the foreign country. Loans on merchandise
may not exceed two-thirds of its value, but in the case of
precious metals, coined or uncoined, may be to the full
value.
LEGAL AND ACTUAL LIMITS.

The well-established "legal" limits for advances are,
however, not always identical with the limits within which
the Reichsbank regards a loan as safe. The latter, corresponding to changing economic conditions, have repeatedly been narrowed and extended. Thus the Reichsbank up to 1880, like the Prussian Bank before it, distinguished two subdivisions in the advances on German




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1876-1900

securities, and lent money on the first subdivision at
three-fourths of the market value, but on the second at
only five-eighths; at the same time it had a second limit
dependent on the nominal value, since the loan might not
exceed 80 per cent of the face value. The first subdivision comprised loans issued by the Empire or one of the
German federal states, the certificates of Prussian land
banks and of other land credit institutions (Realkreditinstitute) resting on similar basis; the second subdivision consisted of shares and priority obligations of German railways,
bonds of German towns and districts, and other securities
similar to these—that is, of papers which at that time were
either distinguished by strong fluctuations in price or had
a limited market. The impulse toward equalizing the two
divisions was given when the most important Prussian
railway systems were taken by the state, in consequence
of which the shares and obligations which had previously
represented the most substantial part of the second subdivision entered the first. The Reichsbank followed more
closely the provisions of the Bank Act and did away with
the severe measures which had gradually become a check
on the prosperous development of lombard loans.
In lombard bills only the legally prescribed minimum
deduction of 5 per cent need be mentioned (Bank Act,
sec. 13, par. 3d).
In the case of precious metals the same deduction as
in the case of bills is made—that is, 5 per cent as a rule.
In the case of silver a deduction up to 15 per cent has actually been made on account of the fall in price, which took
place throughout a number of years, although the act, as




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already mentioned, permits advances on both metals to
their full intrinsic value.
It is impossible to settle once for all the limits to which
loans can be made on goods. The strong fluctuations
in the value of the pledge must be reckoned with, especially in cases where it is impossible to dispose of the
deposited security. Accordingly, the regulations with
respect to the different kinds of goods have been repeatedly altered.
DEPRECIATION IN THE VALUE OF THE PLEDGE.

The limits for advances are not only to be observed
in the actual grant, but also during the whole duration
of the loan—that is, an excess of these limits may not
be brought about through depreciation in the value of
the pledge. Consequently, in case the market value of
the pledged papers or the appraised or market value of the
deposited goods declines or if changes in the condition
or amount occur during storage, the original safety must
be restored either by a proportionate payment or by
additional security. a
T H E LOMBARD

CONTRACT.

VERIFICATION.

The authentication of lombard transactions consists of
a receipt certificate (Pfandschein), made out by the
Bank to the debtor, in which it acknowledges the receipt
of the deposited security. 6 The latter must always
be given to the Bank through a special inventory, the
° Within three days after the demand which the Bank issues as soon as
the depreciation in value reaches 5 per cent of the market value or onesixth of the assessed value.
& As at the Prussian Bank since 1844.




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1876-1900

so-called Spezifikation to be signed by the borrower.
The certificate states the conditions under which the
loan has been granted. The debtor acknowledges receipt
of the loan by signing a duplicate of the certificate,
which remains at the Bank. In case the certificate
is lost, this duplicate, with entries subsequently added
by the Reichsbank, is conclusive and binding for both
sides. There is no further exchange of signatures beyond that effected by the borrower who receives the
original, signed by the Bank, for his receipt (on the duplicate). Further loans, which, like the first, are granted
against the signature of the debtor, are added to the loan
debt on the certificate in original and duplicate, and
installments paid off are entered to the credit of the
debtor in the same way, without any further receipt
from the Bank. Alterations in the deposited security,
i. e., withdrawals against the debtor's receipt or the
deposit of further security in accordance with the abovementioned specification are authenticated in the certificate in the same way. In this manner all authentications are completed in the form of a current account
and are extremely convenient for business people. On
the release of the pledge the receipted certificate must
be returned. If the certificate has been lost, it must
be legally declared null and void before the security is
returned.
T E R M S ON W H I C H AN ADVANCE I S MADE.

Lombard loans may be granted for any time up to
three months, in accordance with section 133 of the Bank
Act. Nevertheless, in the interest of the greatest possible




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liquidity of its holdings, the Bank has reserved the right
to call in loans daily; on the other hand, it allows borrowers to discharge the loan any day, wholly or in part.01
Whereas the Reichsbank has never availed itself of its
right to recall daily its lombard loans, the repayments
and new advances are made in accordance with the needs
and wealth of the borrowers. To be sure, their free will
is not unrestricted, for the Bank, in the interest of simple
business routine and for the avoidance of unnecessarily
small payments, sees to it that installments are paid as a
rule only in amounts of at least 10 per cent of the sum
owed, and not below 500 marks. In making advances
on securities, the Bank also insists that in case of a diminution of the loan debt, if the taking and repayment of loans
on one certificate do not follow in quick succession, the
a The Prussian Bank, in earlier years and under other circumstances,
had granted lombard loans for a fixed time. At the beginning of 1880
such fixed loans, with a settled time for repayment, were experimentally
made by the Reichsbank at reduced rates of interest and for a period of
six weeks or three months. In the first case the reduction amounted
to one-half of 1 per cent, and in the latter 1 per cent. Fixed categories
of German securities, bonds of the Empire and the federal states, also
shares and priority bonds of German railways taken over by the Empire,
were admitted as pledge. An exchange of pledged securities was permitted
only in exceptional cases and not more than once during the transaction,
and the addition of new loans on the certificate not at all. Notwithstanding
these restrictive regulations, it was necessary to withdraw this privilege
after a quarter of a year. The end aimed at by the Bank in these measures—
an increase in this line of business in times of business depression, by basing
loans on liberal pledges of most reliable German investment securities—was
not attained. The system was used, comparatively speaking, to only a
small extent. So far as this did happen, the fixed loans at the reduced
rate of interest took the place of loans which had previously borne interest
at the ordinary percentage. The lombard system, viewed as a whole, had
not altered either in extent or composition; lombard investments based
thereon, however, were now divided into two parts—one which could be
called in at any time and one due at fixed periods. The change had been
brought about exclusively at the cost of liquidity with a decrease of lombard profits.




The

R ei chs b an k,

1876-1900

corresponding part of the pledge thus becoming free is to
be taken back. By this means the misuse of the lombard
arrangements of the Reichsbank for other purposes, e. g.,
for the gratuitous custody of securities, is avoided.
The calculation of lombard interest differs from that of
bill discount, inasmuch as only the actual duration of the
loan is decisive. A fixed minimum number of days is
calculated only in an exceptional case (cf. p. 191). The
month is not reckoned at thirty days, as in the case of bill
purchases; the actual number of calendar days is calculated. Interest is payable only when the loan is discharged, but every three months at the latest, and, if
possible, before the close of the calendar quarter. The
minimum amount of interest to be paid, formerly 50
pfennigs for each certificate, was raised to its present
rate of 1 mark in 1896.
MINIMUM AMOUNT OF LOANS.

Loans are not as a rule granted in amounts of less than
500 marks. In order to make the advantages of its lombard system accessible to the lowest classes, however,
the Bank adopted in 1893 the practice of giving loans in
amounts down to 100 marks to non-business people when
bonds of the Empire or of a German federal state are
deposited. All suitable domestic securities have been admitted as basis for these small loans since 1895.
T H E LOAN CERTIFICATE (PFANDSCHEIN) USED L I K E A CURR E N T ACCOUNT.

Owing to the right conceded to borrowers of paying off
installments on the loan debt at any time, numerous
certificates have assumed the character of a covered




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current account (cf. p. 187). It is the custom for bankers
to use the lombard credit of the Reichsbank in this manner.
When in temporary need of money, they often prefer to
take a lombard loan rather than to discount bills, although
the lombard rate of interest exceeds the discount by 1
per cent. In the sale of bills the interest is deducted
for the total period they have to run, even when the discounting person has no use at all for the money during
the whole time. In the case of a lombard loan, on the
contrary, the taker of the loan pays interest only for the
calendar days during which he has actually had the capital
(for ultimo loans, cf. p. 191). The lombard arrangements
of the Reichsbank consequently facilitate the banker's
business plans, and allow him to turn his moneys to better
account. Through the close connection which the banker
makes between the lombard system and the transfer account by having credits taken by him entered to his
account, and paying off installments on the loan by means
of checks, he assures himself of all the advantages of the
"comptes courants d'avances," which are so popular at
the Bank of France.
The usefulness of the lombard system in this form
appears most vividly on great settling days, when sums of
money collected for impending payments are again withdrawn from the banks. During the short time intervening
between the withdrawal of the money at the banks and
its reflux to the same the banker often procures the
means of making further grants of credit by making use
of the lombard system of the Reichsbank. The banker
can invest money which he is sure will come in during the
next few days because he helps himself over the interme-




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chsbank,

1876-1900

diate time with lombard advances, an advantage which
benefits not only the banker, but the whole national
economic system, and which is of special importance in
the stringency at the change of quarters. The lombard
holdings of the Reichsbank therefore swell regularly a
few days before these fixed dates and decrease just as
quickly in the next two weeks.
MEASURES AGAINST THE IMPROPER USE OF LOMBARD
ARRANGEMENTS ON THE PART OF SPECULATORS.

Such convenient arrangements can be abused. As a
matter of fact, bankers' loans on securities and bills in
great amounts have in former years often been taken
for two days at the close of the month, apparently for
purposes of ultimo settlements. As early as 1880 the
Reichsbank reserved the right of calculating interest for
at least three days on loans made on the last four working days or on the first working day of the month (which
it could not well refuse), even though the loan should
be repaid earlier. This term was increased in the next
year to five days, and half a year later to eight days.
To prevent any abuse on the part of the Bourses, interest
for full fourteen days has been calculated since 1887 on
these so-called ultimo loans when they are taken at the
change of quarter. An exception is made at the branches
only in case such takers of loans have nothing to do with
speculation on the Bourse. The customary calculation
of interest for the actual duration is employed even in
the case of loans taken by these persons at the change
of month or quarter. The same is true of all advances
granted in lombard loans on merchandise.




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LOMBARD LOANS AT SUBOFFICES.

The lombard system of each circuit is managed by
the independent branch. This office makes out the
certificates for the whole circuit, also for the suboffices.
Furthermore, it takes into custody all pledged securities
and bills. Only a few large suboffices managed by two
or more officers, and on this account recently endowed
with extended powers, may take charge of lombard
effects deposited with them. But the functions of all other
suboffices have gradually been considerably extended.
Lombard loans have since that time been dispatched
at suboffices with the same ease and simplicity as at
independent branches, apart from a few restrictions not
affecting the rapid settlement of transactions.
The Reichsbank took over its lombard system from
the Prussian Bank in the forms described, which are on
the whole simple and equal in principle in the case of
all kinds of pledges. The Bank then transferred it to
the branches in the federal states outside Prussia and
in the imperial provinces of Alsace and Lorraine, so far
as this had not already been done by the Prussian
Bank, with trifling modifications depending upon the
legislation of the land. Since that time a number of
facilities, the chief of which have already been mentioned, have been made. This branch of business has
thus received frequent impulses, but the organization
has thus far been only slightly affected.
MOVEMENT OF LOMBARD HOLDINGS.

Lombard investments are not by any means so dependent on the general economic development as bill




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1876-1900

investments. First, the credits of the Reichsbank in
lombard transactions are apt to be claimed by a considerable number of private persons and corporate bodies
whose need of credit is scarcely influenced by economic
conditions at large. Measures of bank policy working
against the influence of economic development have
brought at times an increase of loans, and at times
have helped to limit lombard investments which have
increased too much in comparison with the bill holdings
of the Bank.
The introduction of a preferential interest rate for advances on German imperial and state bonds, which, as
already mentioned, took place in March, 1884, worked in
the first direction, and has promoted the lombard business
of the Bank—a business then depressed owing to the favorable condition of the money market—and also favored the
placing of lines of standard securities (Standardpapiere).
The average lombard investments increased in consequence from 45,800,000 marks in 1883 to 49,120,000
marks in 1884, in spite of increasing liquidity on the
money market. A pronounced advance began with the
economic upward trend of 1889 and 1890, and again
from 1895 on. The average investment reached its
zenith in 1897 with 108,300,000 marks, and at the
end of 1895 and 1896 even the conceded maximum
amount was exceeded; lombard investments ran on these
return days to 211,200,000 and 197,200,000 marks, respectively. With the abolition of the preferential rate
for advances on imperial and state bonds on July 1,
1897, the development took a different turn. Even in
1898 lombard investments declined to 96,400,000 marks,
82302—10




13

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Commission

and sank by 1900 to 80,000,000 marks, that is, in a time
in which increasing economic activity entailed heavier
claims of credit on the Bank.
The ranges between the highest and lowest amounts
of lombard investments at any time within the several
years are particularly large, since loans are often taken
for short periods at the monthly and quarterly endings.
The claims on the Reichsbank at monthly and quarterly periods, which, especially in former years, were
made partially to help takers of loans over the ultimo
settlement, have been curbed in some degree by the calculation of at least eight or fourteen days' interest on
such loans.
The ratio of lombard investments to the total profitbringing invested capital of the Reichsbank has amounted,
on an average, in 1876 to 11.2 per cent. In the course
of twenty-five years' development the ratio to the total
invested capital has fluctuated between 15.5 per cent in
1891 and 8.9 per cent in 1899 and 1900. Since 1897 it
has constantly diminished as a result of the abolition of
the preferential rate of interest for advances on imperial
and state bonds. The number of certificates which
admit of a conclusion regarding the number of persons
taking loans has ranged between 4,544 at the end of
1881 and 9,083 at the end of 1895. The average amount
of loans was, in 1900, 19,476 marks; since 1895, when
it was 13,430 marks, it has constantly increased. Conversely, the mean duration of loans in recent years shows
a recurrent movement. It fluctuated between thirtyfour days in 1876 and 1892 and seventeen days in 1899
and 1900. In times of abundant money it showed, as a




194

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chs bank,

1876-1900

rule, a tendency to increase and in times of rising rates
of interest to decrease; it has, however, been influenced in
its movements by the above-mentioned measures of bank
policy.
COMPOSITION OF LOMBARD INVESTMENTS.

The basis of lombard investments of the Reichsbank
has changed somewhat in the course of years. The
growth of mobile capital in the form of securities was the
main reason that lombard loans on merchandise were
gradually forced into the background. Whereas at the
establishment of the Reichsbank the ratio of sums advanced on goods to the total sum advanced amounted to
18.6 per cent and the ratio of sums advanced on securities
to 80.2 per cent, this was altered by 1896 to 3.7 per cent
and 94.1 per cent, respectively. Since the abolition of the
preferential rate in advances on German securities in
1897 (cf. pp. 175, 193, and 274) the ratio of amounts
lent on goods to the total of loans rose again to 5.3 per
cent in 1900, while, conversely, that of the outstanding
claims on securities sank to 86.7 per cent. Since 1897
lombard loans on effects have greatly decreased, while
lombard loans on merchandise have remained nearly the
same.
Lombard loans on securities show interesting changes
with respect to pledges. Railway papers, on which, in
1876, 57.2 per cent of all outstanding loans on securities
were advanced, almost disappeared from pledge holdings
by 1893, as the state took over all important private
railways. Through the preference extended to German
securities since 1884 this development was accelerated,
just as the composition of the holdings of securities has,
on the whole, been steadily and permanently influenced.




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To what extent the displacement has taken place since the
introduction of the preferential rate of interest is seen from
the fact that in 1883 on an average only 59.8 per cent
of all loans on securities were covered by state papers—
the large amount of foreign securities included—as
well as by bonds of numerous German towns, whereas,
according to statistics collected on June 5, 1897, 81.5 per
cent of all advances granted on securities were secured
by bonds issued directly by the Empire or a German
state.
It is, however, a recognized principle, generally followed
by all central banks of issue, not to base lombard investments on one kind of security, even when this has the
solidity of German state papers, but to distribute on
as many kinds of pledges as practicable the risk of possible losses and default in the reflux from lombard investments. The number of admissible securities has therefore been continuously increased, particularly since 1890,
by the bonds (Pfandbriefe) of solid German mortgage
banks.
The movements of amounts lent out on bills do not
show any regularity. The ratio of these amounts to the
total fluctuated between 0.9 per cent in 1876 and 8 per
cent in 1900. Loans on bills have an accidental, exceptional character, and are used only when special circumstances arise which make it more expedient for the
holder to take a loan instead of discounting the bills.
Lombard loans on bills have therefore only temporarily
attained any importance.
The lombard loans of the Reichsbank on precious
metals are of secondary importance. The amounts




196

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R ei chsb

an k,

1876-1900

lent have only twice reached the sum of i% million
marks since the existence of the Bank—in 1882 and 1891.
As a rule, they amounted to only a few thousand marks,
mostly taken by jewelers on bullion or by collectors of
coins on rare coins.
According to statistics which were drawn up on September 30, 1900, of the various kinds of business undertakings which claim the lombard credit of the Reichsbank, the banks and bankers participated in a conspicuous degree. According to the number of certificates they take third place, although according to the
number of existing businesses they are far behind all
other classes. Their conspicuous importance for the lombard business of the Reichsbank is evident, however, from
the fact that according to amount they have 40.6 per
cent of all outstanding loans—much more numerous
and much higher amounts than all others. In connection with this, however, it must be remembered that on
quarterly settling days the claims of banks and bankers
generally assume extraordinary proportions. Other trades
make relatively smaller demands in this branch of
business—30.2 per cent according to number and 16.6
per cent according to amount of all outstanding lombard
claims. The loans granted to private persons are naturally
still smaller in proportion—26.5 per cent of all certificates, but only 7.2 per cent of the total amount of
loans. The claims of manufacturers and industrial companies represented on an average 12.2 per cent according
to number and 12.3 per cent according to amount. The
average amount of loans granted to public savings banks
and cooperative societies was very large.




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LOMBARD LOANS IN T H E D I F F E R E N T ECONOMIC DIVISIONS OF T H E
EMPIRE.

The economic territorial divisions of Germany participate rather unequally in the lombard loans of the
Reichsbank. They have attained a great importance only
in Prussia, especially in the banking centres, like Berlin,
and in the predominantly agricultural provinces of the
East and Northeast. Of all lombard loans granted in 1900,
12.61 a per cent, according to amount, belonged to Berlin,
and 79.1 per cent to the whole of Prussia, several small
states included. In the industrial western provinces,
in the kingdom of Saxony, and in South Germany,
lombard loans are less than bill purchases; they are especially insignificant at the branches in Bavaria on account
of the stamp duty levied on lombard transactions there.
Not one-thirtieth of 1 per cent of the loans granted in
that year were made to these branches. This unequal
development at the various branches, in contrast with the
commercial and industrial importance of large provinces,
confirms the fact that the lombard loan is not bound up
with the production and sale of commodities to the same
extent as is the bill. The lombard credit of the Reichsbank is dearer than its bill credit and dearer than the
credit of numerous private financial institutions competing
successfully with the Reichsbank in these fields, which
represent the seat of wealth. The lombard credit of the
Reichsbank is, therefore, claimed less in those places than
in the eastern provinces, which are even to-day less richly
supplied with credit institutions, and which, besides, have
always been accustomed to reckon with higher interest




a I n 1880 it w a s 44.2 p e r c e n t .
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Ret

chsban

k,

1876-1900

rates. The variety in the different economic divisions
with respect to lombard loans is explained historically by
the activity of the Prussian Bank for decades, which for a
long time was for large parts of the country the only great
source of credit, and there, under more favorable conditions than those of to-day, made natural and customary
the claiming of credit on a lombard loan. In those days
the lombard business was generally of greater importance
than to-day; lombard investments, at the end of the forties
for instance, for a long time surpassed bill holdings.
The Reichsbank could not have the same success with
its lombard loans at all branches, even if the economic
conditions had been everywhere the same. Yet it
managed to make continuous progress in introducing this
business in the federal states outside of Prussia. The
ratio of the loans given in those states to the total loans
has increased since 1876 from 4.4 per cent to 20.9 per cent,
and in Prussia it has correspondingly declined; whereas
lombard transactions have increased threefold in Prussia,
they have increased more than sixteenfold in other states.
Bavaria alone is an exception, for the reason already
mentioned.
The composition of pledged securities is also different in
the various economic districts of the country. The ratio of
pledged German imperial and state securities to the total of
pledged securities held by the Bank, which was 63.9 per
cent on September 7, 1900, becomes smaller and smaller
the farther one goes from the seats of wealth and industry
in western and southern Germany. In many bank circuits
it exceeds 80 per cent—e. g., in Cologne, Essen, Hamburg,
Frankfort-on-the-Main, Mannheim; it sinks, on the con-




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Commission

trary, in Elbing as low as 20.8 per cent, while in the same
place the mortgage bonds (Pfandbriefe) of the Landschaften reached 65.4 per cent, which, conversely, are
scarcely represented in the West and South. Conditions
are similar with respect to the ratio of loans on collateral
to total loans granted by the Bank.
Of all Landschaften mortgage bonds pledged with the
Bank, 92.8 per cent come from the provinces of East and
West Prussia, Pomerania, Posen, Brandenburg, Silesia,
Lubeck, Mecklenburg, and Schleswig-Holstein. That part
of Germany east of the Elbe is the oldest and most important district for the development of Landschaften, the
mortgage bonds of which here find their natural market.
Forty-four per cent of pledged mortgage bonds of German
mortgage banks (Hypothekenbanken) are given in these
provinces. These are still more strongly represented in
the Rhineland and Westphalia, central and southern Germany, where the Landschaften are partly replaced by
joint-stock land credit institutions (Grundkreditinstitute
auf Aktien).
Advances on foreign securities have always been made
to a moderate extent. They represented only 2.6 per
cent of all pledged securities. Only at one branch did
they reach 11.5 per cent.
Loans on merchandise are now limited almost entirely
to the east and northeast of Germany. Thus, of the loans
granted against deposits of goods to a total amount of
2,997,100 marks on September 7, 1900, the greatest part,
2,911,500 marks, or 97.2 per cent, belonged to eastern
and northeastern Germany. The industries connected
with spirits, grain, and wood, also the trade in these




200

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Reichsbank,

1876-1900

products, find there their natural basis. The commercial
towns on the Baltic Sea and its tributaries are natural
marts for Russian wood and grain and for the productions
of the agricultural inhabitants of the East. The satisfaction of the need for money in these provinces is even
to-day assigned mostly to the Reichsbank; lombard loans
on goods are common there from olden times, whereas in
the rest of Germany the pledging of merchandise is often
contrary to mercantile usage.
PROFITS AND LOSSES.

The interest profits of lombard loans (cf. Table 57) increased with strong fluctuations from 2,650,000 marks in
1876 to 5,090,000 marks in 1900. The year 1886 brought
the smallest proceeds, only 1,980,000 marks, also the lowest
discount profit during the existence of the Bank; the
year 1900 showed the highest, with 5,090,000 marks.
The ratio of lombard profits of the Reichsbank (cf. Table 79)
to total profits fluctuated between 9.8 per cent in 1900
and 17 per cent in 1892.
The Reichsbank has suffered only small losses in its
lombard transactions, much smaller, comparatively speaking, than in the purchase and discount of bills. During
the Bank's existence, loans to a total amount of 157,931
marks have remained unpaid when overdue, that is, 6.49
of each million marks of loans granted; of these, 72,120
marks—that is, only 86 pfennigs on each thousand marks
of the total profits obtained in the twenty-five years in
this branch of business, or 2.96 marks of each million
granted in loans—had to be charged to loss.




201

CHAPTER VII.
DISCOUNTS.
PRELIMINARY

REMARKS.

CONCEPTION AND IMPORTANCE O F DISCOUNTS.

The most important and likewise the most difficult task
of the Bank is to bring about the greatest possible equalization of fluctuations in money demands and to be at all
times in a position to redeem its notes and to meet its
other demand liabilities. The maintenance of the Bank's
solvency coincides with the maintenance of the imperial
standard. The notes issued by the Bank form so large
a part of the total German currency that a refusal to
redeem them for sterling money and the consequent depreciation of the notes would bring about a collapse of
the German monetary*systern. Let us develop this point
theoretically.
According to the provisions of the Bank Act, the cover
for the notes issued by the Reichsbank consists in current
German money, gold in bars or foreign coins, imperial
treasury notes, and discounted bills maturing within three
months (cf. pp. 69 ff. and 125). There is no such provision with regard to cover for all demand liabilities;
besides the prescribed cover for notes, notes of other
German banks of issue, discounted securities, and lombard
loans must be taken into account.
Of these means of cover, only metal reserve is immediately available for the redemption of notes and the
payment of reclaimed deposits. The Bank must therefore arrange that its metal reserve is sufficient to meet all




202

The

Reichsbank,

187

6-1900

claims arising from its note issue and total demand liabilities. The Bank Act prescribes that at least one-third of
the notes of the Reichsbank must be covered by metal
and imperial treasury notes, and sets a limit for the issue
of notes in excess of cash holdings (metal, imperial treasury
notes, and notes of other banks); if this limit is exceeded,
a*5 per cent tax is charged on the excess of issued notes
(cf. pp. 22 and 81 ff.). All such measures, however, if
they are not to do more harm than good, must be so
interpreted as not to restrict the elasticity of note
issue; they must therefore allow full scope to the discretion of the Bank officials.
The ways and means at the disposal of the management
of a large bank of issue for maintaining a satisfactory
proportion between its cash holdings and its liabilities,
especially its notes, are naturally determined by the circumstances which can displace this proportion.
The Bank can be deprived of ready money by the presentation of notes for redemption and by the withdrawal
of deposits. In the latter case the liabilities of the Bank
diminish to the same extent as its cash holdings, but as
the cash reserve is always considerably smaller than the
total liabilities the absolute decrease means in percentage
a greater diminution of cash, and consequently a decrease
of the percentage of cover.
Cash holdings can also suffer a diminution by the
discounting of bills, the granting of lombard loans, etc.,
when the taker of credit requires the amount in ready
money. Here there occurs a decrease of cash holdings
although notes and other liabilities are unchanged.
Should the taker of credit require the amount in notes,




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Commission

or should he have it entered on his transfer account
(Girokonto),. then an increase of note issue or other
demand liabilities is effected, while the cash holdings
are unchanged. An extension of credit granted by the
Bank must consequently effect a deterioration of cash
cover for notes and other liabilities; the liabilities covered
by claims on bills and loans increase at the expense «of
cash cover.
An increase of notes and of other demand liabilities
can occur also through an increase of the invested capital
through the delivery of gold and coined German money
against notes or for entry on transfer accounts. In the
latter case the cash holdings increase by the same absolute amount, but on this account to a relatively greater
extent than the liabilities; the ratio of cash to notes and
other liabilities improves.
The Bank can consequently check a depreciation of
cover by measures which counteract too great an increase
of investments and are conducive to bring in cash.
The Bank's investments are determined chiefly by the
domestic demand for short credit. As the Bank can not,
without great severity, arbitrarily refuse applications for
credit, provided they meet the requirements of the Bank
Act, it has no other alternative but to regulate calls for
credit indirectly by adjusting the interest rate at which it
is ready to grant credit. Owing to the preponderating
importance of investments in bills, the discount rate is
practically the only one to be taken into account. As in
the case of merchandise, a high rate restricts and a low
rate stimulates the demand; a high interest rate limiting
the demands for credit counteracts an excessive extension




204

The

Rei

chsb

an k,

1876-1900

of note circulation and prevents a decrease of the metal
reserve of the Bank.
At the same time, a high discount rate is calculated to
attract gold from abroad and to prevent a flow of gold to
other countries, because it offers a favorable opportunity
for the investment of international capital.
The adjustment of the interest rate is the only effective
means for regulating the domestic demand for money.
For influencing cash movements between home and abroad,
the interest rate, it is true, is not the only means, but,
as is acknowledged by all authorities, it is by far the
most important and effective. Certain other measures of
less importance must be taken into account. These
are for the purpose of making the importation of gold
easier and the exportation more difficult; to these belong
advances (free of interest) on gold importations and
changes in the purchase and selling prices of gold in bars
and foreign coins. Such measures are, however, of secondary importance alongside the systematical regulation
of the discount rate, the so-called discount policy.
DISCOUNTS AND T H E NOTE TAX.

In the Bank Act of March 14, 1875, the attempt is made
to force mechanically the German banks of issue, including the Reichsbank, to adopt a proper discount policy.
The 5 per cent tax on uncovered notes exceeding a fixed
amount aims to make banks work against too great an
increase of uncovered notes through a high interest rate
covering t h e note t a x .

' ' T h e h i g h e r t a x r a t e , "a a c c o r d -

e Besides the 5 per cent note tax on uncovered notes in excess of the cond
tingent, a tax of 1 per cent on all uncovered notes was provided for in
the outline of the Bank Act, it was, however, removed by the Reichstag.




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Commission

ing to the argument to the outline of the Bank Act,
" causes banks to meet an increasing demand of the
money market with advancing prices, as is the rule in
all other markets; with an advanced discount rate to
pay the higher tax they are able to satisfy the extraordinary demand which called forth this advance;
and thus, through an increase of the discount rates, the
higher tax allures capital, moderates the spirit of speculation, causes banks to keep their note circulation within
the regular limit as soon as the extraordinary demand is
past. By urging banks to increase discount rates, the
high tax will steady the fluctuations of the discount rate,
and meet without any disturbing interference the dangerous tendency of trade to retain the uncovered notes once
gained. ,,
The system of taxing notes could not, however, become
a decisive influence in the discount policy of the Reichsbank.
Not the absolute amount of uncovered notes determines
the safety of note redemption, but the proportion between
cash holdings and notes, and between cash holdings and
total demand liabilities (including transfer deposits); not
only the amount but also the nature of money demands
must be taken into account in the discount policy of a
central bank. A flow of gold to other countries makes
sharper preventive measures necessary than does a temporary withdrawal of gold for domestic trade. A money
demand based on overspeculation and overproduction
requires sharper restrictions than the normal, periodically
recurring increased demand for money at the turn of the
month and year. All these differences can not be ex-




206

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Reichsb

an k,

1876-1900

pressed in figures, and therefore the discount policy can
not be regulated in accordance with a purely mechanical
principle.
The note-tax system could, therefore, guide the discount
policy of the Reichsbank only in a general way, and could
not take the place of constant care and vigilance on the
part of the Bank officials. The proper consideration of all
circumstances often forced the Bank officials to raise the
discounts in cases where the note contingent was not exceeded, and, on the other hand, made it possible for the
officials to maintain a lower discount rate than 5 per cent
in cases where the contingent was exceeded; in this case
the Bank had to bear the note tax by accepting a smaller,
income from discounts.
DISCOUNTS AND T H E MONEY MARKET.

The Reichsbank in its discount policy could not bind
itself strictly to the note-tax system; it was obliged to take
into consideration the real factors dominating supply and
demand in the money market. Even the most powerful
central bank can not proceed arbitrarily in fixing its interest rate; it is dependent on the open money market and
can not dictate the interest rates, although it intervenes
and regulates within narrow limits. A bank of issue discount rate which is considerably higher than the rate of
the open market would be avoided as much as possible by
seekers of credit, and would soon be obliged, if its funds
lay idle and it desired to have transactions with the business world, to conform to the open market by reducing its
interest rate. Conversely, a discount rate which is much
lower than the market rate would increase credit claims,




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Commission

diminish cash holdings, extend liabilities, and in the long
run make questionable the ability to redeem notes and to
make cash payments from the balances of deposits. Each
shakening of confidence in the stability of the Bank and
in the solidity of the standard invariably leads—apart from
all other evil results—to an advance in the interest rate.
To avoid this advance would involve an incorrect and
hopeless policy.
One must always bear in mind these narrow confines
in criticising the discount policy of a central bank, particularly when one compares central banks of various
countries whose wealth and economic development differ
considerably from one another. Only a calm and pertinent
consideration of the real circumstances which determine
the interest rate for short credits makes possible an objective judgment of the discount policy of a great bank of
issue.
THE ACTIVITY OF THE REICHSBANK FROM 1876 TO 1900.

The extent and difficulty of the Reichsbank's tasks at
its establishment, an appreciation of which is essential in
forming an opinion on its discount policy, are attributable
to the development of German national economic activity
in the last twenty-five years, to the incomplete state of
German coinage, at that time still in the process of transformation, finally, to the Reichsbank's position in the whole
German bank system, and to the apparent attempts of
private banks of issue to make difficult the execution of
its policy. These circumstances shall be considered in
turn.




208

The

Rei

chsbank,

1876-1900

THE ECONOMIC DEVELOPMENT OF GERMANY IN THE LAST QUARTER OF A
CENTURY.

The unexampled rapid development of German economic life in the last quarter of a century could not be
complete without an increased need for currency and an
increase of claims on the central bank. A few figures
will indicate the extent of the economic development of
Germany during that time. The population of the Empire rose from 42,500,000 to 56,000,000 in the period
1875-1900. The value of foreign trade grew in the
same time from 6,134,000,000 marks to 10,388,000,000
marks. The value of exports rose from 2,561,000,000
marks to 4,555,000,000 marks. a The mileage of German railways increased from 27,981 kilometers in 1875
to 49,930 kilometers at the end of the fiscal year
1898. The amount of the kilometer tons (Tonnenkilometer) forwarded on German railways increased from
10,400,000,000 to 32,700,000,000. The tonnage of seagoing vessels arriving with cargo in German ports amounted
to 5,750,000 registered tons in 1875 and 16,500,000 m 1898.
The production of raw iron within the revenue-producing
area increased from 2,000,000 tons in 1875 to 8,100,000
tons in 1899. The consumption of raw iron increased
in the same time from 2,300,000 to 8,600,000 tons. The
output of coal (mineral coal and brown coal) rose from
47,800,000 to 135,800,000 tons, and the consumption
from 47,500,000 to 136,900,000 tons. Since it is impossible to represent by statistics the development of German production and German trade, these few statements
may serve to give a conception of the enormous increase
a

82302—10




Only provisional figures are given for 1900.
14

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Commission

of German economic activity since the middle of the
seventies. A comparison with the development in England and France shows up the economic development in
Germany in a most favorable light. Whereas German
exports rose in 1875-1900 from 2,561,000,000 marks to
4,555,000,000, the exports of England increased only
from £223,500,000 to £291,500,000, and the exports of
France only from 3,873,000,000 francs to 4,078,000,000.°
German exports, which in 1875 were not much more than
half the English and less than the French by some 15
per cent, are now less than the English exports by only
one-fourth or one-fifth and greater than the French by
two-fifths; they have risen by 78 per cent in twentyfive years, whereas the English have increased by 35
per cent and the French by 5 ^ per cent. It can be
inferred from this how much more rapidly German economic activity has developed in the last quarter of a
century than that of both European countries mentioned.
When one considers further that this intensive development has been based on smaller national wealth, one
realizes how much more all means and forces, especially
money and capital, have been utilized in Germany than
in those lands, which in the seventies had accumulated
more capital and, in comparison with Germany, had
already developed economically to a certain fixed point.
Each increase of economic activity means an increase
of the transactions to be adjusted by money. Trade tries
first of all to meet the increased demand for currency by
supplementing circulating money with more bills, which,
within certain bounds, can take the place of the money.
oThe figures for French exports in the year 1900 are similarly only
provisional.




210

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Reichsbank,

1876-1900

The stamp duty on bills (cf. Table 55) enables us to
calculate the bills annually drawn in Germany; the amount
for 1876 is estimated at 12,900,000,000 marks and for
1900 at 23,300,000,000 marks. Since the use of bills as
a means of payment is limited, most bills reach the banks
for discount. The increased needs of trade for suitable
means of payment, for cash and bank notes, was expressed
in increased claims on the Reichsbank, since the Reichsbank is the medium for the influx of gold from abroad
and has the power, through note privilege, to increase
materially the volume of circulation by the issue of notes
not covered by metal. Thus each substantial increase
of German monetary circulation proceeds only from the
Reichsbank—at any rate, occurs through the agency of
the Reichsbank. The claims on the Bank can be seen
from its capital invested in bill and loan transactions.
In 1875, the capital invested by the Prussian Bank in
these branches of business amounted to 421,300,000
marks; the average investments of the Reichsbank a was
454,200,000 marks in the first year of its existence (1876),
909,200,000 marks in 1899; they have therefore doubled in
the course of the quarter of a century.
An increase in the periodical fluctuations began with
the advance in general money demands. The investments of the Reichsbank in 1876 fluctuated between
387,600,000 and 524,700,000 marks; the difference between maximum and minimum amounted therefore to only
137,100,000 marks, whereas the investments ranged in 1899
between 634,700,000 and 1,251,400,000 marks, a difference
between maximum and minimum of 616,700,000 marks.
a Inclusive of discounted exchequer bills and other discounted securities.




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Commission

The demand for money set for the Reichsbank a double
task.
In order to meet the advanced demands arising from
the increase in transactions, the Reichsbank was obliged
to direct its efforts to a more intensive utilization of the
existing currency through the introduction and development of cash-saving methods of payment (transfer and
clearing systems, cf. p. 87 ff.),and to endeavor to bring
about an increase in monetary circulation; an increase
of its uncovered notes was possible only within the limits
set for covered notes, and therefore the necessary additions to the currency had to be made by drawing gold
from abroad.
The increased fluctuations in money demands on the
Reichsbank forced the Bank officials, in times of smaller
strain, to keep reserves sufficient for the probable advance
in the calls for credit, and, uninfluenced by the impressions
of the moment, to base its measures on the development
of longer periods.
T H E INTRODUCTION AND MAINTENANCE O F T H E I M P E R I A L STANDARD

The claims on the Reichsbank arising from the German
monetary standard were not less significant. At the time
the Reichsbank commenced its activity Germany was in
a state of transition from the silver to the gold standard.
The Coinage Act of July 9, 1873, had set up the imperial
gold standard as the first aim of German coinage reform,
and the imperial government had been busy since that
time in doing away with German silver circulation, so
far as silver money was not necessary to small trade, and
in replacing it by a preponderating gold circulation. The




212

The

Ret

ch shank,

1876-19

00

solution of this problem had not advanced far at the beginning of 1876. The French war indemnity had rendered
it possible for the imperial government to procure and
coin considerable quantities of gold. On the other hand,
only a small beginning was made with the discarding of
silver; not much more than 1,000,000 pounds of silver
were sold, whereas ten or twelve times that quantity had
to be forced from circulation to carry out the coinage
reform as planned. Only 368,000,000 marks in silver
coins of the states were withdrawn, and of this amount
164,000,000 marks had been coined into imperial silver
coins. The existing stock of silver coins of the various
states amounted at that time to 1,165,000,000 marks. Of
imperial gold coins 1,275,000,000 marks were coined; of
these, however, 85,000,000 marks were again melted down
and exported. All in all, not quite half of the German
monetary circulation at the beginning of 1876 consisted
of gold—the metal which was to be the new German
standard. The Reichsbank thus inherited the task of cooperating to its utmost power in carrying out the coinage
reform.
As the price of silver had since the beginning of coinage
reform sunk nearly 10 per cent below the mint ratio of
15% to 1 between gold and silver upon which the change
of standards was based, great danger arose that the
German standard would sink below the gold parity attached to it by the Coinage Act because silver money was
still so large a part of German circulation. Even in normal times the maintenance of the legal standard, especially the watching and regulating of foreign relations of
the national monetary system, was one of the foremost




213

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Monetary

Commission

duties of a central bank. Still more is this the case during
a state of transition, such as German monetary affairs
were passing through at that time. A flow of gold to
another country or any other derangement could, under
such circumstances, more easily become fatal for the standard than under normal circumstances; the danger of an
agio formation at home and a shock to foreign rates of
exchange is considerably greater. In such times, therefore, the policy of the Bank must be influenced more than
usual by considerations for the standard and for international gold movements.
A standard is absolutely assured at home and abroad
only so long as the central bank meets its obligations
on demand in full value standard money. The success
of the German coinage reform depended on whether the
Reichsbank would always be in a position to make its
payments in gold of full value. In order to fulfill this
condition, the Reichsbank was obliged to provide not
only for a sufficient cash cover, but also for a sufficient
gold cover of its liabilities, a task which was naturally
more difficult since the existing silver money still exceeded
the demand of trade for silver coins.
T H E COMPETITION O F PRIVATE BANKS OF ISSUE.

The fulfillment of the great claims made on the Reichsbank as a result of the development of German economic
activity and of the condition of German monetary affairs,
was to a certain degree rendered more difficult by the
Bank Act of 1875, which assigned to the private banks of
issue a position side by side with the Reichsbank. As
has already been mentioned in the introduction to this




214

The

Reichsbank,

1876-1900

memorial volume {Denkschrift), the Bank Act deals with
the Reichsbank as a future central bank on the same footing as private banks of issue (cf. p. 36 ff.). The measure
providing for a one-third cover for notes and, above all,
the indirect limitation of uncovered notes by the 5 per
cent note tax applies to the Reichsbank just as to private
banks of issue. As already mentioned (cf. pp. 38 and 39),
a great inequality has developed in practice from this
formal equality, since the Reichsbank, which as central
bank of issue is and wants to be the last resort of
German monetary operations, never disposes further of
inland bills discounted by it (cf. p. 126), and depends
on no other bank, but, standing alone, meets the fluctuations of credit demands; the private banks of issue
depend on the Reichsbank and, in case their funds run
short, procure for themselves new means by disposing
again of the bills discounted by them. In conjunction
with the system of note tax, the following situation
arises: since private banks of issue can shift to the Reichsbank each increased call for money, they are able to use
the tax-free note contingents assigned to them up to the
limit, in times of a quiet demand for money, by bidding
below the discount rate of the Reichsbank, without fearing
excesses of note contingent therefrom, and the private
banks of issue have made use of this possibility to a great
extent. The Reichsbank, on the other hand, which alone
bears all fluctuations in the German money demand,
must always hold, even in quiet times, such a strong
reserve that it can meet the great fluctuations of all
German money demands, although its average uncovered
note circulation has in a number of years been less than




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Monetary

Commission

that of the private banks of issue. This end can be
attained only through an exceedingly careful discount
policy.
The difficulty is increased by the natural endeavor of
private banks of issue to make the greatest possible use
of the funds at their disposal; frequently these banks
collide with the aims of the Reichsbank. The domination
of the money market by a central bank is possible only
within certain bounds, and the Reichsbank's task is, of
course, rendered more difficult when private banks issue
notes to furnish money to the market at a rate lower than
that which the Reichsbank, from an economic standpoint,
deems desirable and right.
THE HISTORY OF THE DISCOUNT POUCY OF THE REICHSBANK.
THE VARIOUS PERIODS OF THE BUSINESS ACTIVITY OF THE REICHSBANK.

The conditions under which the Reichsbank has had to
work during the twenty-five years of its existence have
been outlined; its bank policy will now be presented
historically.
When one surveys the whole business activity of the
Reichsbank, single phases can be distinguished, in spite of
the unmistakable tendency toward a strong expansion in
all branches.
From the beginning of the Reichsbank's activity until
1879, its interest-bearing investments and its uncovered
notes decreased, and its interest rate was beginning to fall.
Then followed a movement in the opposite direction which
reached its climax in 1882. The following years brought
a standstill or an insignificant increase in investments




216

The

Rei

chsb ank,

1876-1900

and, together with a heavy increase of balances on transfer
accounts, a diminution of uncovered notes, which disappeared in t h e average of 1888; t h e average discount rate
was considerably lower t h a n t h e level from 1880 to 1882.
The years 1889 and 1890 brought a considerable increase
in investments, uncovered notes, and discounts. After
t h a t we observe again a cessation in t h e development of
investments, a heavy decrease in uncovered notes, and
another decline in t h e Bank's interest rate. This continued into 1895, with only a slight break in 1893. Since
1895 t h e investments of t h e Reichsbank have expanded
more t h a n ever before; uncovered notes have never reached
t h e figures of t h a t time, and t h e Reichsbank's interest rate
has risen so high since the strong decline in the first half
of t h e nineties t h a t its average and its highest point exceed all former rates of t h e Reichsbank.
The different phases in t h e development of the Reichsb a n k correspond to t h e various periods of German economic activity; these phases are reflections of all economic
activity. Here is shown distinctly what a decisive influence t h e general economic development exercises on t h e
conditions of t h e central bank, and how much the latter's
policy is dependent on t h e forces and powers dominating
t h e rise of t h e whole national economic system.
I t appears advisable, therefore, to divide these periods of
development in the historical presentation of t h e Reichsbank's discount policy.
1876-1879.
General

economic

situation.—When

the

Reichsbank

began its activity on J a n u a r y 1, 1876, German economic
activity was still suffering from t h e effects of t h e great com-




217

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Monetary

Commission

mercial crisis of 1873. A heavy depression prevailed in
most of the important branches of industry until 1879.
The purchasing power, not only of the German market but
also of the whole international market,was severely shaken;
sales ceased, and the prices of the most important commodities showed a distinct decline. That the spirit of
enterprise was prostrate is shown by the fact that new
joint-stock companies, which had been formed with
feverish haste from 1871 to 1873, dwindled into insignificance. Whereas during 1872 no less than 479 joint-stock
companies, with a capital of nearly 1,500,000,000 marks,
were organized in the German Empire, the number of new
companies in 1878 was 42, with a capital of little more
than 13,000,000 marks; as compared with those already
existing, the new companies were limited in their operations in numerous ways.
The result of this stagnation in economic activity and
of the fall of prices was a relatively small demand for
money on the part of trade and industry. The requests
for short credit had been declining continuously since
1873. The bills put in circulation throughout Germany
amounted, according to the estimates based on bill
stamps, to 14,100,000,000 marks for 1873, but only to
11,300,000,000 marks for 1878 and 1879.
The services of the central banking institution were less
in demand owing to these circumstances. It might be
expected that during this period the central bank had been
able, with relatively smaller investments, to maintain a
stable and low discount rate.
Effects of monetary reform.—Various circumstances,
mainly those connected with the reform of German mone-




218

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Reichsbank,

1876-1900

tary affairs, worked, however, in the opposite direction.
It is necessary to go back to events which took place in the
time of the Prussian Bank, the effects of which, however,
applied in full force to the Reichsbank.
The French war indemnity had been settled quickly
beyond all expectations. A great part of its proceeds, so
far as they did not consist in metal, had been realized in
gold for the purposes of coinage reform. From the middle
of 1874 the natural reaction of the large transfer of cash
to Germany began to appear. With a great abundance of
money in Germany and a relative scarcity in the most
important foreign money markets, specie began to flow
out of Germany in the form of gold coins; since the depreciation of silver the weight of metal in current silver coins
no longer corresponded to their nominal value. These conditions continued with various sharp breaks until 1879.
The German stock of specie, which had increased from
about 1,985,000,000 marks to 2,805,000,000 marks from
the beginning of the coinage reform until the middle of
1873, again diminished, largely through a flow to foreign
countries, to about 2,420,000,000 marks at the beginning
of 1879. Each outflow of gold was doubly disturbing on
account of the great amount of silver money still existing,
and the central bank found itself forced to counteract the
exportation of gold by raising the discount rate.
Conditions were most threatening from the middle of
1874 to the middle of 1875—that is, in the last years of
the Prussian Bank. The outflow of gold, especially to
Belgium and France, became so great that the introduction of the gold standard was often regarded as frustrated.
The Prussian Bank in self-defense raised its discount rate




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Monetary

Commission

to 6 per cent on November 23, 1874, without appreciable
success, however, for with the plentiful supply of money
on the open market, the discount of the Bourse remained
2% per cent below the Bank discount. The fact that the
banks, including the Prussian Bank, refused to part with
any more gold brought about no improvement; the result,
on the contrary, was that a premium was paid for imperial
gold coins, that foreign rates of exchange were far from
parity (to the disadvantage of Germany), and that short
bills on London sometimes reached an exchange of 20.65
and short bills on Paris an exchange of 81.85. The whole
course of events during this critical period gives an idea
of the difficulties under which the Reichsbank worked.
The increase of circulating capital in German markets,
which more than anything else was the cause of the
outflow of gold in 1874-75, experienced a violent interruption for reasons connected with carrying out the
German monetary reform. This change was effected
partly by the imperial government, which proceeded
from the middle of 1875 to withdraw the silver coins of
the various states in large quantities, and in the second
half of 1875 to replace with imperial treasury notes the
paper money of the various states and its substitutions.
This helped to bring about a contraction of the money
market. The preparations* for carrying out the bank
reform were, however, of the greatest importance, First,
many banks of issue relinquished their note privilege
before the new arrangements went into force, and were
therefore obliged to withdraw their notes from circulation by the beginning of 1876. Furthermore, notes for
amounts less than. 100 marks were to be done away with




220

The

Reichsbank,

1876-1900

by the beginning of 1876, and as early as July 1, 1875
notes of this kind received at banks could not be reissued.
The banks were obliged to keep cash on hand for the
redemption of small notes which could not be replaced
by notes over 100 marks. There was a considerable
amount of such notes. Altogether, the uncovered notes
of German banks diminished by more than 270,000,000
marks from the end of 1874 to the end of 1875, principally in consequence of the abolition of small notes.
The second half of 1875 brought a substantial diminution of German currency; this resulted in more calls on
the Prussian Bank, which even before the date fixed for
its transformation into the Reichsbank was extending
its business beyond the borders of Prussia.
The limiting of circulation also resulted in a slow
advance of German market discount, beginning May and
June, 1875. Whereas Germany in the preceding months
had had the lowest market discount of all European
countries, a change now took place. Foreign rates of
exchange were forced down so far that in the last months
of 1876 they permitted a considerable importation of gold.
Although the Prussian Bank, was in the last half year
of its existence, relieved of acute uneasiness about an
outflow of gold, it was now forced to adopt a severe discount policy through the limitation of inland circulation
which affected the money market. The market discount
rose occasionally to the height of the Bank's discount
and thus forced the Bank to raise its rate.
The beginning of gold payments.—The situation which
the Reichsbank found at the beginning of its activity was
characterized most, however, through a measure of




221

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Monetary

Commission

supreme importance for carrying out the change of standard, viz, through the beginning of gold payments by the
Prussian Bank, in July 1875, by order from the office of
the Chancellor (Reichskanzleramt).
Up to this time the Prussian Bank had, of course,
taken care to gather considerable gold reserve, but it
had made payments in gold only in exceptional cases;
free circulation was still restricted principally to silver.
The German central bank now opened its gold reservoir,
gave German circulation the gold money which it required
from its central banking institution, and took up rejected
silver. With what rapidity German circulation took up
gold coins is seen from the stock of gold of the Prussian
Bank, which diminished by more than 150,000,000 marks
from the middle until the end of 1875—from 493,000,000
to 341,000,000 marks—although during that time not
only no outflow of gold to foreign countries took place,
but a considerable influx occurred from abroad. The
Prussian Bank purchased during that half year nearly
70,000,000 marks 1 worth of gold. As its gold reserve
diminished in spite of this by more than 150,000,000
marks, German domestic circulation took 220,000,000
marks of gold money during this half year from the
Bank's coffers. This gold money replaced to a great
extent the small notes which were at that time being
discontinued and in part the silver money which at that
time was being withdrawn. This silver money was
taken mainly from the coffers of the Prussian Bank
during the second half of 1875 to the amount of 45,000,000
marks. In spite of this, the silver holdings of the Prussian Bank show during this time a decrease of only




222

The

Rei

chsbank,

1876-1900

15,000,000 marks. The explanation is that current silver
was continually given up at the central bank in exchange
for gold.
A continuation of this process of exchange was to be
expected in the future. The position of the Reichsbank
was rendered considerably more difficult as long as its
holdings of German silver money were not diminished
to the extent of the demand for silver coins.
On account of the state of the money market and the
drainage of gold from the coffers of the Bank for domestic
circulation, the transformation of the Prussian Bank into
the Reichsbank took place under strained circumstances.
In September, 1875, the Prussian Bank had been obliged
to advance its discount rate to 6 per cent. At the end
of November it thought it could take advantage of a
temporary improvement in its position to reduce its rate
to 5 per cent, but an extraordinary strain at the close
of the year showed again the difficulty of its position.
An examination of the situation forced the new Reichsbank to raise its discount rate to 6 per cent on the third
day of its existence, January 3, 1876.
Limitation of working capital at the transformation of
the Prussian Bank into the Reichsbank; protective measures of bank management, especially the reorganization of
transfers.—Although the Prussian Bank had in the last
years of its activity been obliged to work under exceedingly difficult conditions, several other new circumstances increased for the Reichsbank the existing
difficulties.
The Prussian Bank had had at its disposal a large
amount of interest-bearing deposits subject to notice,




223

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Monetary

Commission

most of which were legally deposited trust moneys. At
the end of 1875 these deposits amounted to 101,300,000
marks. After the transformation into the Reichsbank
notice of withdrawal of trust moneys was given by
Prussia (cf. p. 88).
The Prussian Bank had also an unrestricted note
privilege, whereas the note issue of the Reichsbank was
limited by the system of note tax.
Along with this substantial decrease of working funds,
which was counterbalanced only partially by the increase
of capital stock from 60,000,000 to 120,000,000 marks,
came a greatly extended sphere of activity.
That the Reichsbank could, from the very beginning,
satisfy claims was due to the fact that its capital stock,
so far as it was not sunk in business sites, etc., was not
invested in stocks and shares, as was the case with other
large central banks, but was used with its other working
capital for granting credit on discount bills and lombard
loans. It is true that the officials of the Reichsbank are
of the opinion that the Bank's own means (capital stock
and reserve fund) are first to be regarded as a guarantee
fund for the creditors of the Bank, the holders of notes,
holders of transfer accounts, etc. But the officials believe
that they can invest this guarantee fund most safely and
properly for the Bank by making it cooperate in its
business; they therefore use it, not in the purchase of
obligations on which payment can not be demanded
immediately, but in the purchase of safe short-term bills
and lombard loans.
The employment of the increased capital stock for credit
grants could relieve the Reichsbank from seeking in new




224

The

Rei

chsb an k,

187

6-1900

ways the necessary reenforcement of its working capital.
It has attained its end by reorganizing the transfer
system on the basis of gratuitous transfers from place
to place (cf. p. 90). This innovation has not only resulted in considerable advantage to the German national
economic system by essentially facilitating and cheapening payment operations, but it has, in addition, brought
to the Reichsbank, in the rapidly increasing transferaccount deposits, the working funds which it needed for
fulfilling the task assigned to it. The transfer system
on the new basis was inaugurated April 10, 1876.
At the end of 1876 the balances on transfer accounts
had already reached (inclusive of transfers in transit)
92,300,000 marks, against 17,200,000 marks on January 7,
1876. The decrease of interest-bearing deposits amounted
to 59,000,000 marks, and was therefore balanced by the
increase of transfer-account balances. When at the end
of 1879 ^ e interest-bearing deposits had disappeared,
the transfer-account balances amounted to 155,000,000
marks.
Abundance of money and the decrease of discounts of
the Reichsbank from 1876 to 1879.—While the reorganization of the transfer system of the Reichsbank had
in an unexpectedly short time and an unexpectedly
rich measure compensated for the reduction of its
working capital, the strain on the open market under
which the Reichsbank had begun its operations disappeared
soon after the beginning of 1876. This showed that the
scarcity of money during the second half of 1875 w a s o n l y
an episode due to special causes, particularly to the
abolition of small notes; it was not able to interrupt for
82302—10—15




225

National

Monetary

Commission

any length of time the development of the money market
depending on general economic conditions. With continued economic depression and stagnation a relaxation
of the money demands began. In that period the German money market seldom showed a greater strain,
although from the beginning of 1876 the German stock
of specie decreased almost uninterruptedly, due partly
to large withdrawals of silver coins of various states,
partly to the outflow of gold to foreign countries. The
market rate of discount on the Berlin Bourse frequently sank as low as 2 per cent—unusually low for
that time—and the average bill investments of the
Reichsbank decreased uninterruptedly after 1876, they
sank from 403,000,000 marks in 1876 to about 328,000,00c
marks in 1879. The increase of working capital through
transfer-account deposits, and the decrease of credit
claims had as a result that a large part of the funds
of the Reichsbank frequently lay idle; it was difficult,
in fact, for the Reichsbank to maintain the necessary confidence of the German business world in its
discount system. Its uncovered note circulation, which
at first had been regarded as unduly limited by the note
tax, dwindled continuously and remained far below the
contingent allowed by law. From an average of
199,000,000 marks in 1875 a n ( i 120,000,000 marks in
1876 it sank to 78,500,000 marks in 1879, while the
tax-free contingent of the Reichsbank amounted at that
time to 273,900,000 marks. The profits of the Bank
declined correspondingly. Whereas the net profits of
the Prussian Bank in 1874 had amounted to 12,753,000




226

The

Reichsbank,

1876-1900

marks,** the profits of the Reichsbank, in spite of the
doubling of the capital stock, sank to 6,924,000 marks
in 1879.
Decrease of gold reserve and increase of metal holdings of
the Reichsbank.—The considerations arising from coinage
reform were, as before June 1875, in diametrical opposition to the conditions, which made it necessary for the
Bank to cheapen its credit for purely business reasons.
In the Reichsbank the whole process of transformation
was concentrated a great deal more than had been the
case with the Prussian Bank. Not only was the Reichsbank the medium of international gold movements affecting Germany, but the international trade in precious metals brought gold to its coffers destined for Germany and
took out of its coffers the gold needed abroad. Furthermore, domestic circulation continuously drew imperial
gold coins from the Bank's coffers in exchange for the silver coins of the various states. Toward the end of 1876
the task of selling silver and realizing gold—necessary
measures for coinage reform—was transferred to the
Reichsbank by the imperial government. The procedure
was as follows: the silver to be melted down and sold was
drawn mainly from the reserve of the Reichsbank and the
account of the Empire was debited with the amount.
Silver coins were converted for the account of the Empire into bars at the mints and refineries. The silver
bars were turned over to the Reichsbank to be sold. The
greater part was disposed of in London through the
a The net gain of the year 1875 can not be compared, for it was increased considerably above the business proceeds of the Bank by the
appraisement of the real estate ceded to the Reichsbank in excess of its
book value,




227

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Monetary

Commission

agency of the London Joint Stock Bank. A small part of
the proceeds of the silver sales in London was realized
through drafts on the London Joint Stock Bank, the
greater part by the purchase of gold on the London
market. The proceeds, whether they came as German
money, as in the case of silver sales in Germany and sales
of drafts on London, or whether realized in uncoined gold,
were not delivered to the imperial treasury, but were
entered to the credit of the Empire's account, whereby
1,392 marks were reckoned for the pound (gold) fine. The
acquired gold was therefore sold to the Reichsbank by the
Empire against entry of the value on the account.
The effect was that the Reichsbank continually disposed
of silver in return for gold. This counteracted the consequences of the exclusion of silver money from free circulation in exchange for imperial gold coins. Only these
sales of silver for gold enabled the Reichsbank officials to
keep up gold payments as long as considerable quantities
of silver flowed to it from free circulation and large sums of
gold money were drawn from it for free circulation.
But the selling of silver and procuring of gold by the
Reichsbank did not keep pace with the influx of silver
from, and the drainage of gold to, free circulation. The
gold reserve of the Reichsbank sank from 346,000,000
marks at the beginning of 1876 to 180,000,000 marks at
the end of 1878; indeed, at the end of October, 1878, it
reached the low point of 164,000,000 marks. This decrease
occurred notwithstanding that the Reichsbank bought
more than 320,000,000 marks of gold in the three years
1876-78. Conversely, the silver holdings of the Reichsbank increased in the three years from 100,000,000 to




228

The

Reichsbank,

1876-1900

292,000,000 marks—by 192,000,000 marks. At times
they even exceeded 300,000,000 marks, and yet the imperial government during this time took 447,000,000
marks of silver coins from the coffers of the Reichsbank
to be melted down.
For the four years after the commencement of gold
payments by the Prussian Bank the following changes in
gold and silver holdings may be noted:
1. G o l d :

Million marks.

June 30, 1875
Purchases of gold from July 1, 1875, to June 30, 1879

493.3
426. 4

Total
June 30, 1879

919. 7
225.4

.

Withdrawal from the Reichsbank
2. Silver:
June 30, 1875
June 30, 1879

694. 3
102.0
320.7

Increase from June 30, 1875, to June 30, 1879
218. 7
Taken in the same time from the Bank to be melted d o w n . _ 516. o
Influx to the Bank from free circulation

734. 7

The Bank therefore gave up 694,300,000 marks of gold
in the first four years of gold payments. Of this, according to careful estimates, 130,000,000 marks may have gone
to foreign countries, while the great remainder of about
565,000,000 marks was absorbed by inland circulation,
which gave to the Bank 734,700,000 marks of silver
money. As the sales of silver were dependent on the state
of the silver market and could not be forced without
shattering the purchasing capacity of the market, the
sale of silver for gold was considerably less than the exchange of silver for gold effected by the German market
at the offices of the Reichsbank. Thus it came about that




229

National

Monetary Commission

while the average metal cover of the Reichsbank's note
circulation rose from 72 % per cent to 79^3 per cent in the
years 1875 to 1878, the average gold cover suffered a
diminution from 6o>£ to 33 >£ per cent.
The warring factors influencing discounts and the rapid
development of the discount rate.—Through these circumstances the officials of the Reichsbank were placed in a
serious dilemma: the decrease of profit-yielding funds,
the improvement of metallic cover for notes, the diminution of uncovered notes urged a reduction of discount and
lombard rates. On the other hand, metal reserve was
serviceable to the Bank only in so far as it consisted of
gold, especially when there was a foreign demand for
money. The constant deterioration of the gold reserve
forced the Bank in particular instances, above all when
foreign exchange rates were unfavorable, to take sharper
preventive measures than would have been required under
normal conditions of the standard, since the Bank itself
was quite liquid. On the other hand, the effectiveness of
rapid advances of discount was impaired by the open
market, which was not, like the Reichsbank, obliged to
distinguish anxiously between gold and silver, and often
was only slightly influenced by the discount fixations of the
Reichsbank, owing to the plentiful supply of ready money.
During the years under consideration, the market discount
in Berlin was below the Bank rate on an average by 1 per
cent or more; at times the difference exceeded 2 per cent.
Under such circumstances the officials of the Reichsbank
were forced, as soon as the pressing need for an advance
was over, to bring its discount rate again into closer agreement with the market discount.




230

The

Reichsb

ank,

1876-1900

This explains the somewhat variable development of
the official discount rate during those years, the great
number of changes of discount, and the fact that in 1876,
for instance, which in its first days had a discount of 6
per cent, there followed as early as May 18 a reduction
to 3% per cent, whereas the Prussian Bank had never gone
below 4 per cent; furthermore, in 1877 and 1878, in spite
of stagnation in the spirit of enterprise and the abundance
of money on the open market, there were periods with an
interest rate of 5 per cent, in 1877 even of 5X per cent.
Finally, when in the first months of 1879 a t l essential improvement of the gold reserve of the Reichsbank accompanied the decrease of investments and the entire disappearance of uncovered notes, a Bank discount of only
3 per cent could be proclaimed for the first time on March
21, 1879.

Thus this first period of the activity of the German
Reichsbank closed with an uncommonly low discount
rate, in spite of the difficulties arising from the conditions
of the standard.
1879-1883.
Introductory.—The year 1879 *s a n important turning
point in the history of the discount policy of the Reichsbank. The period from 1873 to 1879 was one of economic
standstill, and the period of carrying out the coinage reform
as planned. From 1879 to 1882-83, the general economic
situation again improved. Furthermore, the coinage reform was concluded in 1879, although not in the sense of
the Coinage Act of 1873; great losses in silver sales as a
result of the continuous depreciation of silver caused the
Chancellor to direct the discontinuance of silver sales on




231

National

Monetary Commission

May 18, 1879. The withdrawal of existing silver ccms of
the various states was also stopped. Of all the coins
of the different states in circulation at the beginning of
the coinage reform, only the i-taler pieces were not as yet
withdrawn from circulation, and of these there were (in
May, 1879), according to an estimate of the president of
the Reichsbank, 476,000,000 marks outstanding, partly in
circulation and partly in public treasuries.
Economic advance and its influence on the demand for
money.—The economic upward movement commencing
in the middle of 1879 received its impetus from the
United States, where the extension of the network of
railways was carried on with particular energy, so that
part of the need for materials had to be covered by Europe.
From America the spirit of enterprise spread over the
whole civilized world. I t led to great speculative extravagances and excesses, especially on the Paris Bourse,
where at the beginning of 1882 a severe crisis, the wellknown Bontoux crash, broke out, which put an end to
overspeculation.
In Germany, the impulse given by America was strengthened when Prussia took over the railways. With
hopes of a speedy extension of the network of railways,
prospects were opened of an increased demand for products of mining industry. The customs tariff was
remodeled, from which important German branches of
industry entertained hopes of a permanent protection
against foreign competition.
In spite of this, the movement in Germany remained
within moderate bounds, and was free from the excesses
which in other places led to most evil results.




232

The

Reichsbank,

1876-1900

The effects of this boom resulted at the Reichsbank in
heavier demands on its credit (cf. Tables 55, 62, and 19).
The amount of bills put into circulation in Germany,
calculated for 1879 a t 11,300,000,000 marks, advanced
in the following years to 12,000,000,000 marks in 1882,
and 12,300,000,000 in 1883. At the same time, the bills
handed in at the Reichsbank also increased. The Bank's
average investments grew gradually from 397,300,000
marks in 1879 to 441,800,000 marks in 1882, and its average uncovered note circulation increased in the same time
from 78,500,000 marks to 152,000,000 marks.
As is seen from these figures, the increase in the claims
made on the Reichsbank was not too strong, so that even
in v those years of favorable economic activity its working
funds were not fully claimed. The fluctuations of invested capital increased with its average amount. The
difference between the highest and lowest amount of invested capital in 1879 was 161,000,000 marks, as against
237,000,000 marks in 1881. Whereas the Bank had difficulty at certain times in employing its funds, the contingent of uncovered notes was exceeded for the first time at
the end of 1881, again at the end of September, and at the
end of December 1882.
Concern for upholding the gold standard after the cessation
of silver sales.—In addition to the concern as to how
these fluctuations of money demand were to be met
without allowing the funds of the Bank to lie idle in
months of a relatively small strain, the concern for the
German standard continued undiminished. On the cessation of silver sales, it had been hoped that the circulation would in a short time absorb the talers still existing;




233

National

Monetary

Commission

it became plain, however, that the circulation was still
burdened with silver, and continued to discharge silver
coins at the Reichsbank. The average silver holdings of
the Reichsbank rose from 287,000,000 marks in 1878 to
350,000,000 marks in 1881; at times in the latter year it
reached 362,000,000 marks. The gold reserve, on the
other hand, which had amounted to 220,000,000 marks on
an average in 1879, sank to 207,000,000 marks in 1881.
On the most unfavorable return day (October 7, 1881) it
dwindled down to 151,500,000 marks. The Reichsbank
was defenseless against the exchange of silver for gold
which went on at its offices as long as it continued to make
payments on demand in imperial gold coins. Before the
cessation of silver sales this exchange was counteracted
by considerable sums which were taken from the accumulating silver in the Reichsbank to be melted down, and
the proceeds were turned over to the Reichsbank in gold
specie. But this counteraction was ineffective after the
discontinuance of silver sales. The Reichsbank was now
dependent upon itself, and a substitute for the gold that
was drawn from it by inland circulation or by foreign
countries could now be obtained only by influencing
international gold movements, through measures of Bank
policy, in a direction favorable to Germany.
But to draw gold from abroad was especially difficult
just in those years which followed the discontinuance of
silver sales. A number of unfavorable circumstances
worked together to endanger the supply of gold, not only
for Germany but for the whole of Europe.
Gold production showed at that time an essential decline.
Whereas it had amounted to nearly 200,000 kilograms on




234

The

Reichsbank,

1876-1900

an average in the period 1851-1870, and at least 173,000
kilograms in the following decade 1871-1880, it sank by
1883 to 148,600 kilograms.
To this were added serious disturbances in the previous
distribution of gold. The United States, the most important productive country, which had up to that time
always yielded gold to Europe in considerable quantities,
began not only to retain its whole production of gold for
itself, but also to draw large amounts of gold from Europe.
This change was caused by the fact that the United
States, which at the beginning of the sixties, during the
Civil War, had assumed a paper-money basis, resumed
specie payments in 1879 after careful preparations;
through an exceedingly favorable balance of trade at
that time, especially through large exports of grain, it
was able to import large sums of gold from Europe. In
1880 the United States had an excess of gold imports
over exports amounting to $77,000,000, and in 1881 of
$97,500,000. India also showed at that time an unusual
importation of gold from Europe.
The situation was aggravated for gold-standard countries of Europe by the fact that in 1881 Italy also set
about to replace with a metallic standard the paper standard existing since 1866. For this purpose a metal loan
of 644,000,000 lire was concluded by the Italian government with an international bank association, and of this
sum more than 400,000,000 lire were paid in gold. In
order to raise such an amount in a comparatively short
time, the participating banks were obliged to fall back to
a large extent on the gold reserves of European central
banks.




235

National

Monetary Commission

All these circumstances had as a result that European gold-standard countries not only had no increase
of gold in those years, but suffered large withdrawals.
German commercial statistics also show from 1880 to
1884 an exportation of gold in excess of importation.
The difficult situation in which the Reichsbank found
itself, on account of the continued influx of silver from
inland circulation and the corresponding outflow of gold
to inland circulation, was considerably aggravated by
this export of gold. The greater the amount of silver in
its coffers the more its gold basis dwindled and the sharper
the measures had to be for combating the outflow of gold
to foreign countries.
Advances free of interest on deliveries of gold, and the
increase of the purchase price of gold.—Owing to the small
demand for money even in this period of economic activity,
the measures necessary for maintaining the gold reserve
were, just as during the years 1876 to 1879, a t variance
with the inland money market. Through these conflicting considerations the Bank officials found themselves
obliged to seek special measures along with the discount
increase in strengthening its gold reserve, and to introduce into its credit system a practice by which the relations with the business world could be maintained, even
when there was a great difference between the official
Bank discount and the market discount.
In order to take advantage of the economic conditions
favorable for the importation of gold, the Reichsbank
began in 1879 t ° grant advances free of interest on deliveries of gold in normal cases for five days, and under
special circumstances for eight days. In addition, several




236

The

Reichsb

ank,

1876-1900

branches were permitted to grant for large sums of gold a
higher price than the rate fixed in the Bank Act, at 1,392
marks per pound fine, namely, 1,393 marks for amounts
of at least 500,000 marks, and 1,393^2 marks for amounts
of at least 2,000,000 marks.
The Bank naturally suffered a loss in granting the
higher purchase price in case the purchased foreign gold
coins were not sold again for exportation at advanced
prices. Gold in bars and foreign coins may, according to
the provisions of the Bank Act, be entered in the balance
only at 1,392 marks per pound fine; in coining purchased
gold into imperial gold coins the Reichsbank likewise
receives only 1,392 marks per pound fine. It was thought,
however, that this small loss might be sustained in order
to strengthen the gold reserve.
The experiences with these facilities for the import of
gold justified the hopes, however, only in a small degree.
It became plain that such facilitating terms for the import of gold could have at best only temporary success.
Accordingly, advances free of interest were granted only
on the merits of each case, and, indeed, only on deliveries
of at least 1,000,000 marks. No case of the purchase of
gold at a price higher than 1,392 marks has occurred
since 1881.
While the Bank officials endeavored to take every possible advantage of the economic conditions favorable for
the purchase of gold, they had never protected their gold
reserve by refusing to make gold payments or by setting
a premium on gold. It has been necessary under most
unfavorable conditions to limit to the imperial main
bank in Berlin the withdrawal of gold for the purpose of




237

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Monetary Commission

exportation abroad; when it became necessary, in consideration of the German standard, to work against an
export of gold with high discount rates, it was clearly
imperative that the Reichsbank should not facilitate the
exportation of gold by bearing the costs of conveyance
from Berlin to the points of export, Hamburg or Bremen.
On the other hand, the officials of the Reichsbank never
thought of refusing to part with gold at the main bank
in Berlin or of making the terms prohibitive. The
officials have never regarded the gold reserve as an end in
itself, but always as a means to an end in maintaining the
German gold standard. This maintenance is closely connected with the absolute certainty of receiving from the
Reichsbank gold money at its face value on demand.
Recognizing this, the Bank officials have never allowed
themselves to be turned from their object, even in the
most difficult days in the first half of the eighties. They
have never misjudged the disadvantages of a high discount rate, yet they have always held fast to the rule
that, in the long run, implicit confidence in a stable
standard is the first condition for low interest rates.
Introduction of private discount and experiments with a
reduced Lombard interest rate.—It was difficult to keep in
touch with the open money market, on account of the
high discount rate frequently necessary for maintaining
the standard. The Bank sought in the so-called private
discount rate, in addition to the official discount rate
(cf. p. 134ff.),a solution which would not subject the
official rate to too many fluctuations.
In times of weak demand for money the Reichsbank
felt the competition of private banks of issue to be doubly




238

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Reichsbank,

18

76-1900

disagreeable. These sought, without regard to the condition of the standard, to employ their funds as profitably
as possible by bidding under the discount rate of the
Reichsbank; in doing this they did not hold to their published official discount rate, but at times went considerably
below it.
Since section 44, paragraph 1, figure 1, of the Bank Act
prescribes that the current rate be published at which
banks of issue grant discounts or interest-bearing loans,
we might doubt whether the above-mentioned practice of
private banks of issue be admissible. After the Bundesrat
had decided favorably the Reichsbank likewise began, in
January, 1880, to discount bills of a certain kind under its
official rate. It has followed this policy ever since, in
order to assure itself of a certain stock of first-class paper,
even in times of ready money. Discounts below the official rate are stopped when demands for money are high;
formerly they stopped whenever the official rate reached
5 per cent, in later years as soon as it reached 4 per cent.
On the other hand, another means in the same direction
has not proved useful. It was thought that by a onesided reduction of the lombard rate the funds of the Bank
could be better employed in times of easy money, which,
for reasons affecting the standard, did not admit of too low
a discount rate (cf. Table 63). Whereas the lombard
rate was as a rule kept a full 1 per cent above the discount
rate for bills, it was reduced for a short time, in March,
1879, t ° 4 K pe r cent, while the bill discount still remained
at 4 per cent. In January 1880, with the introduction of
private discount, it was decided to fix the lombard interest
on time loans for three full months at the bill discount




239

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Monetary

Commission

rate, and on loans for at least six weeks at one-half of i
per cent above the bill discount. This rule was canceled,
however, as early as April 1880 (cf. p. 188, footnote).
On the other hand, from August 18 to September 3, 1880,
with a bill discount of 5 per cent, the lombard rate was
likewise fixed at 5 per cent, and from September 4 to
October 5, 1880, the lombard rate was 6 per cent with a
bill discount of 5 ^ per cent. From October 6 the difference was again a full per cent.
The discount rate from 1879 to 1883.—With the growing domestic demand for money and the difficulties of the
situation respecting the monetary standard, the discount
rates of the Reichsbank rose in general during the period
1879-1883. The average official discount rate rose from
3.70 per cent in 1879 to 4.54 per cent in 1882. In consequence of the introduction of private discount, the
average profitableness of bill investments, that is, the
average interest rate which the Reichsbank actually
calculated in discounting bills, was somewhat smaller;
even here, however, the advance is unmistakable, from
3.74 per cent in 1879 to 4.43 per cent in 1882. Since the
introduction of the private rate, the discount variations
were no longer so frequent as in the preceding years.
The lowest official discount rate was 3 per cent, at the
beginning of this period. This rate had been announced
on March 21, 1879, a n d remained in force until August 13.
From now until the end of 1885, the lowest official discount rate was 4 per cent. Discounts at the private rate
made it possible to keep in touch with the money market,
even in those times in which the difference between the
market discount and the official Bank rate was really




240

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Reichsb

ank,

1876-1900

great. In August 1880, and in February and March,
1881, the Bank lowered its private rate to 2% per cent.
In 1882, which indicated the greatest strain, the lowest
rate was, on the contrary, 3% per cent. During that time,
however, it was frequently necessary to discontinue discounts under the official rate out of regard for the
whole situation, and the official rate reached \Y2 per cent
in 1879, 5H in 1880, and 6 per cent in 1882 (at the time
of the Bontoux crisis, from February 1 to 17). At that
time, London had for several weeks a bank discount of
6 per cent, and Brussels even of 9 per cent.
It is characteristic of this whole period, from 1876 to
1882, that the movements of discount rates in no way—
as in the later years—corresponded with the natural
changes in the domestic demand for money. In most of
the later years, the quarter of liveliest demand for money,
namely, the last three months of the year, showed the
highest discount rates, whereas the first months brought
reductions in discount. From 1883 onward it has never
happened that a discount reduction was made between
August and the end of the year. Discount rates move in
certain regular curves, governed by the domestic demand
for money. It was otherwise before 1882. All the years
from 1877 to 1881 brought reductions in discount in the
last months, often as late as the last week of the year,
while the highest discount came at very different times,
for example, in February for the year 1882. In these
years, when the inconveniences of the incomplete coinage
reform were still felt, the discount policy of the Reichsbank was dominated more by international gold currents

82302—10




16

241

National

Monetary

Commission

than by home transactions. This explains the great
irregularity of discount movements for that early period.
Altogether, the discount policy of the Reichsbank
during those years was attended with success. In spite of
the strong international competition for gold and in spite
of the active demand for gold by domestic trade, the
Reichsbank managed to prevent any material diminution
in the amount of its gold reserve. It even succeeded in
obtaining a slight increase during the years 1879 a n ( i
1880; its gold holdings grew from an average of 207,000,000
marks in 1878 to an average of 226,000,000 marks in 1880;
but this increase was lost again in 1881. On the other
hand, it succeeded in getting in the last four months of
1882 large amounts of gold by a firm discount policy.
In the last quarter of 1882, 93,000,000 marks of gold
came to the Bank from abroad, partly in bullion, partly
in foreign and German gold coins. At the close of 1882
the Reichsbank had a gold reserve of 245,000,000 marks
against 180,000,000 marks at the close of the previous
year. The favorable development continued into the
first months of 1883, so that the Reichsbank's stock of
gold on March 15, 1883, reached 311,000,000 marks, as
against 220,000,000 marks on March 15, 1882. The
Reichsbank had not had so large a gold reserve since the
middle of 1876. The time of greatest distress was now
over for the Reichsbank.
1883-1888.
Economic depression.—The general economic upward
movement, which had lasted since 1879, reached its
climax in 1882. In 1883 the decline began to set in.




242

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Reichsbank,

1876-1900

The construction of railways, which since 1879 had been
carried on in various states with great activity, came
everywhere to a standstill. The products of mining
industry did not have a sufficient sale, and prices sank.
The unfavorable development was communicated to the
most important branches of manufacturing industry.
Business stagnation seemed to reach its lowest point in
1885. Political apprehensions arising from the friction
between England and Russia on the Indian frontier
and in Afghanistan accentuated general apathy, and
added to the general uncertainty. At last, toward the
end of 1886, a partial increase of trade set in, from which
much was hoped in many quarters. The stimulus proceeded again from the United States, but the improvement was only of short duration, at least on the Continent,
where political complications produced anew an uncertainty which checked the spirit of enterprise. The
Bulgarian disturbances, the resulting opposition to Russia,
and incidents on the French frontier made war seem
possible. In November 1887, the Chancellor issued an
order to the Reichsbank prohibiting advances on Russian
securities.^ Only in 1888 did men's minds become quieter,
permitting a vigorous economic advance. In spite of
the unfavorable political situation, a distinct improvement was recognizable in Germany from the end of 1886,
as compared with the stagnation of 1884 and 1885.
Development of the status of the Reichsbank.—With the
decline of prices and the disappearance of the spirit
of enterprise, the money demand in Germany decreased
very much as was expected. The amount of bills




a The prohibition was rescinded in 1894.
243

National

Monetary

Commission

drawn in Germany decreased slowly from 12,300,000,000
marks in 1883 to 11,800,000,000 marks in 1886; then
came a slight increase with the slight improvement of
economic conditions, but even in 1888 with 12,200,000,000
marks the amount still fell somewhat short of 1883.
The variations in these figures are not great, and it is
in keeping with this that the average bill holdings of the
Reichsbank suffered from 1883 to 1886 no changes worthy
of mention; the years 1887 and 1888 show again a considerable increase in investments.
On the other hand, the development of transfers
effected a great increase in the funds of the Reichsbank
through large deposits during the years of business
standstill. The average amount of transfer balances 0
rose from 135,000,000 marks in 1882 to 260,000,000
marks in 1887; it thus doubled in the short period of
five years. The total deposits at the Reichsbank rose
in the same time from 172,000,000 to 352,000,000 marks,
an increase of 180,000,000 marks.
The establishment of clearing houses (cf. p. nsff.) in
1883 made superfluous the employment of cash for a considerable number of transactions, and this helped its
accumulation in the coffers of the Reichsbank.
A marked improvement of the German gold balance
also occurred. From 1885 onward German commercial
statistics show continuously an excess of gold imports
over exports, and the gold purchases of the Reichsbank
from 1885 to 1888 reached sums that were really enormous; they amounted altogether in these four years
to 668,000,000 marks. The average gold reserve of the
o Inclusive of the transfers in transit (cf. Table 38).




244

The

Reichsbank,

1876-1900

Reichsbank increased from 209,000,000 in 1882 to
608,000,000 marks in 1888, and the average stock of metal
rose in the same time from 549,000,000 to 903,000,000
marks.
With this increase of cash holdings, together with a
simultaneous increase of deposits which did not correspond
to an increase of investments, the uncovered note circulation dwindled considerably. It diminished from an
average of 152,000,000 marks in 1882 to an average of
55,000,000 marks in 1887; in 1888 the cash holdings even
exceeded the note circulation on an average by some
1,000,000 marks.
It was of great importance in this development that
the increase of the metal holdings of the Reichsbank
consisted only of gold. That was self evident as far as
imports from abroad went; but also the home country,
which up to 1881 had sent silver in considerable quantities
to the Reichsbank in exchange for gold, now began to
get silver from the Bank and to give up gold for it. The
great exchange of silver for gold, which was carried on at
the offices of the Reichsbank in consequence of the coinage reform, had come to an end in 1882. I n i 8 8 i the
average silver holdings of the Reichsbank had attained
their highest figure with 350,000,000 marks. Circulation
had manifestly given up all superfluous silver to the Bank.
Every increased demand for silver money, such as necessarily occurred with the growth of population and the
increase of small transactions, could now be satisfied only
by the withdrawal of silver from the Bank. The year
1882 showed an average stock of silver of only 340,000,000
marks, a decrease of 10,000,000 marks against the pre-




245

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Monetary

Commission

ceding year. In 1887 the average silver holdings amounted
to only 301,000,000 marks, in 1888 to only 295,000,000
marks, while the gold reserve increased greatly as already
described. The composition of the metal holdings of the
Reichsbank was exactly reversed in those years. In 1881,
gold represented on an average 37.2 per cent of the metal
reserve; in 1882, 38.1 per cent; in 1887, on the contrary,
61 per cent, and in 1888, 67.3 per cent.
Movement of discount rates.—The position of the Reichsbank was greatly strengthened in that period. The great
concern about a sufficient stock of gold, which had previously dominated the Bank's policy, disappeared; the
increase in metal holdings, especially in gold reserve, and
the cessation of the strong demand for credit, enabled the
Bank to maintain a low rate of interest during those years.
Its average official discount rate, which had amounted to
4.54 per cent in 1882, sank to 3.28 per cent in 1886; the
average profitableness of its bill investments sank from 4.43
per cent in 1882 to 2.76 per cent in 1886, and 2.78 in 1888.
Credit in lombard loans was made cheaper, since the
interest rate for advances on imperial and federal state
bonds had been fixed since February, 1884, at one-half of
1 per cent above the discount rate, while for other admissible paper the rate of 1 per cent above the bill discount
was maintained. Owing to this abundance of floating
capital it seemed proper to promote lombard loans on
thoroughly safe and marketable securities; on the other
hand, the preferential rate was expected to induce thrifty
Germans to invest their capital in German imperial and
state securities.




246

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Reichsbank,

1876-1900

When we regard in detail the changes in the position
of the Reichsbank from 1883 to 1888, we observe
that even during that period of economic standstill
the fluctuations in money demands on the Reichsbank again increased to a considerable degree. The difference between the lowest and the highest amount of
investments was in 1886, 329,000,000 marks. Consequently in spite of the average material improvement
the most unfavorable return days in various years showed
a decided strain and brought issues in excess of the note
contingent. The tax limit was exceeded at the end of
1884 by 32,700,000 marks, and at the end of 1886 by
34,200,000 marks. These strains were counteracted by
lengthy periods in which cash holdings exceeded, at times
quite considerably, the whole note circulation, as, for instance, during the first months of 1886 and on thirteen
return days during 1887; no less than twenty-eight of
the forty-eight return days in 1888 showed a cover in
excess of note issue, and this cash excess cover reached
170,600,000 marks on June 7, 1888.
The movements of discount rates were influenced in
various years by these great fluctuations; in general,
however, the interest rates of the Reichsbank during
this period showed great stability. From January 18,
1883, to March 10, 1885—a period of nearly twenty-six
months—the official discount rate was uninterruptedly
at 4 per cent. From February 20 until October 18,
1886, and from May n , 1887, i n t o September 1888, the
official rate was only 3 per cent. In 1884 and 1885 the
Bank often lowered its private rate, however, as low as
3 per cent, and in 1886 to 1888 frequently as low as




247

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Monetary

Commission

2 per cent. Money on the open market was at times
so abundant that in February 1886, for instance, the
market discount in Berlin declined to i}i per cent.
On the other hand, the official discount rate during these
years had to be raised twice up to 5 per cent, first, in
March 1885, o n account of the Anglo-Russian complications and a resulting outflow of gold to England, then in
December 1886, on account of an enormous increase of
Reichsbank investments, which were attributable partly
to an improvement in business and partly to the money
demands of the international market for armaments—at
that time being feverishly planned by most of the great
powers. These were, however, only short breaks in the
prevailing abundance of money.
1888-1890.

General economic situation.—The year 1887 had brought
a decided renewal of economic activity in England and
in the United States. In Germany, the improvement of
, conditions was first felt in 1888, after the political apprehensions of the previous years had been dissipated. The
upward movement developed rapidly, and was communicated to the whole of Europe. The lively demand
for commodities of all kinds and rising prices led everywhere to business expansion. A large number of industrial
undertakings were converted during that time into joint
stock companies on a broad basis, and the formation of
new companies of this kind assumed uncommon proportions. The activity in new companies in 1889 surpassed
in Germany that of all years since 1873. The number
of new joint stock companies rose from 70 in 1885 to




248

The

Rei

chsbank,

1876-1900

184 in 1888, and 360 in 1889. The capital of these companies amounted in 1885 to 53,500,000 marks, in 1888
to 193,700,000 marks, and in 1889 to 402,500,000 marks.
The extension and reorganization of so many manufactories increased the demand for coal and iron. Numerous
government orders for railways and for war material
worked in the same direction. The prices for mining
products experienced extraordinary advances, and mining
industry showed splendid business profits. Only the
numerous significant workingmen's strikes of that time
had a certain hampering effect.
All kinds of speculative extravagances were connected
with this upward movement—excessive extension of
business and particularly overvaluation of industrial
securities. The great profits of mining brought about
speculation in mining securities. Speculation spread to all
classes, and the market prices of securities bearing variable
dividends experienced advances far beyond justifiable
bounds.
The extravagances of speculation were aided by the
low interest rate in the preceding period. The conversion
of numerous interest-bearing securities which decreased
the income, disposed the public toward taking industrial
securities which held out prospects of high dividends.
These conditions increased the demand for exotic paper of
all kinds. The fever of speculation spread to various
countries over the sea. European capital was invested in
Argentina to a particularly large extent; the Argentinian
crisis in 1890 wrought great devastation in Europe, and
added materially to the recoil of overspeculation.




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Monetary

Commission

Increasing money demand and the Reichsbank.—Both the
upward movement in Germany toward the end of 1888,
and the collapse of speculation in 1890, were accompanied by a considerable increase of claims on the money
market. The amount of bills drawn in Germany rose
from 12,100,000,000 marks in 1887 to' 13,200,000,000
marks in 1889, and 14,000,000,000 marks in 1890.
Owing to this increase in money demand, the money
market was obliged to fall back on the Reichsbank
again. The average investments of the Reichsbank rose
from 524,000,000 marks in 1887 to 637,000,000 marks in
1890. As always in times of active business, the fluctuations of investments show again a considerable increase.
The difference between the lowest and highest sum of
investments amounted in 1888 to 199,000,000 marks, as
against 407,000,000 marks in 1889.
The increase of claims on the Reichsbank was not
counterbalanced by any increase in its working capital
however. With the development of transfers, the deposits on transfer accounts had increased from 172,000,000
marks in 1882 to 382,000,000 marks in 1888. Stagnation
followed. The year 1890 showed holdings of only
361,000,000 marks in deposits—20,000,000 marks less than
in 1888. Thus working capital suffered a slight decrease
in a period of an economic increase of claims. At the same
time, however, it must be noticed that from 1888 to 1890
transfer transactions increased from 64,000,000,000 to
80,000,000,000 marks in spite of the decrease of balances
on transfer accounts, and that consequently the smaller




250

The

Rei

chsbank,

1876-1900

balances performed greater services in payment operations
as a result of more extensive utilization.
Even the gold influx from abroad did not counteract
the increasing demands on the central bank at this
time. It is true that the gold purchases of the Reichsbank reached the enormous sum of 236,000,000 marks
in 1888, but during the last months of the year they
stopped; indeed, there even occurred an outflow of gold,
which went mainly via England to Argentina. The
Reichsbank could buy only 12,000,000 marks of gold
during the whole of 1889. Just at that time the money
demand was also active abroad; the world's exposition
in Paris drew large sums of gold to France. During the
first three-quarters of 1890 the influx of gold was small.
Toward the end of the third quarter, Russia withdrew
considerable sums in gold specie from its balance in
Berlin. The last months of 1890 brought again a stronger
importation of gold. It is a natural phenomenon in
international economic expansion that the increased demand for money scarcely allows the acquisition of large
amounts of gold by any single country. It was all the
more important that the Reichsbank had materially
strengthened its stock of gold from 1885 to 1888.
The claims of domestic trade in conjunction with the
unfavorable balance of gold effected a considerable
diminution of the gold holdings of the Reichsbank.
They sank from an average of 608,000,000 marks in 1888
to an average of 519,000,000 marks in 1890. They had
reached the highest point on June 23, 1888, with
702,000,000 marks, and the lowest point on October 7,
1890, with only 412,000,000 marks.




251

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Monetary

Commission

The Bank's stock of silver also diminished from an
average of 295,000,000 marks in 1888 to 282,000,000
marks in 1890.
In contrast to the fluctuation in cash holdings, the
note issue experienced a considerable increase. This
increase had begun in 1886; from an average of
727,000,000 marks in 1885, the average note circulation of
the Reichsbank rose to 987,000,000 marks in 1889, and
reached 984,000,000 marks in 1890. Up to 1888, this
advance had not only been counterbalanced by the increase of metal holdings but had been surpassed, so that
the greater part of this year showed a strong cover in
excess of the note circulation. The first half of 1889
showed cover in excess of notes sixteen times; in the second half, on the contrary, the contingent was exceeded
three times, the greatest at the close of the year, with
109,500,000 marks. The year 1890 exhibited no cover i&
excess of notes, but six excesses of the contingent. The
average uncovered note circulation, which had disappeared
in 1880, amounted again in 1889 to 86,000,000 and in 1890
to 152,000,000 marks.
Movement of discount rates.—The Bank had to counteract heavy demands on its funds by frequent and sharp
increases in discount at this time. Its average discount
rate, which in 1888 was only 3.32 per cent, was, in
the two following years, 3.68 per cent and 4.52 per
cent. From September 1889, it was obliged frequently
to suspend it" discounts at the private rate. The
average profitableness of its bill investments rose in the
three years 1888-1890 from 2.78 to 3.19 and 4.35 per
cent.




252

The

Ret

chsb ank,

1876-1900

Corresponding with the great fluctuations of invested
funds and of uncovered notes, the discount rate underwent
numerous changes during these years. In 1888 the
Reichsbank kept the official rate of 3 per cent until the middle of September, and frequently reduced its private rate to
2 per cent. Then the outflow of gold to Argentina necessitated advances to 4 per cent and in December to 4 X per
cent. When the new year brought a strong influx and the
free circulation of money on the open market was restored, the official discount rate was again reduced to 3 per
cent on February 4, 1889. Until July the private rate of
the Reichsbank was frequently only 2 per cent. As a
result of the growing domestic demand for money, however, the investments of the Reichsbank so increased in
that time, that, at the end of August, they exceeded the
investments at the corresponding period of the previous
year by 200,000,000 marks, with cash holdings smaller by
100,000,000 marks. At the beginning of September,
therefore, discount was advanced to 4 per cent, and when
the last September report showed an aggravation of the
strain and an excess of the contingent by 72,000,000 marks,
the rate was advanced to 5 per cent. Discounts at the
private rate were suspended. The unusual strain continued during the last quarter; indeed, it was enhanced. The
close of the year showed funds to the extent of 868,000,000
marks, and a contingent exceeded by 109,500,000 marks.
The extraordinary amount of lombard investments
was particularly striking, but characteristic of the whole
situation. It surpassed all previous records at the high
figure of 186,000,000 marks. This circumstance showed
to what extent ready money was at that time tied up.




253

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Commission

The scarcity of money on the open market appeared in
the fact that in the last quarter of 1889 the market discount always remained close to the Bank discount—in
November and December it at times reached the Bank
discount. The Bank was thus urged to follow the example
of the Bank of England, which in the last days of the year
had raised its discount rate to 6 per cent, although the
London discount was lower than Berlin. The officials of
the Reichsbank believed, however, that, with the relief to
be expected in the first weeks of the new year, they would
be able to spare the business world such an unusual increase of its interest rate.
The reflux after the turn of the year, however, did not
come up to expectations. The sustained demand for
money held with uncommon tenacity the funds given out
by the Reichsbank. The period of prosperity was at its
height; prices of industrial raw materials maintained
their high level—indeed, they rose higher; the formation of
joint stock companies was continued with undiminished
vigor.
The Reichsbank did not lower its discount to 4 per cent
until February 22. Its discounts at the private rate,
which it recommenced, had to be suspended again as early
as March 8, owing to the height of the Bourse discount.
Indications of a decline in economic activity gradually
set in. Foreign countries started with a reduction of
prices and competed sharply with German productions,
particularly in mining industry. Reductions in prices
in rapid succession from March onward were followed by
the collapse of speculation in industrial stocks.




254

The

Rei

chsb ank,

187

6-1900

But this brought about no lasting relief for the money
market. Those houses which formerly placed large sums
of money at the disposal of trade found themselves obliged
to proceed with caution, in order to avoid being left with
many securities which could be disposed of only at a great
loss. Before a real improvement could take place a combination of circumstances gave the situation an extraordinary turn.
First of all, at the end of September, Russia withdrew
from Germany at one stroke 40,000,000 marks in gold,
and caused a perceptible weakening of the Reichsbank's
gold holdings, already greatly diminished.
Then a revolution broke out in Argentina, which overthrew the government there, bankrupted Argentinian
finances, and brought about an economic collapse.
European houses, especially those of England, which had
been interested in Argentinian enterprises, felt the effect
keenly, and the large London house of Baring Brothers
had to suspend payments in November. The English
financial world stood on the verge of a precipice, the
Bank of England, which had already raised its rate to 6
per cent, could tide over the dangers only by means of
gold loans from the Bank of France and from the Russian
ministry of finance.
Simultaneously there occurred in the United States a
collapse of overspeculation promoted by the protective
McKinley bill, and of the silver boom started by the Sherman bill.
The Reichsbank had raised its discount to 5 per cent
on September 26, and to 5% per cent on October 11,




255

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Monetary

Commission

in consequence of Russian withdrawals of gold, and
now was forced, in view of the international situation,
to retain this rate beyond the close of the year, although
its own position had improved in the last months of 1890,
and its gold holdings had increased by more than
70,000,000 marks from October 7 to December 31 by
influx from abroad. The market discount also remained
high, and at 5X per cent in the middle of December
reached temporarily the highest point of the bank rate.
1891-1895.
Economic depression and its causes.—The severe crises
of 1890 ushered in a period of economic standstill all over
the world, and this standstill, with a short break in 1893,
extended into 1895.
The crisis in Argentina and the political fermentation
and civil war in Brazil, Chile, and other South and Central
American states were detrimental to the purchasing
power of countries over the sea. In addition to this,
commerce with silver-standard countries, especially those
in Asia, was impeded by the sharp fall in the price of
silver after the failure of speculation in connection with
the Sherman bill, the cessation of Indian silver coinage,
and the suspension of American silver purchases in 1893.
The difficulties for foreign sales were considerably increased by prohibitive measures introduced at that time
into the tariffs of many countries. The highly protective
McKinley bill had just gone into force in the United
States. Russia, Roumania, France, Spain, Portugal, and
Switzerland also raised their customs duties. In 1893 a
tariff war began between Russia and Germany.




256

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chsb

ank,

1876-1900

The difficulty in foreign sales depressed business activity
all the more in that the home purchasing power decreased.
German national wealth had suffered great losses in
industrial securities and exotic stocks. Not only the
crises in South America had to be taken into account, but,
above all, financial maladministrations in Portugal and
Greece, by which numerous German holders of bonds in
these countries suffered heavy losses.
The power of absorption of the German domestic market
suffered especially through the bad harvest of 1891. This
diminished the purchasing power not only of the agricultural classes, but also of the working population. Since
Russia also had a great failure of crops and issued a
prohibition against the export of grain, the prices of the
most necessary provisions became extraordinarily high,
and forced the great masses to limit their demand for all
but the most indispensable commodities.
To this were added two catastrophes of international
importance—in the spring of 1893 a severe crisis in Australia, which reacted strongly on England and therefore
on the world's market, and in the second half of 1893
the crash evoked by the unsuccessful policy with respect
to the standard in the United States, which damaged
the American national economic system and brought material losses to holders of American securities, especially
of American railway bonds.
The unusual difficulties in disposing of wares, together
with excessive production from 1888 to 1890, led to a
sharp decline in the prices of most commodities. This
decline was temporarily interrupted by an advance in
the prices of provisions in 1891 and of prices in the
82302—10




17

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Monetary

Commission

textile industry, especially of cotton and silk, in 1893.
The spirit of enterprise was prostrate. Whereas 360
joint stock companies with a capital of 402,500,000
marks were formed in Germany in 1889, only 95 were
formed in 1893, and 92 in 1894, with a capital of
77,000,000 and 88,000,000 marks, respectively.
Development of the money market.—Nevertheless, the
fact that the number of bills drawn in Germany during
the year 1891 increased as compared with the previous
year (from 14,000,000,000 to 14,600,000,000 marks) and
maintained nearly the same level, with slight fluctuations
in the following years, shows that it was only a stagnation and not a decided decline in the development of the
German national economic system.
Nevertheless, money became abundant soon after the
beginning of 1891. Capitalists were cautious in dealing
with exotic stocks and industrial securities, and sought
investment in safe loans bearing low interest. The
banks, after getting rid of the paper which had remained
on their hands at the collapse of speculation, placed
their funds mainly at the disposal of the money market
and thereby effected an essential decrease in discount
rates.
The abundance of money was increased by the production of gold, which assumed large proportions from
about the beginning of 1890. The production of gold
rose from 500,000,000 marks in 1890 to 840,000,000
marks in 1895. At the same time the movement of
gold became uncommonly favorable for Europe. An
uninterrupted flow of gold from the United States took
place. This was caused partly by large silver purchases




258

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Reichsbank,

1876-1900

of the American treasury and the issue of silver certificates which drove gold out of circulation, and partly
by the growing mistrust in the American standard,
which led to a large return of American securities. The
excess of gold exports over imports in the United States
amounted in 1891 to $68,000,000, in 1893 to $87,000,000.
In consequence of these conditions gold gathered in
European central banks as never before.
There were also some counteracting forces, above all in
the endeavors of Russia and Austria-Hungary to prepare
for the introduction of the gold standard. These two
states sought, especially in 1893, to attract large amounts
of gold, and in doing this depended on the great central
bank lying nearest to them, the German Reichsbank. In
the same year Italy, which had a tariff war with France
and whose securities were systematically thrown on the
market by France, made great claims on German markets,
which for political reasons took up the securities rejected
by France.
All this, however, could interrupt only for a short time
the great abundance of gold in that period. In 1894 the
average Berlin market discount was only 1.74 per cent,
and in the first months of 1895 it fell to i}i per cent.
The condition of the Reichsbank.—The economic standstill
was shown at the Reichsbank, first of all in the discontinuance of the increase in investments since 1886. Only
the year 1893, as a result of special conditions, showed
a considerable increase of investments; in 1894, they
were again several million marks below the average of
1891 and 1892. In 1892, for the first time since 1882,




259

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Commission

occurred a decrease in transfer transactions and in
clearing house transactions.
On the other hand, transfer accounts and other deposits, the growth of which had come to a stop in 1888,
with a simultaneous increase of transfer transactions,
now also showed a new gain. The average deposits
rose from 361,500,000 marks in 1890 to 511,900,000 marks
in 1892; the year 1893 brought a considerable decrease,
which was followed in the next two years by another
increase.
The gold reserve of the Reichsbank however underwent
the greatest change. The Bank's gold purchases during
the four years 1891 to 1894 amounted altogether to
616,000,000 marks. After the average stock of gold had
sunk in 1890 to 519,000,000 marks, it surpassed in 1892
by 616,000,000 marks its highest previous average (in
1888), and, after a temporary decline in 1893, rose to an
average of 705,000,000 marks in 1895. The gold reserve
of the Reichsbank was largest on February 7, 1895, with
799,600,000 marks.
This increase of the gold reserve might have been
greater if there had not been a considerable increase, the
first since 1881, in the silver holdings of the Reichsbank
from 1890 onward. These rose from an average of
282,000,000 marks in 1890 to an average of 326,000,000
in 1892, an increase of 44,000,000 marks in two years.
In this connection, we must remember that an agreement was made in February 1892, between the German
Empire and Austria-Hungary, according to which the
latter took over 26,000,000 marks in Austrian talers
from Germany in three yearly installments, the first of




260

The

Reichsb

ank,

1876-1900

which, to the amount of %% million marks, was delivered to Austria on April i, 1892. The Austrian talers
were taken out of the reserve of the Reichsbank. Without this withdrawal, the increase from 1890 to 1892 of
the Reichsbank's silver reserve would have been more than
50,000,000 marks.
A diminution began in 1893. The average silver
holdings in 1894 were 315,000,000 marks; the decrease as
compared with 1892 was 12,000,000 marks, while the
Austrian talers amounted to 17,500,000 marks. In those
years, therefore, a little silver still came from free
circulation.
The causes of this striking increase of silver holdings
may have been the decrease in the demand for metallic
money during these years, the lowering of wages, and
similar conditions. Another cause lay partially in the fact
that in 1888 and 1890-91, for the first time since 1881,
large amounts of crowns were coined, more than 50,000,000
marks in all, and these crowns made superfluous the corresponding sum of silver money in free circulation.
The increase of silver holdings, which at the end of the
seventies and the beginning of the eighties had threatened
the maintenance of gold payments, was of no consequence, however, at the beginning of the nineties, on
account of the strong increase of gold reserve. It could
not injure the situation of the Bank, and was without
influence on the Bank's policy.
In spite of large deliveries of gold, the notes of the
Reichsbank did not increase materially during the years
1890 and 1894. They increased from an average of
984,000,000 marks in 1890 to 1,000,000,000 marks in




261

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Monetary

Commission

1894; the year 1895 first showed a material increase,
with 1,095,000,000 marks, which, however, was attributable also to the change in economic conditions in the
second half of this year. The uncovered notes dwindled
greatly, owing to the considerable increase of the cash
holdings. They amounted to 8,700,000 on an average
in 1892, and 30,600,000 in 1894. The cash reserve
often exceeded the note circulation, particularly in 1892
and 1894-95. On February 23, 1895, the cover in excess
of notes reached its highest point, with 177,800,000
marks.
Movement of discount rates.—The Bank was placed in
a position to reduce its interest rate considerably by
this turn of events. The average official discount rate
receded from 4.52 per cent in 1890 to 3.12 per cent in
1894 and 3.14 per cent in 1895; the average profitableness of bill investments sank in the same years from
4.35 per cent to 2.85 per cent and 2.66 per cent. The
Bank lowered its private rate to 2 per cent for lengthy
periods in all years from 1892 to 1895. A discount of 5
per cent was reached only in the year 1893, in which active
business operations in various manufactures increased
the inland demand for money, while great claims were
made simultaneously on the German market by Russia,
Austria, and Italy, and the whole international money
market was strongly affected by the Australian and North
American crises. From February 5, 1894, until November 1895, the official discount rate was uninterruptedly
at 3 per cent. The Bank discounted under its rate mostly
at 2 per cent, until a complete change of all conditions
occurred in the second half of 1895, and a brilliant new




262

The

Rei

chsbank,

1876-1900

development of German economic activity began. A
new period for the discount policy of the Reichsbank
likewise began.
i895-1900.

Economic advance.—In the introduction to this chapter,
the great advance of economic activity in Germany in
the course of the last quarter of a century was characterized with a few figures. The main development
occurred in the quinquennial period from 1895 to 1900,
which stands alone in the history of German activity.
Never before had Germany experienced an economic
improvement of the strength and duration of the last
five years.
Whereas in other favorable economic turns of the last
quarter of a century the impulse came mostly from
abroad—in 1879 from America, in 1888 from America and
England—the latest upward movement appeared first
in Germany and gradually spread from there over the
whole of the civilized world.
The impetus was given by the development of electrical industry (Electrotechnik), the scientific study and
practical utilization of which has been advanced most in
Germany. Electricity has been rapidly and greatly
developed as a motor force in industries, electric tramways, and in the electric light; it has been constantly
employed in machine industry, and has increased
greatly the demand for coal, iron, and other metals. Then
came the extension of railways, and the increase of
rolling stock in Germany and other countries, the
building of great new lines of railway in distant parts




263

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Mon et ctry

Commission

of the world, and, furthermore, the increase of navies by
all great powers. The demand for the products of mining raised prices, and led to an enormous expansion of
business. The price of raw iron rose since 1895 from
about 50 marks per ton to 90.7 marks per ton in 1900.
The production increased from 5,000,000 tons to more
than 8,000,000 tons. The price and production developed similarly in the case of coal and other products of
the coal and iron industries.
The good state of business in this national industry was
communicated gradually to the whole national economic
system. The purchasing power of large classes of population was considerably increased. The urgent need for
workers raised the standard of wages, and thus led to a
great advance in the purchasing power of the masses.
The brilliant development of our foreign sales commencing with 1895 worked in the same direction as the
increasing purchasing power of the domestic market.
After the tariff war with Russia, after German export
industry had overcome the disturbances of protectionist
measures which had been carried into effect in numerous
countries at the beginning of the nineties, and after our
foreign trade had been guaranteed a sure foundation for
a number of years in commercial treaties, German exports
assumed proportions exceeding all expectations. They
increased from 3,051,500,000marks in 1894 to 4,555,000,000
marks in 1900, that is, by 50 per cent in five years.
The great opportunity for disposal of goods at home
and abroad roused the spirit of enterprise, and led to enormous extensions of existing businesses and the formation
of new ones.** As already mentioned, 92 joint stock comaThe following figures are taken from the "Deutscher Oekonomist."




264

The

Rei

chsb ank,

1876-1900

panies with a capital of 88,000,000 marks were established
in Germany in 1894. The following years brought so
great an increase that, in 1899, the number of new companies amounted to 364, with a capital of 544,000,000
marks. The issue of industrial shares (by the formation
of new companies and by the increased capital of existing ones) is estimated according to market value at
79,000,000 marks for 1894 and 861,000,000 marks for 1899.
The whole activity in Germany has experienced a
similar development. From 1895 to 1899 the emission of
home securities rose from 1,057,000,000 to 2,378,000,000
marks in market value, and the emission of home and
foreign securities from 1,375,000,000 to 2,611,000,000
marks.
Not till 1900 did the unusual advance of German
national economic activity come to a halt. Signs of overproduction appeared in the most important branches of
industry, and a violent reaction of the inflated prices of
mining and industrial stocks followed on the bourses. The
Spirit of enterprise weakened considerably. The activity
during 1900 in floating and issuing was far less than in 1899.
The number of joint stock companies sank to 261 with a
capital of 340,000,000 marks; the total issue of industrial
shares amounted, according to the market value, to only
461,000,000 marks, or 400,000,000 marks less than in 1899.
The total emission of home securities, with a market
value of 1,576,000,000 marks, fell short of 1899 by
800,000,000 marks. The market value of the emission of
home and foreign securities amounted to 1,851,000,000




265

National

Monetary

Commission

marks, as against 2,611,000,000 in the year 1899. Yet
the figures for 1900 are favorable in comparison with
former years.
Altogether, the market value of the securities placed on
the German market in the six years, 1895-1900, exceeded
12,000,000,000 marks.
The development of the money market,—These extraordinary investments of capital produced a stringency on
the capital market and raised the interest rates. The
decline in market prices of bonds and mortgage bonds
bearing fixed interest and the advance in mortgage
interest rates during recent years were necessary effects
of the increased profits and of the increase of capital
tied up in industrial and commercial undertakings.
The interest rate for short credit, which in general is
more variable than the interest rate for investments,
increased most. The increase of transactions and of
prices, all financial operations which are necessary to
the floating of new undertakings and the extensions of
existing ones, would necessarily increase the need for
working capital and the demand for short credit. Consequently the bills put in circulation increased from
14,700,000,000 marks in 1894 to 23,300,000,000 marks
in 1900.
It is true that against the increased demand for means
of exchange in most civilized countries, just as in Germany, there was an extraordinary increase in the production of gold. The amount of gold obtained increased
from 840,000,000 marks in 1895 to 1,300,000,000 marks
in 1899, in spite of the fact that the war in the Transvaal crippled the output of gold in the leading produc-




266

The

Reichsb

ank,

1876-1900

tive country. A considerable extension of the gold
standard and of the use of gold, however, went hand
in hand with this large increase of the yellow metal for
coinage purposes. Russia and Japan formally introduced the gold standard. Austria-Hungary had taken
large sums of gold for the purpose of introducing the
gold standard. India had taken steps in the same
direction, and finally the United States, before it formally proclaimed the gold standard as the basis of the
American monetary system in March 1900, had for
years not only kept for itself the proceeds of its gold
mining, but had, by means of its extraordinary favorable balance of trade, imported gold from Europe.
Apart also from political measures affecting the standard, several events contributed to the increase of the
demand for money abroad, and through this indirectly
aggravated the strain on the German money market.
This is especially true of the Spanish-American War and
of the Boer War, both of which entailed a great expenditure by the countries concerned. Not only England, but
also the United States, have at times placed large sums
at the disposal of the German money market. The demand for money at home caused them partly to withdraw their balances. Thus England, especially, called
in large amounts from Germany after the beginning of
the Transvaal war. Whereas the gold traffic between
England and Germany was in favor of Germany, a turn
set in toward the end of 1899.
In spite of all these adverse circumstances Germany
succeeded in securing a respectable portion of the newly
gained gold. Gold imports did not attain the same




267

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Monetary

Commission

proportions as in the years 1891 to 1894. Each year,
however, showed finally an excess of gold imports over
exports, which increased uninterruptedly from 15,200,000
marks in 1895 to 135,000,000 marks in 1899, and
127,000,000 marks in 1900. The gold purchases of the
Reichsbank amounted altogether, from 1895 to 1900, to
566,000,000 marks.
The condition of the Reichsbank.—The German demand
for money increased so much, however, that this importation of gold, although considerable, could not completely satisfy it. The result was a considerable increase
in the calls on the Reichsbank, from whose large cash
holdings a gfreat demand for specie was satisfied and
which was able to meet the ever-growing need for currency only by increasing its issue of uncovered notes.
Under these conditions the investments of the Reichsbank greatly increased. They increased from an average
of 635,000,000 marks in 1894 to 909,000,000 marks in
1899. At the same time the fluctuations in the calls on
the Reichsbank again increased materially. The difference between the highest and the lowest condition of
investments was 175,000,000 marks in 1894. In 1899
the investments ranged between 635,000,000 and
1,251,000,000 marks. The difference between maximum
and minimum, therefore, reached the high figure of
616,000,000 marks. As a result the investments show a
much greater increase on the days of greatest stress, for
which the Reichsbank must be prepared, than in yearly
averages. The highest figure for 1894 was 737,500,000
marks, and for 1900 1,319,300,000 marks.




268

The

Reichsb

an k,

1876-1900

This extraordinary growth of investments was again
offset, as in former periods of a rising demand for money,
by the fact that the moneys from transfer transactions
and the other deposits received by the Reichsbank did not
increase correspondingly. Deposits attained an average of
499,500,000 marks in 1895, against 361,500,000 marks
in 1890. A decline occurred in the following years to
471,400,000 and 474,700,000 marks in 1897 and 1898.
The year 1899 at last showed a respectable increase to
524,700,000 marks, which was again followed by a decrease
to 512,700,000 marks in 1900. Transfer transactions during that time, on the contrary, show an uninterrupted and
important increase. The account holders, because of the
strong demand for money and the high rate of interest,
endeavored to keep their balances as low as possible and
to make the most use of them.
The great increase of investments without simultaneous
increase of deposits could take place only through an
expansion of note circulation and a decrease of the cash
reserve of the Bank.
As a matter of fact the cash reserve diminished greatly.
It sank from an average of 1,045,000,000 marks in 1895
to 854,000,000 marks in 1900. It reached its highest point
on February 15, 1895, with 1,148,000,000 marks, and its
lowest point on September 30, 1899, with 718,000,000
marks.
The gold and silver holdings were affected by the decline
in the same way. The average stock of gold sank in the
period named from 704,600,000 to 570,700,000 marks—
that is, by 133,900,000 marks. The average silver reserve
diminished from 307,200,000 to 246,400,000 —that is, by




269

National

Monetary

Commission

about 60,800,000 marks. The decrease of gold reserve
amounted to 19 per cent and of silver reserve to 19.8 per
cent. The decrease was therefore of nearly equal strength
in both parts of the metal reserve. As silver can be
employed only for home payments, it is seen (as also from
the figures of commercial statistics) that the decrease of
gold reserve was not caused by an outflow of gold to foreign
countries but by withdrawals by domestic trade.
The lowest state of gold reserve was 450,300,000
marks, on September 30, 1899, the highest 799,600,000
marks, on February 15, 1895.
An important increase of note circulation went on simultaneously with the decrease of metal reserve. The average
issue of notes rose from 1,000,400,000 marks in 1894
to 1,095,600,000 in 1895, receded in the following year
to 1,083,500,000, and then advanced uninterruptedly to
1,141,800,000 in 1899 and 1,138,600,000 marks in 1900.
The average uncovered note issue shows a continuous
increase from 30,600,000 marks in 1894 to 284,700,000
marks in 1900. The average metal cover for notes sank
in the same time from 93.4 to 71.8 per cent, and the
average metal cover of notes and deposits amounted to
only 49.5 per cent in 1900. These figures represent the
most unfavorable condition of the Reichsbank since its
establishment.
With great fluctuations in the whole status of the Reichsbank, the days of greatest stress showed a larger note circulation and a more unfavorable proportion of cover.
Whereas 1895 showed cover in excess of note circulation
on twenty return days, it showed issues in excess of




270

The

Reichsbank,

1876-1900

the contingent on September 30, October 7, and December 31. The following three years showed an excess cover, which fell regularly on February 23, but
they showed also excesses of the note contingent at the end
of each quarter. The year 1898 showed sixteen excesses of
note contingent, the greatest, with 283,000,000 marks,at the
close of the year. The year 1899 showed twenty excesses
of note contingent. The tax limit was exceeded during
the whole of the last quarter of the year; the largest
excess amounted to 371,000,000 marks on September 30.
The metal cover for notes amounted on September 30,
1899, to only 49.7 per cent; for the first time since the
establishment of the Reichsbank less than half the notes
were covered by metal. The metal cover for all demand
liabilities sank on the same day to 36.8 per cent. The
year 1900 also showed twenty excesses of the note contingent, the largest, with 356,000,000 marks, at the year's
close. The most unfavorable cover of notes was 51.8
per cent, and that of all demand liabilities 38.3 per
cent—somewhat higher than in the preceding year.
The Bank policy.—The unusual development of all
conditions confronted the Reichsbank with the most
difficult tasks in its discount policy. Never since its establishment had the concern for the maintenance of sufficient
cover for its obligations been in so strong a conflict with the
claims for credit on the Reichsbank. With the concern for
the unconditional preservation of its own solvency and for
the safety of the German standard, there arose for the
Bank the task of counteracting the danger of excesses
connected with each favorable turn of economic condi-




271

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Monetary

Commission

tions; and in this it was just as important to prevent as
far as possible too great an expansion of production as
well as over-speculation and an overstraining of credit.
The expansion of production, the prices of commodities
and industrial securities, and the demand for credit had
to be kept within reasonable limits if the brilliant development of economic forces was not to end in a fatal collapse,
as often happened in slighter upward movements.
During a great increase of business and of demands for
money and capital economic activity produces a certain
counteraction against excesses in the rise of the interest
rate. Each advance of the price of credit means a limitation of the demand for credit, a check on too strong an
expansion of production and on the extravagances of
speculation. A central bank would quite mistake its tasks
if it counteracted this tendency to a raising of the interest
rate, which is so beneficial for the whole situation. For
the individual, cheap credit is always desirable and advantageous from the point of view of his particular interests;
the general welfare requires a discount policy on other lines
Each artificial keeping down of discount rates would increase dangers in the midst of a period of prosperity and
help to bring about the collapse. Only a careful attitude
of reserve toward growing demands for credit, only a
steady guidance of tendencies in the markets for capital
and money, counteracting the dangers of the situation,
keep economic development in safe tracks and at the same
time guarantee the solvency of the Bank and the solidity
of the monetary system.
The limitation of lombard investments.—The heavy call
on the Reichsbank forced the officials to watch with re-




272

The

Ret

chsbank,

1876-1900

doubled vigilance that the claims, serving in addition to
cash reserve as cover for obligations, have the greatest
possible liquidity. Strictly speaking, only short bills are
fully suitable as cover for demand liabilities, and the Bank
Act admits them in addition to cash reserve as cover for
notes. In making lombard loans the Reichsbank employs
as working capital mainly that part of the capital stock
and reserve fund not invested in business sites. The
Bank Act allows it also to hold lombard claims as cover
for moneys subject to repayment on demand, but in the
interest of liquidity too great an expansion of lombard
investments beyond the Bank's own means is not desirable, at least in times of unusual stress. From the end of
the eighties lombard investments of the Reichsbank
had expanded considerably more than bill investments.
Whereas up to 1888 they fluctuated at 50,000,000 marks,
they amounted on an average in 1896 to 106,000,000
marks, and in 1897 to 108,000,000 marks. At the same
time they were subject to enormous fluctuations, and
showed specially high amounts at quarterly and yearly
endings. They amounted on December 31, 1895, to
211,000,000 marks.
This increase was undoubtedly promoted by the introduction of the preferential rate for bonds of the Empire
and the federal states. But while this undesired expansion urged the abolition of the preferential rate, the
Reichsbank was requested in 1896 and 1897 to extend its
preferential rate to mortgage bonds (Pfandbriefe) issued
by Prussian Landschaften. Of these about 2,000,000,000
marks were issued in 1896. Most of the Landschaften
had taken advantage of the low interest rate in
82302—10




18

273

National

Monetary

Commission

1894-95 to convert their mortgage bonds to 3 per cent,
and these conversions had met with only partial success.
The Landschaften held large amounts of converted mortgage bonds in their reserves, and the quotations on them
sank. The extension of the low lombard interest rate
to these securities was to render it easier for Iyandschaften
to obtain money on mortgage bonds, increase the demand
for them, and raise their market value. It was, however,
a wrong assumption that the difference between the
prices quoted for these bonds and government bonds
depended on the more favorable lombard terms for
the latter; for this difference had existed before the
introduction of the preferential rate for bonds of the
Empire and the federal states, and it did not diminish,
since later the preferential rate was abolished. It is
consequently impossible that a preferential rate for mortgage bonds would have brought the Landschaften the
expected advantages. On the other hand, it seemed certain that such a measure would lead to a further increase
of lombard investments of the Reichsbank at a time when
measures for limiting lombard investments appeared imperative. The wish of the Landschaften, which was
opposed when put before the Reichstag, could therefore
not be granted. On the contrary, the Reichsbank found
itself compelled to abolish the preferential rate for imperial and state bonds, on and after July 1, 1897. The
measure has proved good. The average advances have
receded from 108,300,000 marks in 1897 to 80,000,000
marks in 1900, while the average bill investments have
simultaneously increased from 644,800,000 to 800,200,000
marks.




274

The

Reichsb

ank,

1876-1900

Movement of discount rate in general.—The abolition of
preferential rates for imperial and state bonds and the
resulting limitation of lombard loans was, however, only
a secondary measure. Of the tasks before the Reichsbank,
the regulation of the discount rate was most important.
Only a considerable increase in the discount could keep
the rapidly growing credit demands within the limits
necessary for the entire national economic system and
for the solvency of the Reichsbank. The average discount rate of the Reichsbank rose in the years 1895-1900
from 3.14 per cent to 5.33 per cent and the average
profitableness of bill investments from 2.66 to 5.36 per
cent. The Reichsbank ceased after April 1896, to discount for anybody below the official rate. A rate of 3
per cent could be given at times from 1895 to 1897; 4 P e r
cent was the lowest rate in 1898 and 1899, and 5 per cent
in 1900. In 1899 and 1900 the discount rate was 7 per
cent, the highest in the Bank's history.
So far as foreign relations of our monetary affairs
are concerned, the Bank officials sought to supplement
and support the discount policy by granting advances
free of interest on gold; they succeeded in this way,
especially from 1898 to 1900, in materially strengthening
the gold reserve against the continually increasing demand
of domestic trade.
The discount policy in detail during the period from
1895 to 1900 was as follows:
Discount in 1895.—The change in all economic conditions was manifested suddenly and forcibly in the second
half of 1895. As late as August the market discount in




275

National

Monetary

Commission

Berlin fluctuated only between \% and i}4 per cent and
the Reichsbank discounted during the whole month at a
private rate of 2 per cent. Toward the end of September
a stronger demand for money appeared, and in the last
week of September the investments of the Bank advanced
at one bound from 684,000,000 to 888,000,000 marks,
while the gold reserve, which on August 23 still amounted
to 711,000,000 marks, receded to 611,000,000 marks on
October 7. The Bank became liable to the note tax on
September 30 for 46,000,000 marks, and again on October 7 for 20,700,000 marks. It had ceased discounting
at the private rate on September 18; when the money
market was easier after the change of quarter, the market
discount sank, from October 1 to 2, from 2 pi to 2 ^
per cent. It resumed these discounts for a few days
(up to October 10). The reflux at the Bank, however,
did not correspond with the great strain at the close
of the quarter; the discounts at the private rate were
therefore suspended after October 11. Considering its
condition, which in itself was extremely favorable, the
Reichsbank thought it possible to avoid raising its discount rate, which was 3 per cent since February 5,
1894, although the contingent had been exceeded at
the quarter ending. An increase of the discount could
not be avoided, however, owing to a crisis from overspeculation in gold mines, an increased demand for
money, and the withdrawal of large sums of gold for the
Bank of Austria-Hungary. On November 7 the market
discount reached the level of the Bank discount, and this
was raised on November 11 to 4 per cent. Nevertheless,
the strain again became marked at the close of the year.




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1876-1900

Investments increased in the last week of December
from 769,000,000 to 1,000,000,000 marks, gold holdings fell to 571,000,000 marks, and the tax-free note
contingent was exceeded by 148,000,000 marks, the
greatest excess since the establishment of the Bank. Still,
the Bank decided not to raise the discount again, since a
strong reflux and a material strengthening of its position
was to be expected in the early weeks of the new year.
As a matter of fact, the investments declined to
583,000,000 marks by February 15, 1896, a decrease of
417,000,000 marks against December 31. On February
23 the cover again exceeded notes by 23,700,000 marks,
and the gold reserve on this day reached 668,500,000
marks—a sum higher than seven weeks earlier by
nearly 100,000,000 marks.
This development proves how unjustified is the assertion, repeatedly made in later years, that the diminution of gold reserve by more than 200,000,000 marks
in the course of 1895 was not caused by increased requirements of domestic trade, but by an outflow of gold
to other countries, particularly to Austria, which the
Reichsbank opposed only too late and too feebly through
its discount policy. The fact that 100,000,000 marks in
gold flowed back to the Reichsbank from domestic circulation during the first seven weeks of 1896 in spite of the
undeniable great increase of the domestic demand proves
that the diminution of the Reichsbank's gold reserve
beginning February 1895, was attributable only to a
small extent to a flow of gold to other countries and was
attributable mainly to the increased demand of domestic
trade.




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Commission

Discount from 1896 to 1898.—In consequence of a favorable turn on the money market, the Reichsbank again
resumed its discounts at the private rate at the beginning of February, and reduced its official rate to 3 per
cent on February 12. When the change of quarter
March-April showed an excess of note contingent by
44,000,000 marks, the private rate was suspended and
has not since been resumed.
The years 1896 and 1897 and the first months of 1898
are similar in their whole development. They are entirely
dominated by the development of the domestic demand
for money, which reached its lowest point in February,
increased regularly at the quarter endings, and forced the
Reichsbank to exceed the note limit, reached a high
point in the last quarter and led to large claims on the
Reichsbank.
As a result, the movement of the discount rate in
these years is similar. The first three months of the
year brought reductions of discount to 3 per cent in the
years 1896-1898; this rate remained in force in 1896 until
September 7, in 1897 until September 6, and was then
raised to 4 per cent. A rise to 5 per cent followed in
1896 on October 10, in 1897 on October 11.
The outbreak of the Spanish-American War brought a
change in this regularity. In anticipation of impending
complications, the United States began in February to
hold back its usual offers of gold and sought to get gold
for its credit balances in Europe. German exchange on
London and New York rose to the gold point; then
began a flow of gold to America, which did not equal the




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chsb

an k,

1876-1900

simultaneous outflow from France and England, but must
have been highly undesirable, considering the state of
the German money market and the strain to be expected
in the autumn. On April 9, 1898, therefore, the Reichsbank raised its discount rate to 4 per cent, which had
been 3 per cent since February 18. This was one of
the rare cases since the middle of the eighties in which
the regard for international gold movements has caused
an increase of discount.
According to American statistics, the gold imported
by the United States from Germany in 1898 amounted to
$8,400,000. This outflow of gold in conjunction with the
regular autumn needs led to such a strain on the resources
of the Reichsbank that the note limit was exceeded by
276,500,000 marks on September 30, and the Bank remained on the wrong side of the contingent during the
whole of the last quarter, with the exception of the first
half of December. The domestic demand for money had
increased so much, that on September 30 the investments
amounted to 1,124,000,000 marks, which surpassed the
sum for the corresponding day of the previous year, itself
a record, by more than 100,000,000 marks. The discount was raised on October 10 to 5 per cent, as in the
two preceding years; but the increase this time was insufficient. October 31 showed another excess of note
contingent by 155,000,000 marks, and as November did
not bring the absolutely requisite reflux, the discount rate
had to be raised on November 9 to 5 ^ , on November 19
to 6 per cent. Yet the strain on the Bank at the close
of the year was somewhat greater than at the end of the
third quarter.




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Commission

The market discount followed in general the discount
rates of the Reichsbank. On December 19 and 20 it rose
to 5 and 5^i per cent.
Discount in 1899.—The year 1899 brought the previous
development to a climax. The increase in prices of industrial raw and auxiliary materials, the activity in
floating new undertakings, and speculation in industrial
securities made extraordinary progress at home and
abroad. The strain on the market for money and capital
became more acute on every side, and led in less financially
strong countries, as in Russia and the Balkan States, to
serious crises.
In Germany the regular relief after the great stringency at the year's close did not occur to the full extent.
The increasing demand for money and the scarcity of
funds hardly allowed the market discount to sink below
4 per cent in January and February. The gold reserve
also remained lower in the second half of February by
70,000,000 marks, the investments higher by 50,000,000
marks, and the uncovered note circulation by nearly
100,000,000 marks than in the previous year.
The officials of the Bank could therefore proceed only
hesitatingly and gradually with a reduction of the high
discount rate. Not till May 9 did they make it 4 per
cent. By the middle of June, however, the investments
of the Bank were higher than in the previous year by
more than 90,000,000 marks, and as the tension was growing rapidly as compared with the preceding year, an advance of the discount to \% per cent was necessary as
early as June 19.
The Bank of England at that time made great exertions
to strengthen its small gold reserve. A meeting of repre-




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Ret

chsb ank,

1876-1900

sentatives of private banks had expressed their dissatisfaction with the low metal reserve of the Bank of England,
and had threatened to establish a gold reserve independent
of the Bank of England. Besides this, the impending
outbreak of the Boer War forced the Bank to plan a substantial strengthening of its position. English capital in
Germany was withdrawn in an increased measure, the
German rate of exchange on London reached the gold
point at the end of July and the beginning of August, and
gold began to flow from Germany in considerable amounts.
In view of the impending autumn needs, the Reichsbank
could not allow this outflow without resistance, and
raised its discount to 5 per cent on August 7. The Bank
was successful in that the rate of exchange on London
fell to parity in September and the outflow of gold ceased.
Yet the contingent was exceeded on September 23,
although by only half a million. Up to September 30 the
excess increased to 371,000,000 marks, and thus surpassed
the greatest excess of the previous year by no less than
95,000,000 marks. The investments on this day were
1,249,000,000 marks—125,000,000 marks above the previous highest figure; the gold reserve amounted to
450,000,000 marks, against 480,000,000 on the same day
of the previous year, and thus reached its lowest point
since September 30, 1893. Silver holdings amounted to
only 236,000,000 marks, against 258,000,000 marks in
the previous year. The total metal reserve represented
not quite half of the note circulation.
The unheard-of increase of investments showed what
enormous proportions the demands for temporary credit
had assumed. The danger of an overstraining of credit




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Commission

and of a credit crisis required sharp preventive measures,
particularly since the outbreak of the Boer War, and the
strong demand for money in England and in France made
support by foreign money appear out of the question.
The officials of the Bank therefore raised the discount
on October 3 to 6 per cent. This measure had the effect
of reducing the surplus of investments this year over the
previous year from 125,000,000 marks on September 30 to
46,000,000 marks on November 7.
This relative improvement did not continue, however,
as the Bank of England raised its official rate at the end of
November to 6 per cent. The exchange for short bills on
London, which at the end of November had declined to *
20.42, began to rise, and an outflow of gold threatened to
aggravate again the dangers of the situation at home.
It is true that the Reichsbank had managed to strengthen
its gold reserve from 450,000,000 marks on September 30
to 529,000,000 marks on December 15, chiefly by liberal
advances free of interest on gold arrivals. It had in this
way obtained nearly 100,000,000 marks of gold in the
last month, particularly from Russia. What dangers the
increased domestic demand for money was leading to
are seen from the important increase of the investments
of the Reichsbank as compared with the previous year.
On November 7 the investments had exceeded those of
the previous year by only 46,000,000 marks. The difference increased rapidly; it amounted to 137,000,000 on
November 30, 167,000,000 on December 7, and 213,000,000
marks on December 15. To prevent the gravest dangers,
the Reichsbank had to prepare for this development up
to the close of the year. The Reichsbank officials, there-




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Reichsbank,

1876-1900

fore, decided on December 19 to raise the discount to 7
per cent, a rate which had not been reached since the war
of 1870.
Nevertheless, the difference of investments increased
until December 23; they amounted on this day to 249,000,000 marks more than those of the previous year. The
rates of exchange on London rose above the gold point,
since German banks stopped sending gold to England on
account of the difficulties in the domestic money market.
The check rate on London was quoted in Berlin at 20.60.
Never since the standard crisis of 1874-75 had foreign
rates of exchange shown such deviations from parity.
The advance in discount to 7 per cent, however, effected
its most important purpose. The tension increased in the
last week of December in much the same degree as in the
preceding year. Whereas the investments had on December 23 exceeded the amount of the previous year by
249,000,000 marks, the difference at the end of the year
was only 158,000,000 marks. Although the investments
still exceeded the amount for September 30 by 2,300,000
marks, yet, in consequence of the larger metal reserve,
the total status of the Bank was somewhat more favorable
than at the close of the third quarter. The excess over
contingent was smaller by 34,000,000 marks and the metal
cover for notes and other demand liabilities was several
per cent better.
Discount in igoo.—In spite of the extraordinarily high
discount rate of 7 per cent, the first months of 1900
brought no reflux corresponding to the strain in the last
quarter of 1899. The upward movement in industry
and commerce and overspeculation on the bourses con-




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Commission

tinued undiminished even after the dangerous obstacle of
the year's end had been surmounted; prices of most
manufactured articles and quotations for mining, industrial, and bank securities still advanced. The
demand of domestic trade for currency was greater
than in the same months of 1899. The investments
of the Reichsbank remained until March higher by
100,000,000 marks than those for the corresponding time
of the preceding year. Foreign rates of exchange also
took unfavorable turns, and in place of the great influx
of gold in December, 1899, an outflow of gold occurred,
especially to England and the Netherlands. Under these
conditions the Reichsbank could lower its discount rate
only with the greatest caution. It reduced the rate on
January 12 to 6 per cent, and on January 27 to 5 ^ per
cent (cf. Table 63). Although private discount declined greatly after the end of the year, and sank in
January as low as 3 ^ per cent, a further reduction of the
discount rate of the Reichsbank was impracticable for
months, not only on account of the great amount of its
investments and claims for credit, but particularly on
account of the low cash holdings, which on March 31 were
less by 83,000,000 marks than at the same time in the
preceding year, and on April 15 less by 97,000,000.
Not until May and June did the dangerous development stop and finally improve. The turn was brought
about by the collapse in April of overspeculation in
mining and industrial securities, and by a gradual subsiding of the industrial "boom." Bill circulation remained
high> as is shown by the proceeds of bill stamps; it was
even more than it had been in 1899. That the begin-




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Reichsbank,

1876-1900

ning of the decline of industrial prosperity is attended
first of all by a greater demand for short credit was shown
again on this occasion, as in 1883 and 1890. But in
spite of the further increase of bills the bill investments of
the Reichsbank showed a considerable decrease from June
onward, as compared with the previous year. Its total
invested capital of 1,033,000,000 marks at the end of June
was less by 54,000,000 marks than the investments on
June 30, 1899, and this difference was materially increased
in the following months. The explanation is that the
great sums of ready money, which up to that time had
been tied up by overspeculation, were partially set free
by the collapse of securities on the Bourse, and were now
used on the discount market.
In addition to the relief thus effected, the substantial
strengthening by the Reichsbank of its gold reserve helped
to improve the whole situation. Whereas in the first half
of the year the gold reserve had been less than in
the previous year—and at times considerably less—
July 7 showed for the first time a higher gold reserve (by
15,500,000 marks).
The whole improvement in the position of the Reichsbank coincided with the outbreak of the Chinese disturbances. The claims on the money market in consequence
of the expedition to China imposed a certain restraint on
the Reichsbank. Nevertheless, the Reichsbank was able
to lower its discount rate on July 13 to 5 per cent, and
was also able to retain this rate until the close of the year,
even against the demands of the autumn which were extraordinarily heavy in 1900, and the uneasiness of the
market called forth by the exposure of the mismanage-




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Monetary Commission

ment of two Berlin land-credit banks (Bodenkreditbanken). In view of the ensuing mistrust, all mortgage
banks (Hypothekenbanken) were obliged to take steps to
strengthen their cash reserves. Mainly on this account
the position of the Reichsbank at the close of the year
showed a strain little less than the greatest run on the
Bank on September 30, 1899. Investments increased to
1,319,000,000 marks, while the highest amount for 1900
had been only 1,251,000,000 marks. That the excess of
the contingent was smaller than on the most unfavorable
return day of 1899—356,000,000 against 371,000,000
marks (cf. Table 23)—and that the cover for notes and
demand liabilities was somewhat more favorable, was
due to the fact that the Reichsbank succeeded in keeping
the cash reserve higher than in 1899. The situation was
doubtless also helped by the fact that most imperial exchequer bills, issued for a total amount of 80,000,000
marks to raise money for the Chinese expedition, were
disposed of in the United States.
All in all, therefore, although the services of the Reichsbank were still in strong demand in the second half of
1900, and although its average discount rate in 1900
(5.333 per cent) exceeded the discount rate of 1899 (5-°36
per cent), the stagnation in economic prosperity may be
attributed to the fact that, for the first time since 1895,
the discount rate was not advanced in the second half
year, indeed, the rate could even be reduced at the beginning of the second half year, and the interest rates of the
second half year, in contrast to the general course, were
lower than in the first half year. The market discount
went through the same development. In the second half




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Reichsbank,

1876-1900

year it fell more and more behind the rates of 1899, which
it had exceeded in the first six months. Through this state
of affairs a light is thrown on the impelling factors of the
development of the money market and of the interest rates
during the whole period beginning with 1895. First, the
decrease in gold production on account of the Boer War
could not have caused the abnormal advance in interest
rates at the turn of the year 1899-1900, as was asserted
on many sides; the recurrent movement in interest rates
began although the Transvaal war continued and the
working of gold mines at the Rand could not be resumed.
On the contrary, the opinion has been fully confirmed
that the domestic money demand arising from unusual
prosperity in industry and trade was really caused by the
extraordinary money stringency and the record strain
on the Reichsbank. In spite of all unfavorable conditions, in spite of Chinese disorders and the resulting
need for money by the imperial government, and in spite
of the shock to the bond and mortgage market—the
great strain was relieved when there was a falling off in
economic activity. If, after several years of most vigorous expansion, German trade assumes more moderate
proportions, and if the political outlook is favorable,
interest rates may return in a short time to a normal
level.
RETROSPECT.

As was set forth in the introduction to this chapter, the
Reichsbank was obliged to have regard in its discount
policy for the unquestionable redemption of its notes and
for the satisfaction of the increasing money needs of Germany. In the history of the discount policy was indicated




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Commission

what particular form this task has assumed in the various
economic periods and what measures the Reichsbank has
adopted for its fulfillment. In conclusion, let us sum up
briefly the total results of the discount policy of the
Reichsbank.
It is necessary to bear in mind from the very beginning
that the Reichsbank has made easy the carrying out of
its discount policy by its institutions for cash deposits,
by its transfer business, and its clearing houses. Transfer transactions, which were insignificant at the Prussian
Bank, amounted to 164,000,000,000 marks at the Reichsbank in 1900. Of these a business of 136,000,000,000
marks was transacted without the use of specie by entries
on accounts and by transfers on the books. The transactions of the clearing houses created by the Reichsbank—transactions which were handled on transfer accounts at the Reichsbank by the aforementioned method—
amounted to 30,000,000,000 in 1899 a n d 29,000,000,000
marks in 1900. Transactions of the transfer and clearing
systems of the Reichsbank amounted together in 1900 to
193,000,000,000 marks.
By developing these institutions, the Reichsbank has
succeeded in meeting the increase of transactions during
the economic activity in the twenty-five years of its existence without increasing monetary circulation in the
same measure. The claims made on the Reichsbank by
the increase of transactions were in this way substantially
diminished.
But in spite of the favorable development of the transfer and clearing systems, in spite of progress in avoiding cash transfers, the increase in transactions in which




288

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Rei

chsb an k,

1876-1900

money had to be the medium could be fully met only by
a considerable extension of German monetary circulation,
i. e., by obtaining gold from abroad and by increasing the
uncovered note issue.
Each increase of uncovered notes is limited by the
regard for the safety of note redemption. It is the task
of discounts, by a regulative influence on credit claims, to
see that a sound proportion is maintained between cash
holdings and note issue. A continued and large increase
of the need for currency can be satisfied, therefore, only
by an increase of metallic circulation. The Reichsbank
at its establishment was meant to be the medium for the
importation and coinage of gold; it has so completely
assumed this office that all gold in bars and foreign coin
from abroad and destined for German monetary circulation goes to it. It is actually the only private body which
makes use of the right of free coinage of gold. In this
field it was the Bank's task to promote by its discount
policy the necessary influx of gold.
To what extent the Reichsbank has succeeded is shown
by the following.
The total amount of the Reichsbank's gold purchases
from 1876 to 1900 was 2,629,000,000 marks. Of this,
315,500,000 marks were assigned to it by the imperial
government in the years 1876 to 1879 f° r carrying out
the coinage reform; the remainder of 2,314,000,000 marks
it has, by virtue of article 14 of the Bank Act, bought from
private individuals. Most of the purchased gold bars
and foreign gold coins have been delivered by the Reichsbank to German mints to be coined into imperial gold
pieces. The amount of gold coined for the account of the
82302—10




19

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National

Monetary

Commission

Reichsbank amounted altogether to 2,317,000,000 marks;
248,000,000 marks were again sold, partly for exportation and partly for home industries.
Only a small part of the total gold purchases by the
Reichsbank has remained in its own reserve. By far
the greater part, after being coined into imperial gold
pieces, has been put by the Reichsbank into free monetary circulation. Its own gold reserve has increased from
341,000,000 marks at the beginning of 1876 to 501,000,000
marks at the end of 1900, after dwindling at times (in 1881)
to 151,500,000 marks and rising to nearly 800,000,000 marks
(in 1895). If we compare the position of the Bank on
December 31, 1900, with that of December 31, 1875, only
160,000,000 marks of the gold purchases have remained
in the Reichsbank; the whole remainder, deducting the
resales—that is, 2,226,000,000 marks—has flowed from the
Bank into free circulation. German gold circulation has
not been increased by this full amount, since considerable
sums of imperial gold coin have in the quarter of a century been partly exported and partly melted down for use
at home for industrial purposes. Still, careful estimates
for the end of 1900 give a gold specie reserve of at least
2,800,000,000 marks, against some 1,300,000,000 marks at
the beginning of 1876, an increase of 1,500,000,000 marks,
and this whole increase, as already mentioned, has come
through the Reichsbank.
Whereas the Bank has in this way succeeded in satisfying largely the permanent increased demand for metallic currency—a demand which has occurred in spite of
cash-saving institutions for transfer accounts and clearinghouses—its note privilege, corresponding to the nature of




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The

Reichsbank,

1876-1900

note issues, has mainly been of service in adapting the
currency to periodical fluctuations of money demand. A
permanent expansion of uncovered notes has, therefore,
not taken place. So far as a temporary extension has
become necessary for supplementing metallic circulation
(particularly since 1895), this expansion has been counterbalanced by the fact that the increase of cash reserve
along with more uncovered notes has still made possible
a sound cover-proportion.
At the same time it was always the endeavor of the
Reichsbank to meet legitimate requests for cheap credit
in so far as its own position and the state of German
monetary affairs allowed. Whereas the Prussian Bank
had never lowered its discount rate below 4 per cent, the
Reichsbank was able to reduce its discount rate to 3 ^ per
cent in the very first year of its existence, and later, from
1879 onward, it has been able in most years to maintain
an official discount rate of 3 per cent. Its private discount has frequently gone below this rate. The officials
of the Reichsbank have always been guided by the principle that their first care is the safety of note redemption
and the maintenance of the imperial standard. During
heavy short credit claims and an increase of uncovered
notes up to the tax-free limit they have not hesitated to
take those preventive measures (advances of interest rates)
which, in many years' experience in most countries, have
proved to be the only effective ones in preventing an overstraining of credit and a jeopardizing of the monetary
system. When in such periods the interest rates of the
Reichsbank have exceeded those of other great central
banks, especially those of the Bank of France, the Reichs-




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Monetary

Commission

bank has not been to blame, as has occasionally Seen
asserted; the different conditions and the heterogeneous
development of the two countries were to blame. Germany, with less wealth in money and capital, has experienced a considerably greater development of economic
forces than those lands with which its money market is as
a rule compared; and this development of forces was possible only with a greater strain on the capital and currency at its disposal. Owing to this Germany has, in
general, a higher level of interest than countries like
France and England. The Reichsbank could have kept
the rate of interest lower in only one way—by an increase
of its uncovered note issue, which at times has assumed
extraordinary proportions. In this way the Reichsbank
would have jeopardized its own liquid state and the basis
of German monetary and credit operations; it would
consequently, in case it had given way to the request for
an artificial lowering of interest rates, have lost sight of
its first duties, have shaken confidence in the German
monetary and credit system, and finally have brought on
an advance of the price of credit—an advance which
would no longer be governed by the influence of the
Reichsbank.




292

CHAPTER VIII.
THE SERVICES PERFORMED FOR THE FINANCE
ADMINISTRATIONS OF THE EMPIRE AND
THE FEDERAL STATES.
IMGAL, BASIS.

A substantial return by the Reichsbank for its note
privilege consists in the services imposed upon it for the
financial operations of the Empire. Section 22 of the
Bank Act provides that:
"The Reichsbank must receive and make payments for
the account of the Empire without compensation.
" I t is authorized to undertake the same transactions
for the federal states.''
This duty is considerably extended by section 11 of
the Reichsbank Statute:
" I t is incumbent upon the Reichsbank to manage
gratuitously the balance to the Empire's credit (sec. 22
of the Bank Act), and to keep and render account of all
payments received and made for the Empire/'
THE REICHSBANK RECEIVES AND MAKES PAYMENTS FOR
THE EMPIRE.

By these provisions the Reichsbank transacts the
business of the central treasury {Zentralkasse) of the
Empire, which, as is well known, avails itself to a large
extent of the treasuries of individual states for its payment operations. This is done through a special depart-




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Monetary

Commission

ment of the Reichsbank's main office, the main imperial
treasury (Reichshauptkasse), in accordance with official
instructions issued by the Chancellor of the Empire. All
cash sums due to the main imperial treasury flow into
the Reichsbank, and all cash expenditures of the main
imperial treasury are made by the Reichsbank, in accordance with the instructions of the various imperial government authorities entitled to give such instructions.
The holdings of the main imperial treasury form a part
of the Bank's holdings; only the bookkeeping is separate. This and the rendering of accounts represent the
real tasks of the Bank's department known as the
Reichshauptkasse.
According to a special agreement with the navy
department (Reichs-Marineverwaltung), the Reichsbank
attends through the main imperial treasury to the business of the main naval treasury (Marinehaupikasse), in
accordance with regulations in force for the central imperial treasury (Reichs-Zentral-Kassenfuhrung).
The Reichsbank helps the body managing the national
debt (Verwaltung der Reichsschulden) apart from other
services (cf. p. 302 ff.), in redeeming at all its offices the
interest coupons of imperial bonds, in paying out or
entering on the account of the authorized receiver the
interest on claims registered in the national debt register,
in distributing through its offices new interest coupons
of the imperial bonds, and by acting as medium in
the delivery of bonds in place of canceled claims on
the national debt register.
Since 1879 the Reichsbank has also fulfilled important
duties for the the imperial postal system (Reichspostver-




294

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Reichsbank,

1876-1900

waltung). This is done to avoid, in the case of postoffices situated at a "bank place/' the difficulties, dangers,
and costs of providing numerous post-offices with the
requisite cash for carrying on business.
The main agreement with the imperial postal system
is that post-offices bring their spare moneys to the Reichsbank and withdraw from it the sums required—both for the
account of the general postal treasury (Generalpostkasse).
The Reichsbank, by adapting its business arrangements
to this end, has supported the endeavors of the imperial
postal system to bring about a further saving in currency by inducing persons with a current account at the
Reichsbank, who regularly receive and send out post-office
orders, to settle such transactions by entries on their
account.
THE REICHSBANK AS A MEDIUM FOR FINANCIAL OPERATIONS OF FEDERAL STATES.

Only two federal states, Prussia and Baden, have
made use of the opportunity afforded by section 22,
paragraph 2, of the Bank Act, of assigning to the Reichsbank, according to agreement, any or all of the duties it
performs for the Empire; these states have taken this
action with the idea of using the Reichsbank as a medium
for financial operations between their state treasuries
and their large public treasuries, so far as these treasuries are at a "bank place.'' In accordance with the
agreements, these treasuries also bring to the Reichsbank
their disposable holdings and receive from the latter the
requisite means for accounts with the general state treasuries. In Prussia this system has been gradually extended




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Commission

to fiscal operations of the aforementioned larger public
treasuries and to subordinate treasuries, so that at the
present time fiscal opeiations between public treasuries of
nearly all administrative departments situated at "bank
places" are performed only through the Reichsbank.
The Reichsbank also redeems for a small fee the matured interest coupons of state debt bonds. The Bank
has likewise undertaken for the free city of Hamburg
the management of the loan of 1879.°
BUSINESS FORMS.

The business forms in which the Reichsbank exercises
these functions in the service of the treasuries of the
Empire and the federal states have varied.
In conformity with the official instructions of the
Chancellor for the main imperial treasury under date
of December 29, 1875, a n d the normal regulations
issued by him February 4, 1876, for carrying out section
22, paragraph 2, of the Bank Act, special separate accounts were kept for the main imperial treasury and the
general state treasury of Prussia at the Reichsbank's head
office, and one for the general state treasury of Baden at
the independent branch of the Reichsbank in Karlsruhe.
Payments could be made without charge to these accounts
by anyone, in Berlin and at every head branch and branch
of the Reichsbank, but only in sums of 10,000 marks and
upward in the case of the general state treasuries of
Prussia and Baden. Withdrawals by the state holding
the account took place directly against special receipt, and
0 Over and above these, only the coupons of loan certificates of the East
Prussian Landschaft and of the Central-Landschaft for Prussian states are
redeemed by the Reichsbank.




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Reichsbank,

1876-1900

only at the office keeping the account; a special authorization from the Reichsbank Directorate was necessary in
case sums were to be paid out at other offices of the Reichsbank. This authorization could be given once for all in
the case of certain payments repeatedly occurring, as, for
instance, those caused by the redemption of interest
coupons. Receipts and expenditures for these accounts
were booked at all Reichsbank offices to the account of
the office keeping that particular account, and were finally
booked by the office in question.
The increasing business of the Reichsbank as agent in
fiscal operations in Prussia between larger public treasuries and subordinate treasuries was managed by deposits
and withdrawals open to everyone.
Other regulations were in force to provide imperial postoffices with the requisite cash. The general post-office
treasury was connected with the general transfer system of
the Reichsbank. It would have seemed natural to include
other post-office treasuries in the transfer system and to
allow financial operations to take place under its forms.
This method was not adopted for the present; a special
institution was created. The general post-office treasury
through the head branch of the Reichsbank managing its
account, opened definite credits for the various post-office
treasuries at the Reichsbank branches with which they
were to have dealings; the amounts claimed were charged
to the head office of the Reichsbank, and entered on the
account of the general post-office treasury. On the other
hand, the dispensable holdings of the post-office treasuries
were directed to the branch offices of the Reichsbank for
the account of the general post-office treasury and entered




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Commission

on this account. The main imperial treasury also took
part, according to special agreement, and its balance has
since March 1881, served as balance for the general postoffice treasury, so that the latter did not need to keep
such a balance. Instead, the deficits or surplus at the
daily balancing of accounts was entered to the account
of the Empire.
The multiplicity of forms under which the Reichsbank cooperated in keeping the accounts of imperial
and state administrations was increased by the evergrowing number of imperial and state treasuries that
opened current accounts at the Reichsbank under the
ordinary conditions. This showed that the arrangements did not satisfy the needs of these treasuries, and at
the same time pointed out the way to a uniform reorganization. Such a reorganization has been going on since
1896, and is near its final adjustment. Its result has been
that at the present time the Reichsbank acts as intermediary in financial operations of the treasuries of the
Empire and the federal states almost exclusively through
its transfer system. To this end transfer accounts have
been dpened for all treasuries to be dealt with, for the
main imperial treasury, and for the general state treasuries
of Prussia and Baden. Special accounts previously kept
for them were closed. The residues from their current accounts now represent the balance held at the Reichsbank
by the Empire and the two states named (cf. Table 27).
The general regulations for the transfer system of the
Reichsbank are, with a. few not unimportant exceptions, in force for transfer accounts of the imperial and
state treasuries. The treasuries in question are divided




298

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Reichsbank,

1876-1900

into four systems—the main imperial treasury, the general state treasury of Prussia, the general state treasury
of Baden, and the general post-office treasury. Each one
of these has its subordinate offices. Within each system,
only the head treasury has to keep a large enough balance
to recompense the Reichsbank for its trouble. The
general post-office treasury is excepted from this rule.
The latter's transactions are daily added to or deducted
from the balance of the main imperial treasury. The
other treasuries of each system have only to see that the
balance on their transfer accounts is enough to cover
the checks drawn by them. They have been permitted to
take part in the transfer system of the Reichsbank without complying with the requirement of a minimum balance. This makes possible settlements by transfers between the main imperial treasury and the chief public
treasuries. With few exceptions they have made use of
this permission.
Furthermore, those treasuries which settle directly
with the main imperial treasury—the general treasury of
Prussia, and the general post-office treasury—are allowed
to strengthen their balances from the balances of the three
treasuries mentioned. This is done through a special form
of check of different color, which is presented at the
Reichsbank office keeping the account. This office at
once enters the amount of the check to the credit of the
treasury presenting it and deducts this sum from the
balance of the central treasury concerned. Such an
arrangement has not been made for the public treasuries
of Baden connected with the transfer system of the
Reichsbank.




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Adequate precautions have been agreed upon with the
finance administrations of the Empire and Prussia to prevent exhaustion of balances of central treasuries by the
presentation of such checks and to avoid a violation of
section 22 of the Bank Act, according to which the Reichsbank may make payments only to the extent of the balance, and therefore may not advance money to the Empire
and the federal states.
For the transfer accounts of the main imperial treasury,
and the general state treasuries of Prussia and Baden, there
is the special provision that sums can be deposited without
charge at all head branches and branches of the Reichsbank by persons not holding a current account at the
Reichsbank; in the case of the two state treasuries, however, the minimum payment is 10,000 marks.
Finally, certain imperial and state treasuries not situated at "Reichsbank-places" have in the interest of their
financial operations also been included in the transfer
system.
EFFECT OF THE TRANSFER SYSTEM OF IMPERIAL AND
STATE TREASURIES.

Transfer transactions between the Reichsbank and
the imperial and state treasuries have proved advantageous. The treasuries have not only been saved the
expense and dangers of numerous consignments of cash,
but have also been relieved of holding larger amounts, of
making the requisite arrangements, and of bearing the
risks connected therewith, in that they can at any time
supplement their supply of money from the holdings of
the Reichsbank. By sending their surplus cash to the




300

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Reichsb

ank,

187

6-1900

Reichsbank and thus increasing the metallic cover for its
notes, they turn currency to account which would otherwise lie idle. The advantages to the Reichsbank are considerably diminished because the imperial and state treasuries usually make the greatest demands on the metal
reserve of the Reichsbank just at those periods when
claims from other sides are heaviest.
The imperial and state treasuries, by entering the
transfer system of the Reichsbank, have gained the advantage of using transfer arrangements for payments
to anyone; there is only one restriction, namely, that
transfer accounts are not to be employed regularly in payments of wages, salaries, and pensions.
The following figures show the extent to which the services of the Reichsbank are claimed by the treasuries of the
Empire and the federal states. At the close of 1899,
transfer accounts were kept at the Reichsbank for as
many as 1,451 such treasuries; 2,665,000,000 marks in cash
were paid into these accounts, 5,940,000,000 marks remitted by means of red checks, and 2,211,000,000 marks
were withdrawn in cash.
The total transactions on transfer accounts of the
Empire amounted in 1900 to 10,892,000,000 marks; on
the old account of the main imperial treasury they
amounted to 1,485,000,000 marks in the first year of its
existence, and 2,154,000,000 in the last year (1897).
The increase shows how much more the Reichsbank's
arrangements are utilized for the affairs of imperial
treasuries since the transactions have been carried by
means of transfers.




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OTHER SERVICES FOR FINANCE ADMINISTRATIONS.

The services rendered by the Reichsbank to the Empire
and the federal states are not confined to treasuries.
The Reichsbank performs great services in granting
credit. It is true that on account of unfortunate experiences in other countries through too great a demand for
state purposes on the funds of the central bank of issue,
limits have been set by the Bank Act, which, in section
35, provides:
" Business may be done with the finance administrations of the Empire or German federal states only within
the regulations of this act and those of the Bank Statute;
when terms are to be given other than those general in
banking, the matter must first be brought to the knowledge of the deputies, and on the motion of only one of
the said deputies be laid before the central committee.
The business must be excluded unless a quorum of the
central committee decides in its favor by a majority vote."
According to section 13, paragraph 4, however, the
Reichsbank is allowed to discount short exchequer bills
issued by the Empire or the federal states in order to
strengthen temporarily their funds. This frequently happens with exchequer bills of the Empire when money is
scarce (cf. p. 169).
The Reichsbank has assisted greatly in taking up
imperial bonds. When the bonds were taken up by an
association of banks and bankers, the Reichsbank, together with the Seehandlung of Prussia, placed itself at
the head of this association, and very soon displayed subscription lists in Berlin and at its branches. When the
bonds have been offered directly to the public for subscrip-




302

The

Reichsbank,

1876-1900

tion, the Bank has, at the instance of the imperial ministry of finance, obtained signatures in conjunction with
the Seehandlung and the first-class banking establishments. The head office and all branches served as subscription offices in these cases. The same happened when
the issue of 1899 was taken by the Deutsche Bank at a
fixed price. By order of the imperial ministry of finance,
the Reichsbank helped to place 4 per cent exchequer bills
to the value of 80,000,000 marks on the American money
market in 1900.
The Reichsbank has regularly offered its offices for the
negotiation of loans of the kingdom of Prussia.
In conclusion, it must be mentioned that the Reichsbank assisted in converting 4 per cent imperial and
Prussian state bonds in 1897 by allowing its own officers
to stamp the imperial and state loan certificates and the
interest-coupon sheets handed in to it.




303

CHAPTER IX.
REGULATION OF MONETARY CIRCULATION.
THE PROBLEM OF REGULATING MONETARY CIRCULATION.

The chief task of the Reichsbank, according to section
12 of the Bank Act, is the regulation of the monetary
circulation of the whole Empire. It is most important
that an equilibrium be maintained between currency and
money demand. The Bank solves this problem through
note issue; by its discount policy it promotes the importation of gold from abroad, checks the exportation of gold
to other countries, regulates the domestic demand for
money so that the demand can be satisfied without a
dangerous extension of uncovered note issue. It also
cooperates in supervising the currency—a task mainly
incumbent on the ministry of finance. It watches the
purity, full weight, and good condition of the various
kinds of currency, and furthermore, it distributes the whole
currency and the various kinds of coin over the different
divisions of the Empire in accordance with changing
requirements of trade.
THE REGULATION OF CURRENCY WITH RESPECT TO ITS
GOOD CONDITION.

A special provision in section 9 of the act of December
4, 1871, concerning the coinage of imperial gold coins,
states that imperial gold coins which, through wear and
tear, no longer have the minimum required weight and




304

The

Retchsbank,

1876-1900

have been accepted in payment by public treasuries,
credit institutions, or banks, may not again be issued
by these treasuries and institutions.
COUNTERFEIT COINS.

The Bundesrat has made a number of regulations for
imperial and public treasuries concerning the treatment
of counterfeit, worn, and mutilated coins or notes. These
regulations are contained mainly in a proclamation of the
Chancellor dated May 9, 1876. The officers of the Reichsbank have also been instructed in the regulations issued
by the Reichsbank Directorate to act in accordance with
the provisions in the proclamation of the Chancellor.
According to these instructions counterfeit and debased
imperial coins coming into the hands of Bank officers
are to be held. If the counterfeit piece is at once recognized as such, notice is given immediately to the proper
justice or police authorities. In case the impurity is
doubtful the coin is sent for examination to the imperial
mint (Milnzmetalldepot).
DAMAGED COINS.

Legal coins of the Empire or federal states, which are
genuine but have been damaged illegally, are also to be
held, rendered unfit for circulation by breaking or cutting,
and handed back to the person delivering the same, even
when the coins have not lost in weight. This procedure,
however, is not followed for coins which have defects in
coinage or coins which are damaged so slightly that they
are still good as circulating medium. Reimbursement for
coins with defective minting is made by the imperial mint
in Berlin. Such coins received by the Bank officers are to
82302—10




20

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Monetary

Commission

be sent quarterly to the mint. The amount is debited on
the account of the main imperial treasury.
WORN COINS.

Imperial gold coins which no longer have the minimum
legal weight, also talers and imperial silver, nickel, and
copper coins which have suffered a considerable loss in
weight or are no longer easily recognizable, are accepted
at full value. Accumulated coins of this description are
sent at the end of each quarter to the main imperial
treasury and refunded from the latter's account.
TESTS FOR COINS.

In the regulations for Reichsbank officials the latter are
urged to weigh separately each gold coin received, since
counterfeits are detected without fail by such a procedure.
An exception to this rule is made, apart from the bags put
up by public authorities, only in the case of bags delivered
by well-known "solid'' firms or mercantile houses and
properly closed with their seal. In the case of bags of this
kind it is not necessary to weigh the individual coins when
the net weight of the whole exceeds the current weight of
the given number of coins.
At the head office in Berlin there are automatic balances which weigh automatically 7,000 to 7,500 gold coins
an hour and throw out worn coins that are below the
minimum current weight.
TREATMENT OF COUNTERFEIT AND DAMAGED IMPERIAL TREASURY
NOTES AND BANK NOTES.

Counterfeit or falsified imperial treasury notes are treated
by the offices of the Bank in the same way as counterfeit
and debased imperial coins. Imperial treasury notes, the
genuineness of which is doubtful, are sent to the impe-




306

The

Reichsbank,

1876-1900

rial debt commission to be tested. Damaged and soiled
imperial treasury notes are taken in payment by the offices
of the Bank, but are not reissued. They must be sent to
the main treasury of the Reichsbank. The same course
is followed with counterfeit and damaged notes of the
Reichsbank.
THE REGULATION OF THE LOCAL CIRCULATION OF CURRENCY.

The distribution of money in accordance with the
necessities of the locality is a task of great national economic importance, and the Reichsbank has undertaken
to fulfill this special task.
Experience teaches that individual districts must
draw in money continuously, perhaps because their
monetary requirements are continually growing or
their economic relations make gold flow off again to
other circuits. With regard to the various denominations of coins such conditions must frequently be ascertained. There is a great national economic need of directing surplus money and individual denominations of
coins to localities where a corresponding want is manifested. This need is especially great with respect to
divisional money. Too great an accumulation of divisional money in individual circuits must be avoided in the
interest of a well-ordered monetary circulation. Those
circuits in which great amounts accumulate can not
employ these coins for large payments owing to their
limited value as tender, and have therefore no other
alternative but to exchange them for legal tender. On
the other hand, it is just as important in the public interest
that those circuits which need large amounts of divisional




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Monetary

Commission

money, for the payment of wages for instance, can receive
such in exchange for notes and gold.
The existing medium for regulating the monetary circulation in Germany is the Reichsbank, the branches of
which extend over the entire Empire. To it the market
turns in its need, and to it the superfluous currency is
brought by the market itself.
VARIOUS DUTIES OF T H E REICHSBANK IN T H E LOCAL REGULATION O F
CIRCULATION.

This task is accordingly included in the important general provision in section 12 of the Bank Act, supplemented
by a few definite obligations that refer only partially to
the circulation of money, while the others are only of
incidental importance in this matter.
Redemption of notes.—The latter duties include above
all the redemption of notes. The main purpose is to
maintain the full value of the Reichsbank's notes and
to safeguard the German standard. This duty of redemption, however, makes it possible to adjust any superfluity
of notes and lack of metallic currency. The Reichsbank
is legally obliged to exchange its notes for " current
German money/' upon presentation at its head office in
Berlin and at its branches as far as their cash holdings
and monetary needs permit. The Reichsbank has never
had occasion to make use of this limitation at its independent branches.
Acceptance of notes of private banks.—The obligation is
also imposed on the Reichsbank by the Bank Act to accept
notes of private banks of issue. In Berlin and at its
branches in cities of more than 80,000 inhabitants, also
at the location of the issuing bank, the Reichsbank must




308

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Reichsbank,

1876-1900

accept in payment, at full face value, the notes of those
private banks of issue which have subjected themselves
to the regulations of the Bank Act; the Reichsbank may
present these notes for redemption or employ them for
payments only at the issuing bank, or for payments at
the place where the latter has its head office.
The acceptance of these notes by the Reichsbank
guaranteed them a certain eligibility for circulation, in
contrast to the notes of those banks which have not conformed with the provisions of the Bank Act, and the circulation of which is prohibited outside their province. The
restrictions on the employment of these notes in payments
lead private banks of issue back again into their natural
field of circulation, and limit their actual circulation, so
far as practicable, to their own territory.
Redemption of imperial treasury notes.—The act also
provides that the imperial treasury notes issued on April
30, 1874, be redeemed on demand in coin by the main imperial treasury, for the account of the Empire. As the
main imperial treasury forms only a business department
of the main treasury of the Reichsbank, the duty of
redemption is in reality transferred to the latter. Although redemption primarily assures imperial treasury
notes of their full nominal value, it also indirectly regulates monetary circulation, inasmuch as metallic money
can be drawn from the Bank in exchange for superfluous
imperial treasury notes.
Issue of gold coins for divisional money of the Empire.—
An enactment in connection with the general regulation
(sec. 12) makes it the duty of the Reichsbank to regu-




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Monetary

Commission

late monetary circulation. Article 9 of the Coinage Act
of July 9, 1873, says:
"The Bundesrat will designate those offices which
issue imperial gold coins on demand against deliveries of
imperial silver coins in amounts of at least 200 marks, or
of nickel and copper coins in amounts of at least 50 marks.
It will also settle the details of the terms for the exchange."
On December 19, 1875, a proclamation of the Chancellor
put this provision into practice. This proclamation, based
upon a resolution of the Bundesrat, assigned the exchange of divisional money for gold to the main treasury
of the Reichsbank in Berlin and to the head branches of
the Reichsbank in Frankfort-on-the-Main, Konigsberg in
Prussia, and Munich. The coins to be exchanged are to
be presented in suitable bags or in rolls. The payment
of the equivalent in gold by the office takes place after
the presented coins have been counted, which, as a rule,
must be done at once, but at the latest within five days
after delivery.
VOLUNTARY LOCAL REGULATION OF CIRCULATION BY T H E REICHSBANK.

These few duties of redemption, acceptance, and exchange, imposed upon the Reichsbank by law or ordinance, would not be sufficient to bring about a satisfactory
regulation of monetary circulation. The local regulation of divisional money circulation necessitates a much
more far-reaching activity than the issue of gold coin
against divisional money at four places in the Empire.
The Reichsbank has endeavored to supply the wants
in the most varied ways. It goes considerably further
in the acceptance of coins than would satisfy the legal
requirements.




310

The

Reichsb

ank,

1876-1900

Acceptance of imperial treasury notes.—Only the treasuries of the Empire and of the federal states are obliged
to accept imperial treasury notes in payment, but the
Reichsbank takes them without objection at any time and
in any amount.
Acceptance of notes of private banks.—The notes of private banks of issue are also taken largely in payment by
the Reichsbank outside those places for which a legal obligation exists, namely, at all those branches, including suboffices with a cash department, which are situated in the
same province, state, or district as the issuing bank concerned; for suboffices which are in charge of one executive officer, however, there is the limitation that notes
of private banks of issue may be accepted only when
they are to discharge an obligation toward the Reichsbank—for instance, in the payment of matured bills. At
the wish of certain business circles this restriction was
moderated in May 1899, so that at suboffices with one
officer those persons who have made payments during the
forenoon in notes of the Reichsbank, current German coin,
and imperial treasury notes for the discharge of obligations,
are permitted to pay in, until the close of office hours, the
notes of private banks of issue for other purposes, in
amounts not materially exceeding the payments made
during the morning.
To this extent the notes of the Sachsische Bank are taken
by the Reichsbank within the kingdom of Saxony, and,
furthermore, at the branches in Halle-on-the-Salle, Gera
(Greiz), and Goerlitz.
In the same way the notes of the Braunschweigische Bank
are taken in payment at the branch office in Braunschweig




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Monetary

Commission

although this bank, as is well known, has not accepted
the normal statute of the Bank Act; the notes of the state
bank in Bautzen, really not a bank of issue, are accepted
at branches in the kingdom of Saxony, and the notes
of all other South German banks of issue are taken in
Bavaria, Wurttemberg, Baden, Hesse, Alsace-Lorraine,
and at the head branch of the Reichsbank in Frankforton-the-Main with its suboffices.
The Reichsbank offices are instructed not to make use
of the permission to employ incoming notes of private
banks of issue for payments at the head office of the private bank in question, but to present them for redemption. The presentation must take place once a month at
branches and places appointed for redemption by the
Bank; at the head offices of the Bank, however, they
must be presented immediately on receipt.
The circulation of the notes of private banks of issue
and their return to the place of issue are promoted by
these provisions and by the Bank Act.
Acceptance and issue of divisional money,—In order to
meet the requirements of business the Bank does not
apply strictly the regulation of the Coinage Act limiting
the amount to which divisional coins are legal tender.
The Bank offices are instructed, on the contrary, to take
in payment inside their business premises imperial silver,
nickel, and copper coins even for large amounts. If large
sums of such coins are offered in payment to office messengers outside the premises of the bank, they must request the debtor to make the payment at the bank office.
The Reichsbank has, therefore, undertaken voluntarily
an obligation which is legally imposed only on the treas-




312

The

Reichs

bank,

1876-1900

uries of the Empire and the federal states. Owing to the
great network of Bank branches and the great number of
payments constantly made to it by the business world, this
procedure of the Bank greatly facilitates the disposal of
any existing excess of divisional money.
The Bank has gone a step farther in this direction by
authorizing its offices to avoid any local excess of circulating small coins by taking the same as far as practicable
for the account of the main imperial treasury.
Use of talers for large payments.—On the other hand,
the Bank endeavors to supply small coin whenever it is
required. The Bank offices are instructed to make provision continually for the business needs of small coins.
They must meet promptly the wishes of the public in the
issue of taler pieces, silver, nickel, and copper coins of
the Empire at any time, and on request they must hand
out these coins not only in the usual "standard" bags
of the Bank, but also rolled up in small amounts. Above
all, the Bank has always endeavored to induce the public
to make use of the taler pieces, of which there is still a
large stock in its coffers. The Bank offices are under
order, in cases of payments which must be made in silver,
to pay out, as far as practicable, talers of the German
customs union (Vereinstaler) minted in Germany.
The Reichsbank, on the contrary, makes no use of the
right to pay large amounts in taler pieces against the
will of the receiver. The Bank regards it as its duty to
supply such amounts of gold as are required for business
in Germany. It can satisfy the strong demand for crowns
only to a limited extent, as the stock of coins of this denomination in its coffers is always small. Moreover, as




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Monetary

Commission

is well known, certain technical objections connected
with coining and political reasons relating to the standard
keep the finance ministry from increasing the coinage of
crowns. On the other hand, the Bank is always ready
to make payments on request in double crowns. Only
applications for gold for exportation are subject to the
restriction that they be referred by the branches to
the main office in Berlin. The reason for this regulation is
that the Reichsbank will not facilitate the exportation of
gold by assuming the expense of transporting gold to
branches situated near the boundaries of the Empire.
By making payments in gold on demand, and by accepting to an unlimited extent not only talers but also
divisional money, the Bank renders it possible for circulation to throw off all superfluous talers and divisional
money. In this way the circulation of talers and divisional money and the demand for small change in general
intercourse cover each other as far as possible. Owing
to the great amount of talers still existing, this procedure
has brought to the Reichsbank, especially in former years,
a dangerously large stock of silver at the cost of gold holdings. Still, the Bank officials have never entertained the
idea of suspending gold payments; such a suspension
would be an inconvenience to financial operations, and
would jeopardize the standard (cf. p. 237 ff.).
LIMITATIONS FOR SUBOFFICES O F T H E REICHSBANK.

The orders of the Reichsbank Directorate relating to
monetary circulation naturally hold good to their full
extent only in the case of independent branches, which
constantly hold considerable amounts of cash. The same
duties can not be imposed on those suboffices, the




314

The

Reichsbank,

1876-1900

cash holdings of which are limited. Suboffices need,
therefore, accept payments in imperial silver coins and
other divisional money on their business premises only
when they have further use for these coins in the locality itself. They are instructed to make their payments
in bank notes as far as practicable. They must at all
times meet promptly the wishes of public treasuries and
of the public with respect to the issue of taler pieces and
imperial small coin, and, if need be, propose a strengthening of holdings at the superior branch office for this
purpose. With respect to requests for coins of other denominations, especially crowns, suboffices are directed
to comply only in such cases where the money is taken in
bill discounts or other transactions profitable to the Bank.
In all other cases, particularly in the withdrawal of deposits, the exchange of bank notes for metallic money, etc.,
suboffices are authorized to make a charge of one-fifth
on a thousand for the issue of coins of certain denominations in place of bank notes.
T H E LOCAL REGULATION OF CIRCULATION.

In order to put Bank offices in a position to fulfill
tasks assigned to them in the regulation of monetary
circulation, it was necessary to have a well-developed
organization for the appropriate distribution of various
denominations of coins among different branches of
the Bank. The cash holdings of the Reichsbank can
be used to their fullest extent for the regulation of
monetary circulation only when the distribution of
various kinds of money and the demand for various
kinds at different branch offices can be supervised, and




315

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Monetary

Commission

necessary consignments of money can be directed from
one place.
To render possible this centralized survey and direction
to the Reichsbank Directorate, Bank offices are instructed to send a statement to the Reichsbank Directorate once a month, containing proposals for increasing
various denominations and giving information as to the
surplus coin of all denominations held by them. In urgent
cases cash may be solicited from the Reichsbank Directorate by telegraph. The drawing of money from other
branches without the assent of the Directorate is not permitted. The needs of suboffices must appear separately
in the monthly statements.
On the basis of these statements, which give a perfect
survey of the denominations required and at hand at
various places in the Empire, the Reichsbank Directorate
orders cash consignments from office to office in such a way
that the needs of one locality are covered as far as practicable with the surplus of the other.
The average consignments of cash between different
offices of the Bank have in recent years exceeded
2,500,000,000 marks.
The details are:
Consignments of money.

Between independent offices of
the Bank.

1895
1896
1897
1898
1899
1900




Marks.
1,388,132,000
1.220,290,000
1.633,043,000
1,584,213,000
1,431,678,000
1.733.239,000

316

Within the circuits of independent offices
of the Bank.

Marks.
783,677,000
858,863,000
993.780,000
,118.670,000
,360,291,000
.443.656,000

Total.

Marks.
2,171,809,000
2,079,153.000
2.626,823,000
2,702,883,000
2,791.969,000
3,176,895.000

The

Reichsbank,

1876-1900

The consignments (cf. Table 74) effected on the proposal
of the Bank offices in 1900 were as follows: imperial gold
coins 228,500,000 marks, imperial silver coins and talers
51,400,000, nickel and copper coins 3,900,000, notes of
the Reichsbank 346,200,000, and imperial treasury notes
35,300,000.
The total transactions of the exchange office at the main
bank in Berlin for the different kinds in 1900 were as
follows:
Marks.

Imperial gold coins
Talers
Imperial silver coins
Nickel and copper coins
Bank notes
Imperial treasury notes

209, 120, 000
43, 932, 000
36,415, 000
3, 361, 600
156, 735,000
22, 105,000

Total

471,668,600

These figures give an idea of the great demands made on
the Reichsbank in regulating the local circulation of currency. The experience gained thereby has led to a continual perfection of the machinery employed.
The statistical material thus gathered offers suitable data
for answering the question as to what denominations show
a deficiency and what kinds a surplus. When month after
month a particular denomination is required by the offices
in sums larger than the surplus at other places, or conversely, when month after month larger amounts of other
denominations are at hand than are required, conclusions
may be drawn as to the demands of trade. In such cases
remedy can be provided only by further coinage on the one
hand and withdrawals on the other. Even though the
Reichsbank has no voice in deciding these matters it can
furnish full and reliable statements of the requirements,
on which appropriate decisions can be made.




317

CHAPTER X.
T H E CUSTODY AND MANAGEMENT O F ARTICLES O F VALUE—THE PURCHASE AND SALE
O F SECURITIES.
THE CUSTODY AND MANAGEMENT OF ARTICLES OF VALUE.

The custody of open and closed deposits is not in
the sphere of a^bank of issue; such a bank can fulfill its
chief duties outside this line of business. The fact that
most central banks of issue take care of articles of value,
especially securities, sometimes for their regular patrons,
sometimes for everybody, is due to the widespread need of
the public to place in safe-keeping their most valuable
possessions and to the large measure of confidence usually
enjoyed by great central banks of issue. There is no
lack of other reliable banking institutions which carry
on this branch of business. Recent years have brought
new forms, based on American types, and calculated to give
the public the advantages of storing valuables in a safe
place outside their own dwelling. But most of these banking institutions are in the habit of taking charge of securities only from those persons with whom they have continuous business connections; they generally have not
room enough to undertake the custody of other articles
of value, especially those of large dimensions. The less
wealthy public, however, whose circumstances render
unnecessary *a constant connection with a banking firm,
find that the greatest financial institutions decline to




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1876-1900

undertake the custody of objects. This public is not
capable of distinguishing the reliable from the unreliable
second-rate financial institutions. If individual instances
of embezzlement and losses occur, as have happened at
times, the mistrust thus occasioned is usually directed
also against such banking houses for which grounds for
apprehension do not exist. Disagreeable experiences of
this kind have awakened on every side the desire for a
depository with a reputation beyond all doubt. It was
only natural that under such circumstances the public eye
should fall first of all on the central bank of issue of the
country, on the "bank of banks/' the notes of which, redeemable at any time, are in everybody's possession, the
solvency of which according to general belief is as strong
as that of the state. Thus it has come to pass that
nearly all great national banks have introduced the storage
business, and that some of them have at great cost fitted
up large rooms solely for this purpose, and have made
them as secure as possible against fire and burglary. Some
central banks confine themselves exclusively to the custody of closed receptacles in rooms which they place at the
service of their regular customers; others take into custody
only securities which are open when handed to them, and
combine therewith a more or less comprehensive management; others place their services at the disposal of the
public in both ways. The Prussian Bank belonged to the
last order; it had for a long time undertaken the care of
closed deposits, but had introduced the acceptance of
securities for safe custody and management in 1873—only
a few years before its conversion into the Reichsbank.
The popularity which these lines of business had enjoyed




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Commission

among all classes made their continuation through the
Reichsbank a necessity, and found expression in the Bank
Act, which empowered the Reichsbank " t o take objects
of value into custody and management'' (sees. 8 and 13).
CLOSED DEPOSITS.

The simplest form of these deposits consists in the
acceptance of closed receptacles, the contents of which
are not noted by the Reichsbank as depositary, and for
the custody of which nothing is required except suitable
fire- and burglar-proof rooms. Such rooms are already at
the disposal of the Reichsbank at all its branches having
facilities for keeping cash. Owing to the obligation
incumbent upon the Bank of keeping everywhere
large sums of money on hand, these rooms are partly
in the form of vaults, built with brick or stone and
supplied with specially constructed iron or steel doors,
and partly in the form of ordinary safes. The latter,
with which most suboffices are fitted, suffice only for
the needs of the offices themselves; on the other hand,
the rooms for valuables, with which the independent
offices and some of the larger suboffices are fitted, are
almost without exception in the bank buildings, and, as
a rule, spacious enough to permit, in ordinary times, the
acceptance of closed deposits. In addition, however, certain further guaranties must be assured by the officers
at the branches before the reception of deposits can be
permitted. Suboffices managed by only one officer, and
intrusted with limited funds proportionate to the amount
of the bond deposited by the officer, are not regarded
as suitable places for the custody of deposits, since these




320

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Reichsban

k,

1876-1900

deposits can, under certain circumstances, greatly exceed
in value the whole of the funds allowed to the branch.
It follows that, aside from the main office in Berlin,
closed deposits can be taken only at the head branch
offices and independent offices, and at several of the large
suboffices which are supplied with proper vaults and
are managed by more than one officer. At all places
where such deposits are taken it is not done solely in the
interest of persons who already have other business connections with the Reichsbank, and are known to the
officers of the Bank to be so trustworthy that a misuse
of this arrangement for improper or criminal purposes is
not to be feared. The receptacles, marked with the
name of the firm or of the Christian and surname of the
individual depositing them, must not only be locked, but
also sealed in such a manner that nothing can be taken
out without injuring the seal. Since 1881 the stipulated
liability of the Reichsbank for the deposit does not exceed
5,000 marks, unless the depositor declares a higher
value and pays the proper insurance fee for this amount
in addition to the charge for storage. The Reichsbank
undertakes no responsibility for damage arising from
circumstances beyond its control or for deterioration of
the object itself. There are three different rates for
storage, according to the size of the deposit, and the fee
must be paid for a year in advance. A proportionate
reimbursement in case of an earlier withdrawal is not
made; in case of temporary withdrawals of deposits, not
exceeding eight working days, only a small additional fee
is charged. In giving up closed deposits, the Bank
takes every care to ascertain the receiver's identity; the
82302—10




21

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Monetary

Commission

Reichsbank reserves to itself the right, however, to deliver the deposit to any person presenting the receipt,
without further proof of his identity or of the genuineness and validity of the receipt.
All Bank offices which may receive closed deposits do
so in accordance with these simple principles. In view
of the great extent of this business at the main bank,
a special office has been fitted up for this purpose. This
office can place special rooms at the disposal of depositors
on request, at a small charge, where they can open their
deposits and busy themselves with the contents.
The use of this arrangement by the public has not
been extensive, even though up to 1894 there was something of an increase from year to year. The number of
closed deposits at the main bank and all branch offices
amounted at the end of 1876 to 2,120, and at the end of
1894 to 7,558. The increase has taken place pretty
equably, and has amounted on an average to little more
than 300 for the single year; only in a few years has
the increase reached or exceeded 400. It was relatively
great in 1883 with 512, and above all, in the years 1891
and 1892, in which it amounted to 606 and 694, respectively. The reason is to be sought in the doubts which at
certain times prevail among the public with regard to
private banks and bankers. This was especially observed
after 1890, a year in which the sudden change in an extraordinarily prosperous trade in conjunction with other unfavorable circumstances brought about the downfall of
numerous large and small banking firms. The losses
which many capitalists suffered through embezzlement
of deposits resulted in a panic-like movement which




322

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Recihsbank,

1876-1900

brought the Reichsbank numerous, but small, depositors.
Since 1894 a decrease is to be recorded in the number
of closed deposits in the custody of the Reichsbank; the
main cause is that private banks and bankers everywhere
turn their storage facilities to better account by developing this branch of business, and at the same time by
charging lower fees than the Reichsbank.
The objects preserved by the Reichsbank in closed
boxes, packets, and the like, represent considerable
values. It is true the Reichsbank takes no cognizance
of the contents of these deposits; still the sums for which
the Bank is liable to its depositors give an idea of the
minimum values guarded in this form. The liability
of the Bank reached its highest amount in 1893, with
over 310,000,000 marks; in 1900 it amounted to only
266,000,000 marks. There can be no doubt, however, that
the deposited values in reality exceeded these sums, as most
depositors, in order to save insurance fees, do not declare
the true value, but are content with the high degree of
safety and the liability of the Bank up to the sum of
5,000 marks.
As merchants generally keep their valuables in their
own safes, the safe-deposit vaults are used almost exclusively by wealthy persons. Accordingly, the largest of
such deposits are shown at offices in those places in which
live numerous persons of independent means. Apart
from the head office, which at the end of 1900 had 2,772
deposits in custody, the independent branch in Wiesbaden,
a town which, according to official statistical inquiries, has
comparatively more wealthy persons than other German
towns, stands at the head with 489 deposits. Neverthe-




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Commission

less, the use varies in the course of the year; it is regularlystrongest during the summer traveling season.
OPEN DEPOSITS.

Open deposits, which date from the last years of the
Prussian Bank but were first encouraged and developed
by the Reichsbank, are incomparably more important and
significant both for the public and for the Bank. The
officials of the Prussian Bank had had their attention
drawn to this branch of business at the Bank of France
and to its popularity with the public as early as the second half of the sixties of the previous century and,
after a detailed study of French arrangements, decided to
introduce the system into Germany, where it was at that
time little known. The plan of erecting new bank buildings in Berlin to meet modern requirements was favorable
to this scheme. The observations made at the Bank of
France had taught the advocates of open deposits {depots libres) that different premises and a different staff
were needed than in the case of closed deposits which
could be accommodated without hesitation at any office
fitted with a sufficiently large and safe vault without increasing to any extent the work of the officials. It was
soon seen that the new business presupposed building
arrangements which did not exist either at the old
bank buildings in Berlin or in any of the branches—
buildings, moreover, the size and expense of which precluded for the present the extension of the new business
to more than one place. The fact could not be overlooked
that the new business could not be developed as a side




324

The

Reichsbank,

1876-1900

line by the existing officials, but that the orderly management by the Bank of the deposited securities would necessitate a large trained staff, especially since the Bank had
determined to create for the public as perfect an establishment as possible and one surpassing the institutions
abroad.
On the basis of these deliberations it was decided to
limit the new business first of all to Berlin, and to prepare
in the new offices, which were being erected, rooms which
not merely sufficed for the start, but admitted of a later
extension in case of necessity. It was impossible to foresee at that time that the rooms would prove insufficient,
that twenty-five years later a great new building would
be needed for security deposits, which had increased
beyond all expectations. Not merely the manufacturers
of safes but also burglars made use of the progress of
technical skill, so that the precautionary measures of a
quarter of a century before were no longer adequate.
Experiences with respect to the size and cost of vaults,
and the number and training of the staff, indicated that
the custody of securities should still be limited to one place,
and that the management of business be centralized.
In the meantime, the erection of the new bank buildings
in Berlin was delayed by the war with France, so that
the department for the custody and management of articles of value {Kontor zur Aufbewahrung und Verwaltung
von Wertpapieren) could not be opened by the Prussian
Bank until May 1873. The department began with 9
officers, was assumed three years later by the Reichsbank with 37 officers, and in 1900 had a staff of 298.




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Commission

The organization and further development of this
business was, from the beginning, for the purpose of
doing for the public what a good business man has to do
in the orderly management of his securities. Thus the
Bank accepted and managed, for a reasonable compensation, the deposits brought to it; it cut off interest
coupons, collected interest, presented securities for payment or conversion, converted provisional certificates
into final titles, took out new interest and dividend
warrants, etc., although it assumed a great responsibility in some of these duties. From the very outset
the object was to provide for persons ignorant of business
or too busy to devote the necessary time and attention
to the management of their wealth, for widows, orphans,
trustees, charities, etc., the opportunity of having their
affairs managed by the Reichsbank just as well as they
could do it themselves, even with the most intimate
knowledge of business.
The Reichsbank could offer that degree of safety
which is possible or conceivable under present conditions.
At the very beginning it made regulations, which were
afterwards made general in the imperial act of July 5,
1896, "concerning the duties of merchants having charge
of securities for others," for safeguarding depositors
against any intentional or unintentional obscuration or
injury of their property by the depositaries and commissioners. Under the circumstances, this act, inherently
so important, could not exercise much influence on the
deposit business of the Reichsbank.
It is not necessary to state that the comprehensive
task which the Reichsbank had set for itself in this busi-




326

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Reichsbank,

1876-1900

ness could not be performed at the very outset; not only
was considerable experience necessary, but also a scrupulous observation of changing conditions and necessities,
and a consideration at all times of new demands. Thus
new forms have constantly been added to the ordinary
deposits of private persons: trustee deposits, with or
without instructions from the surrogate's court, mentioned
in section 12 of the regulations, deposits with interest in
favor of third persons, deposits guaranteeing an allowance to an officer on his marriage, and, finally, deposits
for the withdrawal of which the consent of a third person
is necessary. The terms printed on the application
forms and on the deposit receipts give full information
regarding the different kinds of deposits received by the
Bank, together with the various services rendered by the
Bank and the fees to be paid in each case.
Notwithstanding the limitation of open deposits to
Berlin, the use of these arrangements is in no way restricted
to the inhabitants of this town, or to such persons as travel
to Berlin for the purpose, or chance to be there; the circle
of patrons of the present securities department of the
main branch of the Reichsbank (Kontor der Reichshauptbank fur Wertpapiere) extends over all Germany and far
beyond its borders into most distant lands. For business
intercourse with depositors residing in Germany, the office
has the advantage of being a unit in the organism of the
Reichsbank, and is connected with the transfer system of
the latter. If the depositor possess a transfer account at
any branch of the Reichsbank he can have all payments
destined for him entered to his credit. On the other hand,
any payments made at the securities department can be




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Monetary

Commission

paid in at any branch—in many cases free of charge—to
the credit of the department's account at the main bank.
In addition to this, unless the depositor expressly desires
something else—perhaps remittance by post—the interest,
etc., is remitted by the department, by means of transfers,
to the branch in the circuit in which the depositor lives;
in this way some of the functions of the securities
department are transferred to the branches, and the disadvantage caused to depositors outside Berlin through
centralization is to some extent counterbalanced. The
consignment to Berlin of safe deposit securities is
neither undertaken nor arranged by the branches. The
depositors make use of the mails or of the services of an
authorized agent. Although occasional wishes have been
expressed for institutions at other large places in Germany
similar to the office of the main bank for securities in
Berlin, there seems to be, up to the present, no urgent
need for such.
The department has customers among all classes. This
is best illustrated by the fact that the securities deposited
by individuals fluctuate between 4,000,000 and 100,000,000
marks.
The amount of deposits depends upon business conditions and the state of the money market. The fact that
the nominal value of all deposited securities from 1876 to
1900 has risen from 424,000,000 to 2,889,000,000 marks,
that is, has increased sevenfold, is attributable not solely
to the more intensive use of the arrangements of the
securities department. There is reflected in these figures
an increase in accumulated capital. The increase in
deposits during the last twenty-five years has been sig-




328

The

Reichsb

ank,

1876-1900

nificant and almost uninterrupted; only a single year,
1897, w a s a n exception. In no year from 1876 to 1894
did the increase amount to less than 90,000,000 marks;
it was greatest in 1890 and 1891 with 157,000,000 and
163,000,000 marks, respectively, a result, probably, of the
collapse of several great banking firms during this time.
Since then the increase has not reached 90,000,000; on
the contrary the holdings fluctuated between a decrease of
30,000,000 and an increase of 84,000,000 marks. It will
not be wrong to assume that animated industrial activity,
particularly the marked activity in recent years on the
bourses, is a reason for this phenomenon. More recent
years were unfavorable to solid investment securities
which make up most of the deposits of the Reichsbank;
the stringency of capital arising through economic prosperity led to the realization of large amounts of interestbearing papers, which in turn resulted in the withdrawal
of many deposits. Many investment securities were exchanged in large quantities for newly issued shares of industrial undertakings; the latter, not being lasting investments but intended for resale (speculation), were therefore
not deposited at first at the Reichsbank. Investment
securities which had been disposed of also did not return
to the Reichsbank, but formed instead, as always in times
of rampant speculation, floating material on the bourses
and at banks; at any rate, a large part of them fell
into the hands of people who do not generally deposit at
the Reichsbank. At the same time, other special reasons
strongly influenced groups of securities important for the
deposit business of the Reichsbank, e. g., the state-debt
register in Prussia and the imperial-debt register, and the




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Monetary

Commission

extension of the deposit business of private banks with
special arrangements (safes, etc.) which are not suitable
for the Reichsbank. The repeated increase of charges for
deposits, which had become necessary for covering of
expenses, appears to have exercised no great influence.
It is natural that the securities deposited with the Reichsbank are for the most part of German origin, drawn up in
the mark standard; the case would probably be the same
even if the Bank had not charged a somewhat higher
fee for the custody and management of papers drawn
up abroad. Among German securities, German imperial
and state bonds have for a number of years been largely
represented. In 1876 they amounted to only 3.3 per
cent of all papers deposited with the Bank, as against 40
per cent in 1900, after having reached the high percentage
of 43 and 43.2 in 1890 and 1891, respectively. According to amount, they have increased from 14,200,000 in
1876 to 1,120,000,000 marks in 1896, but have declined
somewhat since that time, and have reached their highest
point in 1900 with 1,152,000,000 marks. This extraordinary increase is the result of the increase of imperial and
state debts in Germany. The state bonds of Prussia come
first, as is natural from the extent of the funded debt
of this state. Extraordinary growths are to be recorded
in 1889 and 1890, in which the deposited sums rose abruptly from 342,000,000 to 534,000,000 and then to
722,000,000 marks, solely as a result of a displacement,
the exchange into Prussian consols of large amounts of
shares and railway obligations taken over by the Government.
The decrease in holdings in several years, thus
1884, 1885, 1894, 1896, 1897, and 1898, is to be attributed




330

The

Reichsbank,

1876-1900

to the use of the state-debt register, in which only 1.3
per cent of all Prussian state bonds were registered in
1885, as against 18.2 per cent in 1897. The increasing
importance of deposit institutions of the Reichsbank for
these solid investment securities is shown by the fact that
in 1876 only 1 per cent, in 1880 5.1 per cent, in 1893 13.2
per cent of all Prussian state bonds were in the custody
of the Reichsbank. Still, this increase falls short of that
of the state-debt register (Staatschuldbuch); the sums
registered there have since 1893 surpassed those deposited
with the Reichsbank. The conversions have exercised
only an insignificant influence, since only few depositors
decided on the return of the principal in place of conversion. Of greater importance, but of little significance,
was the fact that some creditors of the state disposed of
securities which in the future were to bear a lower interest.
The influence of conversion is undoubtedly discernible in
1897, but only because many holders of Prussian 4 per
cent consols had their attention drawn first to the statedebt register and to its great advantages. The registrations increased in 1897 from 1,059,000,000 to 1,159,000,000
marks—i. e., from 16.6 to 18.2 per cent of the funded debt
of Prussia. The deposits held by the Reichsbank decreased from 806,000,000 to 744,000,000, or from 12.7 to
11.7 per cent of all Prussian bonds. The same is true of
German imperial funds; here is shown an increase from
1,400,000 in 1877 to 220,700,000 in 1900 and a percentage
increase from 0.3 to 7.6 in proportion to the total deposit
holdings of the Bank. Of the total funds of the Empire
there were deposited in 1887, 2 per cent, and in 1892, 10.4
per cent. Since then this figure has again sunk to 9.4 per




331

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Monetary

Commission

cent (1900), while the imperal debt register, introduced
in 1892 on the lines of the Prussian register, represented
in its entries during the same year 3.4 per cent, and in 1898
12.6 per cent of all imperial bonds. The decrease is also
noteworthy in 1897, when the amounts on the debt register rose from 235,000,000 to 273,000,000 marks—i. e.,
from 10.9 to 12.5 per cent. The bonds of other federal
states deposited with the Reichsbank fluctuated in proportion; they increased continuously after 1876 from
3,500,000 to 131,400,000 marks. Their percentage in
total holdings has risen from 0.8 to 4.7 per cent.
Bonds of towns and provinces, certificates of land banks
and mortgage banks, annuity certificates, and shares and
obligations of industrial undertakings are also represented
with many millions of marks in the deposits of the Reichsbank. Conclusions can also be drawn as to the extent of
services which the Reichsbank rendered to states, communities, and other issuing bodies in the many conversions,
renewals of coupon sheets, etc.
DEPOSITS OF MINORS.
Special kinds of deposit with the Reichsbank are the
deposits of minors (Miindeldepots), introduced by section 1814 of the Civil L,aw Code. Securities which form
a constituent part of the fortune of a minor can be accepted for custody under special conditions at all head
branches and branches of the Reichsbank, under the restriction that, in accordance with the terms of the act, the
papers be delivered without interest or dividend warrants,
but with talons. In this form, however, the Reichsbank
undertakes only the custody and not the administration of




332

The

Reic

hs b ank,

187

6-1900

these deposits. This particular arrangement has not been
made in the case of Berlin, since the need for such a special
form of deposit does not exist, owing to many other
facilities offered for deposits. The charge for the deposits
of minors is exceedingly small. This branch of business,
first introduced on January i, 1900, has not yet assumed
any great proportions. At the end of 1900 the Reichsbank held altogether only 795 deposits of minors.
PURCHASE AND SALE OF SECURITIES FOR THE ACCOUNT OF
PATRONS.

In contrast to great credit banks, the business of buying and selling securities is only of secondary importance to the Reichsbank. This is due, first of all, to the
fact that the Reichsbank on principle does not invest its
own funds in securities, and can accordingly procure such
for its patrons only by way of commission. Furthermore,
the Bank is subject to the strict provisions of the Bank Act.
Commission transactions on credit, even against deposits,
are forbidden; the Bank may purchase securities of all
kinds for the account of patrons, apart from public
authorities, only after cover has been provided, and may
sell only after delivery of the securities has been made
(Bank Act, sec. 13, par. 6; Statute, sec. 10). Thus the
Bank is deprived of the freedom necessary for a more intensive pursuit of this branch of business.
On the other hand, it makes no special attempt to develop this line of business beyond the point to which it
develops of its own accord without special efforts, as it is
far less important than the other tasks of the Bank. As
a privileged bank of issue, it avoids on principle competing




333

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Commission

with private banks and bankers in a province outside its
real purpose. Branch offices, as well as the securities
department, are therefore instructed to accept at all times
and willingly orders for the purchase and sale of securities
on the ordinary terms; everything is done for the client
that is necessary to a rapid and easy settlement. On no
account may the Reichsbank make use of its position to
get such business. The profits of the Reichsbank consist
merely in the fee. Formerly, besides the brokerage—
amounting usually to one-half on a thousand—this
amounted to one-eighth of i per cent, and now, inclusive
of the brokerage, amounts to i }4 on a thousand. This
is a rate which, in spite of its moderateness, is not calculated to do damage to the business of private banks.
Under these circumstances, profits and losses on market
prices can not arise for the Bank. In carrying out commissions the branch taking the order makes use, as far
as it can not settle the business itself, of the services of
the office at the place where the particular security has
a regular market. In most cases, this market is in Berlin;
for south Germany it is in Frankfort-on-the-Main. The
Reichsbank carries out transactions on the Bourse directly
through its special agents.
Owing to the preeminence of the Berlin Bourse, nearly
the whole business in the purchase and sale of stocks and
shares, including that arising from orders received by
branches, is concentrated at the head office, the securities
department, which settles all transactions in this line
through a special Bourse department. The importance
of the department for this business of the Bank is great,
in that most orders originate from depositors. They are




334

The

Reichsbank,

1876-1900

given direct to the department or are communicated by
a branch office; thus the business in securities (Effektenkommissionsgeschaft) of the Reichsbank is mainly characterized as a part of the management of wealth carried
out by the Reichsbank for its depositors.
The total transactions of the securities department
in stocks and shares for its depositors, for third parties,
or for the Empire, which has frequently made use of it
for the sale of its own debt certificates, have fluctuated
greatly. They amounted in 1876 to 42,500,000 and in
1900 to 157,000,000 marks.




333

CHAPTER XI.

T H E REVISED BANK ACT O F JUNE 7, 1899, AS
A RESULT O F T H E PREVIOUS DEVELOPMENT.
EXPERIENCES WITH THE GERMAN BANK CONSTITUTION.

The constitution of the Reichsbank has proved, in the
quarter of a century of its existence, to be a structure in
the main well suited to its purposes. It has permitted a
progressive development of the central financial institution of Germany, and has rendered possible a satisfaction
of the great demands called forth by the extraordinary
development of economic forces. The Reichsbank would
not have been in a position to render to the German
national economic system all the services set forth in the
preceding chapters, if its constitution had not been along
the right lines.
On the other hand, the undreamt-of economic development in the last decade have suggested the question
whether certain alterations in the details of the existing
constitution of the Bank are necessary to enable the
Reichsbank to meet fully and without embarrassing friction in the future the increased needs of trade. Suggestions have been made of enlarging the basis on which the
Reichsbank stands, of increasing means and privileges
which it needs for the discharge of its duties.
In order to admit of desirable alterations the right was
reserved to the Empire, in the Bank Act of March 14,




336

The

Reichsbank,

1876-1900

1875, of abolishing the Reichsbank, first on January i,
1891, and then at intervals of ten years, after a preliminary
notice of one year, or of acquiring all the shares of the
Reichsbank at their nominal value. Upon the expiration
of the first period of fifteen years the Empire was content with demanding a larger share of the net profits of
the Reichsbank. The fall of the interest rate since the
middle of the seventies made desirable a modification of
the principles for the calculation of the dividends of
shareholders. No further change had appeared necessary.
The second occasion on which the privilege of the
Reichsbank could have been withdrawn was January i,
1901.

The state governments were on this occasion of the
opinion that there was no reason for radical changes in
the constitution of the Reichsbank. They were so satisfied with the union of private capital and state guidance
that they were determined to oppose strongly all endeavors
to transform the Reichsbank into state property (to acquire all shares for the Empire).
On the other hand, this was regarded as a suitable occasion for taking into account the experiences of the last
decade and the progressive development of German
economic life by strengthening the working capital of the
Reichsbank and by taking measures to render its discount
policy effective against that of the private banks of issue.
THE REVISED

BANK

ACT (Banknovelle).

On the basis of these deliberations the bill to amend
the Bank Act of March 14, 1875 (Entwurf eines Gesetzes
betreffend die Abanderung des Bankgesetzes vom 14
82302—10




22

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Monetary Commission

Mdrz 1875) w a s laid before the Reichstag at the
beginning of 1899 a n d contained the following proposals.
The capital stock of the Reichsbank was to be raised
from 120,000,000 to 150,000,000 marks, and the reserve
fund was gradually to be brought up from 30,000,000 to
60,000,000 marks; the tax-free note allowance of the
Reichsbank was to be increased from 293,400,000 to
400,000,000 marks. To insure a more uniform discount
policy the Bundesrat was to use its power to revoke the
right to issue notes on and after January 1, 1901, in the
case of those private banks of issue which would not
promise not to discount under the discount rate of the
Reichsbank on and after January 1, 1901.
In addition, the bill proposed a redistribution of profits
more favorable to the Empire, in view of the enormous
business proceeds and of the high dividends of the shareholders.
Finally, there were several provisions of minor importance with reference to the relation of the Reichsbank to
those notes of the former Prussian Bank which had not yet
been cashed, and to advances on bonds of land credit
institutions and mortgage joint stock banks which are
issued on the basis of loans to German communal corporations.
The bill underwent important changes in the Reichstag;
no radical departures were made from the fundamental
ideas which on the whole were in the same direction
as the government proposals. The increase of capital
and of the tax-free note contingent of the Reichsbank
were made greater than suggested by the bill. The plan
of binding private banks of issue to the discount policy




338

The

Reichsbank,

1876-1900

of the Reichsbank was moderated and combined with
restrictive regulations concerning the private discount rate
of the Reichsbank. The dividends of the shareholders
were curtailed in favor of the Empire more than was intended in the bill.
The Bundesrat assented to the changes decided upon by
the Reichstag; the general meeting of shareholders of the
Reichsbank declared itself in favor of the provisions. The
bill became a law on June 7, 1899.
THE INCREASE OF THE CAPITAL AND RESERVE FUND OF
THE REICHSBANK.

The increase of the Reichsbank's means (share capital
and reserve fund) was required by the expansion of the
business activity of the Bank (cf. Table 6). The average
interest-bearing investments of the Reichsbank (bills,
lombard loans, and discounted securities) rose from
454,200,000 marks in 1876 to 900,300,000 marks in 1900.
In the same time the average note circulation grew from
684,900,000 marks to 1,138,600,000 marks, and the total
demand liabilities, inclusive of note circulation, from
903,700,000 marks to 1,651,300,000 marks.
The amount of share capital is not as important to a
central bank of issue as is often stated. The most important floating capital of a bank of issue are its notes and
its deposits. Monetary circulation is adapted to the
variations of money demands mainly by the elastic note
issue, through which the existing currency can be increased
within the limits necessary for the redemption of notes.
An increase of the capital of a bank of issue, on the contrary, does not create any new currency, but only transfers




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Monetary

Commission

cash from free circulation to the coffers of the bank; the
currency in free circulation is thus diminished, and this
diminution must be readjusted by heavier demands on the
bank. The assumption that a permanent reduction of its
discount rate would be possible by strongly increasing the
capital of a bank of issue is based therefore on irrelevant
suppositions and on misconceptions as to the importance
of capital for a bank of issue. Capital is mainly a guarantee
fund for the holders of notes, the owners of balances, and
other creditors of the bank. The character of capital as
guarantee fund is not changed by the fact that the Reichsbank employs its means, so far as they are not invested
in business sites, etc., in granting short credit, just as it
uses notes and balances, in contrast to other great banks of
issue which have invested their capital in government
securities. The employment of capital in bill and lombard
transactions is safe enough, and has an advantage over
investments in stocks and shares in that such capital is
easier to realize.
Even if the Bank's own means be regarded only as a
fund to secure its creditors, there are excellent reasons for
maintaining a certain general proportion between this
fund and the liabilities of the Bank; thus the unexpected
increase of the business and liabilities of the Reichsbank
in the last quarter of a century, made desirable a certain
increase of the Bank's own means.
Besides this general point of view, the extension of the
business activity of the Reichsbank, also the increase of
its branches—from 182 at the beginning of 1876 to 310
on January 1, 1900, as noted—and of the real estate account of the Reichsbank spoke in favor of an increase




340

The

Reichsbank,

1876-1900

of share capital and reserve fund. Whereas the book
value of the Reichsbank's real estate amounted to only
13,300,000 marks at the end of 1876, it was 35,600,000
marks at the beginning of 1900, and so considerably exceeded the total reserve fund.
The great increase in lombard investments also made a
reenforcement of the Bank's own means appear expedient.
Lombard holdings are legally not admitted as cover for
notes, and are also not so suitable as bill investments
as cover for deposits repayable on demand, owing to
their origin and less liquid character. In granting lombard loans, therefore, the Bank can use practically only
its own means. The average lombard holdings of the
Reichsbank increased from a total of 51,000,000 marks
in 1876 to 108,000,000 marks in 1897. Even though
they still fell short of the original share capital of the
Reichsbank, great fluctuations have occurred in lombard
holdings only within the various years. The highest figures attained in these investments were 200,000,000
marks. Considerable sums from deposits were at such
times invested in lombard loans in addition to the Bank's
own funds. An increase of the original share capital was
the only way to develop lombard investments without
making increased use of deposits.
The state governments considered an increase of capital
by 30,000,000 marks and a gradual increase of the reserve
fund by an equal amount to be sufficient. In the Reichstag, on the contrary, a greater increase of the Bank's
means was demanded from various quarters. Although
the committee appointed to consider the bill decided in
the first two readings by a considerable majority in favor




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Monetary Commission

of the government proposals, it was resolved at the third
reading, as a compromise between the parties, that the
original capital be raised by 30,000,000 marks up to December 31, 1900, and by another 30,000,000 marks up to
December 31, 1905. With respect to the reserve fund,
the increase of 30,000,000 marks remained. The Reichstag
gave its consent to this resolution, and this increase of
capital was recognized by the government, not as necessary and expedient but as reasonable.
When the increase of capital and reserve fund has been
carried into full effect, the Reichsbank's own means will
amount to 240,000,000 marks (against 150,000,000 marks
hitherto). With this amount it will surpass all other great
banks of issue, with the exception of the Bank of England,
which has means of its own invested to a large extent,
amounting altogether to £17,553,000 (358,600,000 marks).
Up to the end of 1900 the Reichsbank was fourth in this
respect; it was behind the Bank of France and the Bank
of Austria-Hungary.
In order to make new shares accessible as far as possible to less wealthy investors, the Reichstag made an
amendment to the government bill, providing that the
new shares should be drawn up in amounts of 1,000
marks, whereas the old shares have a nominal value of
3,000 marks each.
The Chancellor was empowered to negotiate the new
shares by offering them for public subscription, and to
fix the rate at which they were to be offered, as well as
the periods within which the capital was to be paid in.
The negotiation of the 30,000,000 marks to be issued by
December 31, 1900, took place in October 1900, at a rate




342

The

Reichsbank,

1876-1900

of 135. The premium obtained was added to the reserve
fund, which was thus brought up to 40,498,000 marks in
the first weekly return of 1901.
EXTENSION OF THE TAX-FREE NOTE CONTINGENT OF
THE REICHSBANK.
As with share capital, the development of the Reichsbank made an extension of its note issue desirable. The
system of indirectly limiting the note emission of German
banks of issue by means of the 5 per cent note tax has
been described in detail (pp. 22, 81, and 205). It may be
mentioned again that, with respect to private banks of
issue, the system has had the effect of restricting their
uncovered note issue mainly to the tax-free note contingents assigned to them, but that for the discount policy
of the Reichsbank, on the contrary, it could be only a
general guiding principle. While the average uncovered
note circulation of the Reichsbank has always been considerably lower than its contingent, and its cash holdings
have at times exceeded the total note circulation, there
have been at other times large excesses of the contingent.
The number and extent of these excesses have increased,
especially in the last ten or fifteen years.
The cause of this phenomenon lies in the fact that with
the economic development and the increase of German
monetary circulation to about double its extent at the
beginning of the seventies, the periodical fluctuations in
the money demands which the Reichsbank must satisfy by
means of its elastic note issue, have also considerably increased. The increase of the range between the lowest and
highest points reached by interest-bearing investments of




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Monetary

Commission

the Reichsbank, which has already been discussed in the
chapter on discount policy, finds its counterpart in the
increase of range between the lowest and highest points
reached by uncovered note circulation. In the discussions of the Revised Bank Act, reference was made to the
fact that the range between the maximum and minimum
of the uncovered note issue of the Reichsbank has risen
from 325,000,000 marks in the period 1879-1883 to
754,000,000 marks in the period 1894-1898.
The note contingent of the Reichsbank, originally fixed
at 250,000,000 marks, has been gradually increased to
293,400,000 marks through the addition of the contingents
of banks of issue ceasing to exist as such, and at this figure
it amounted to almost two-fifths of the difference between
the maximum and minimum of note circulation during
the five years 1894-1898. There can be no doubt that no
limitation of note issue could prevent the Reichsbank from
satisfying the fluctuations of money demand, rooted as
these fluctuations are in our economic life.
While this point of view favored an extension of note
contingent, such an extension was made possible, even
though scrupulous care be insisted upon for the redemption
of bank notes, by the increase of the metal reserve of
the Reichsbank in recent years. Excesses of note contingent have frequently occurred even when the cash
cover was sufficient for notes and for all demand liabilities. In the deliberations over the Bank Act in 1875,
the government had expressed the view that excesses
of note contingent would appear first when metal cover
for notes dwindled to about 55 per cent. Excesses of note
contingent have frequently occurred at the Reichsbank




344

The

Reichsbank,

1876-1900

in the last few years (since 1895) while the metal cover
was more than 70 per cent.
Note contingent, which has gradually become too small,
has up to the present not disturbed the commercial world
very much, because the Bank officials have refrained, as
far as possible, from raising the discount to 5 per cent
and higher, and have preferred to defray, out of the
funds of the Reichsbank, the amount of tax in excess
of discount receipts. But, as stated in the arguments
to the Revised Bank Act, such a practice, amply justified by considerations for the common welfare, can be
maintained only so long as the excesses are rare and do
not last too long. The frequency, duration, and extent
of excesses have, however, increased in such a measure
since 1895 that sixteen excesses occurred in 1898 and
twenty in each of the years 1899 and 1900. Each change
of quarter in and since 1896 has subjected the Reichsbank to the note tax, and in 1899 the tax-free limit was
exceeded during the whole of the last three months.
To insure the necessary freedom to the Reichsbank in
the future, the government bill proposed raising the taxfree note contingent to 400,000,000 marks. The complete
abolition of the note tax for the Reichsbank, which had
been demanded in many quarters, was not insisted upon,
although the Reichsbank has never allowed itself to be
mechanically influenced in its discount policy by the
intentions of this system. In private banks of issue the
note tax had tended to limit uncovered note circulation
to the amount of tax-free note contingents. It was
desirable to avoid a one-sided abolition of note tax for




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Monetary

Commission

the Reichsbank. Besides, the whole system had for the
Reichsbank a partial advantage in that an excess of the
tax-free limit of circulation is always a kind of warning
signal for the business world and paves the way for necessary advances in the discount rate.
This last circumstance seemed to dictate that, if the
note tax was to be retained at all for the Reichsbank, the
increase of tax-free note contingent must not be too great.
The same compromise, however, which had led to the
increase of share capital, caused an increase of the contingent of the Reichsbank to 450,000,000 marks after the
committee of the Reichstag had accepted in the first two
readings the increase to 400,000,000 marks proposed by
the government.
BINDING OF THE DISCOUNT RATE OF PRIVATE BANKS OF
ISSUE TO THAT OF THE REICHSBANK.
Whereas the share capital and tax-free note issue previously allowed to the Reichsbank had not caused inconveniences and the increase had been made only to
avoid disturbances for the future, the fact that private
banks of issue could thwart the well-considered discount
policy of the Reichsbank through their note privileges had
caused inconveniences in the time elapsed. The difficulties of the Reichsbank's position have been described.
When the Bank sought to keep the discount rate up, in the
interest of inland trade, foreign trade, or of the standard,
the private banks of issue could frustrate this plan by
granting cheap credit through note privileges. The private
banks of issue had agreed privately to discount below the
rate of the Reichsbank only in case of a threatened expor-




346

The

Reichsbank,

1876-1900

tation of gold. How much the private banks of issue
have underbid the discount rate of the Reichsbank, even
in years of stringency during the last period of expanding
trade, is evident from the fact that the average percentage
yield of bill investments of private banks of issue was considerably lower than that of the Reichsbank. The average
percentages follow:
Private
banks of
issue.
18951896.
1897.
1898.
1899-

Since the average bill holdings of private banks of issue
amount to about one-third of the Reichsbank's bill holdings, the underbidding of the Reichsbank's discount by
private banks of issue must be regarded as a considerable
hindrance to the efficiency of the discount policy of the
Reichsbank. The discount policy of the Reichsbank is
determined exclusively by considerations for the public
interest, while the fixing of the discount rate of private
banks of issue, as private profit-earning institutions, is
influenced predominantly by regard for business advantage. The difficulties to the discount policy of the Reichsbank through the action of private banks of issue were to
be overcome only by extending to all cases the arrangement made privately for the special case of gold exportation; that is, of binding private banks of issue legally to
the discount rate of the Reichsbank. It was sufficient to
make it impossible for private banks of issue to underbid




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National

Monetary

Commission

the Reichsbank's discount; no prejudice can result from
a rate exceeding that of the Reichsbank, either for the
whole business world or for takers of credit, who can at
any time make claims on the credit of the Reichsbank.
The Revised Bank Act, therefore, provided that the
Bundesrat use its power to give notice for January i, 1901,
against those private banks of issue which did not bind
themselves before December 1, 1899, not to discount
under the rate of the Reichsbank on and after January
1, 1901.

This regulation at once met with animated opposition
on the part of those circles which up to that time had
reaped advantage from the cheaper credit of private
banks of issue, and which, on political or economic grounds,
are averse to centralization of banking. The disadvantages of the existing situation were, however, so evident
that everyone recognized, in varying degrees, that the
discount policy of private banks of issue ought to be
influenced by that of the Reichsbank. One faction
would legally bind private banks of issue to the discount
rate of the Reichsbank only in case of a threatened
exportation of gold; another faction would bind them
only in case the Reichsbank's discount was 4 per cent
or more, and at other times allow the private banks of
issue to discount one-eighth, one-fourth, or one-half of
1 per cent under the rate of the Reichsbank. Finally a
decision was arrived at, according to which private
banks of issue had to bind themselves not to discount
below the rate of the Reichsbank as soon as this rate
reached or exceeded 4 per cent, and at other times not
to discount under the official discount rate of the Reichs-




348

The

Reichsbank,

187

6-1900

bank by more than one-fourth of i per cent. When the
Reichsbank discounts at a private rate, private banks are
to discount by not more than one-eighth of i per cent
under that rate. The Bundesrat wa$ to revoke the
charters of those banks which would not agree to this.
Before the appointed day (December i, 1899) a ll private
banks of issue undertook the duties with respect to their
discount rate.
Although the final wording of this important regulation
is weaker than in the bill as laid before the Reichstag, yet
it signifies a considerable advance as compared with the
previous condition. The Reichsbank will always be
obliged to keep a discount rate of at least 4 per cent when
its discount policy pursues definite aims in the public interest, when it wants to prevent an outflow of gold or to
induce inland trade to assume an attitude of reserve; in
this way its discount policy can not be thwarted in the
future by private banks of issue.
REGULATIONS WITH REGARD TO THE PRIVATE DISCOUNT
RATE OF THE REICHSBANK.

During the deliberations in the Reichstag on the question of fixing the discount rate of private banks of issue,
the discussion was directed to the Reichsbank's practice
of discounting bills of certain descriptions under its official
rate at the so-called private rate.
The view expressed on this occasion in the Reichstag,
that the private rate represents an unjustifiable preference
for certain individuals and large capitalistic circles proved
to be erroneous. It was demonstrated that the conditions
for the private rate were exactly similar for all persons




349

National

Monetary

Commission

having intercourse with the Reichsbank and for all
branches of business; that the private rate has actually
benefited a large number of middle-class business people,
and that it has been used by credit associations and,
through their agency, by artisans, small tradespeople,
and farmers. It was further proved that the Reichsbank
has had recourse to discounts below its rate only in times
of free circulating money, to which the historical statement given above of the discount policy of the Reichsbank
bears witness. In times when money is very abundant,
however, a discount under the official discount rate is for
the Reichsbank a suitable means of keeping in touch with
the money market and of assuring itself of a certain number of first-class bills.
These reasons determined the Reichstag not to forbid
entirely discounts under the official rate. A regulation
was, however, inserted in the act, according to which, on
and from January i, 1901, the Reichsbank may discount
under its rate, publicly promulgated according to section
15 of the Bank Act, only when this rate is less than 4 per
cent. The current private discount rate must be published
in the Imperial Gazette (Reichsanzeiger).
This limitation is therefore^of no practical importance,
for the Reichsbank for some time past has discounted
at the private rate only when its official rate was 3%
or 3 per cent. As has already been stated, discounts
below the official rate have been discontinued altogether
since April 1896, in view of the continued strained condition of the money market (cf. p. 278). The Reichsbank's freedom is therefore not impeded by the aforementioned provision of the Revised Bank Act.




350

The

Reichsbank,

1876-1900

The other regulations of the Revised Bank Act are not
of the same importance as those discussed.
DISTRIBUTION OF THE NET PROFITS OF THE REICHSBANK
BETWEEN SHAREHOLDERS AND THE EMPIRE.

The change in the distribution of the net profits of the
Reichsbank between the shareholders and the Empire has
no influence on the business activity of the Bank itself, but
merely disposes of the financial proceeds of this activity.
To be sure, there was the danger that through changes
of too radical a nature the character of the Reichsbank
as an institution established with private capital and
under the guidance and supervision of the Empire
might be modified in the direction of the so-called conversion into state property. In the distribution of the
profits, the foundation of the Bank on private capital is
expressed in the fact that shareholders receive not a
fixed interest but a dividend which varies with business
proceeds. The more the dividend of shareholders is
cut down, and a fixed interest approximated, the more the
establishment on private capital becomes a mere form,
while in reality the shareholders are ultimately nothing
but creditors who have advanced to the Empire the capital necessary for carrying on the Reichsbank, against a
fixed interest or one fluctuating within a very limited
range.
The Revised Bank Act of 1889 had already limited the
shareholders' portion of the profits as compared with
the provisions of the Bank Act, so that a preliminary dividend of 3>£ per cent, instead of \Y2 per cent, was allotted
to the shareholders; 20 per cent of the surplus went to




351

National

Monetary

Commission

the reserve fund until the latter reached in 1891 the prescribed amount of 30,000,000 marks, the remaining surplus being divided equally between the Empire and the
shareholders until the dividend of the latter reached 6 per
cent (instead of 8 per cent in the Bank Act), and then the
Empire received three-quarters, and the shareholders
one-quarter of any remainder.
The bill laid before the Reichstag at the beginning of
1899 provided for an alteration in this apportionment
only in that it proposed to assign again 20 per cent to the
reserve fund, after the preliminary dividend of 3 X per
cent had been paid, and to divide the profits into threefourths for the Empire and one-fourth for the shareholders
when the dividend reached 5 per cent, instead of 6 per
cent. Since in 1889 the marked decline of the interest
rate, as compared with the first half of the seventies,
had occasioned a curtailment of the dividends of the
shareholders, and since this decline has not continued
in more recent years, but had advanced somewhat, no
grounds existed for a further reduction in the dividends
of the shareholders. The change proposed by the government bill was based on the large business earnings of the
first few years—which, however, could not be counted
upon to continue—and in the decrease of the note tax
due to the Empire caused by the expansion of the taxfree note contingent.
In the Reichstag, however, more radical proposals
met with strong approval. The committee decided in
the second sitting that the surplus remaining after the
endowment of the reserve fund should be divided between
the Empire and the shareholders until the dividend of




352

The

Reichsbank,

1876-1900

the latter reached 6 per cent. The whole of the remainder, over and above this, was to go to the Empire. After
guaranteeing the shareholders a dividend of 3% per
cent, for which the reserve fund itself is to be drawn
upon if need be, this resolution tried to fix a maximum
dividend. Thus the participation of private capital in
the sense discussed above would have been altered, and
the Reichsbank would have become more than formerly
a kind of state bank. The government declared a maximum dividend limit unacceptable, because such a limit
tends to convert the Reichsbank into state property.
As the extreme limit, it made a compromise proposal,
which, after the endowment of the reserve fund, assigned
three-fourths of the surplus to the Empire and one-fourth
to the shareholders. This motion finally received the
consent of the Reichstag.
The remainder of the act deals with securities admitted to lombard loans and the notes of the former
Prussian Bank.
LOANS ON BONDS ISSUED

BY LAND-CREDIT

INSTITUTIONS

AGAINST LOANS TO COMMUNAL CORPORATIONS.

The Bank Act of 1875 provided in section 13, 3b,
that the Reichsbank be authorized to grant lombard
loans at interest on mortgage bonds (Pfandbriefe) of
agricultural, communal, or other land-credit institutions of Germany under state supervision and of German joint-stock mortgage banks, to not more than
three-quarters of their market value. The indicated
institutions draw up, besides mortgage bonds, bonds payable to bearer, in virtue of loans to home communal cor82302—10—23




353

National

Monetary Commission

porations; these bonds, owing to the absence of any
deposited pledge, can not be called mortgage bonds, but
are at least as safe as mortgage bonds. These bonds had
up to this time been excluded from the lombard business
of the Reichsbank through the wording of section 13 of
the Bank Act. The exclusion was removed by article 6 of
the Revised Bank Act.
WITHDRAWAL OF NOTES OF THE PRUSSIAN BANK.

Finally, the notes of the former Prussian Bank were
taken over by the Reichsbank. The notes, the values of
which were declared in terms of the taler standard, have
long since been recalled, but have not been precluded from
redemption; they are even now being cashed at the main
office of the Reichsbank. At the end of 1900 there were
19,548 notes, with a total value of 1,718,190 marks, which
had not been redeemed. Of the notes issued by the Prussian Bank in 1875 and based on the mark standard, of
which up to the present only the 100-mark notes have
been formally recalled, there are still 869,300 marks outstanding. The notes of the Prussian Bank not yet redeemed
amount altogether to 2,587,490 marks.
Most of these notes are probably no longer in existence,
but have been lost in the course of time. The Revised
Bank Act wants the Empire to have the profits accruing
therefrom. I t binds the Reichsbank to make over to the
treasury of the Empire the amount of notes of the
Prussian Bank still outstanding on January 1, 1901. In
return, these notes are no longer to be reckoned in determining the note circulation of the Reichsbank. The
Reichsbank is bound, as before, to redeem any notes




354

The

Reichsbank,

1876-1900

eventually turning up, but the Empire must compensate
the Bank for any sums thus paid.
RECAPITULATION.

All in all, the Revised Bank Act of June 7, 1899, has
based its conclusions upon the previous development in a
happy manner. It has not attacked the tested foundations
of the German banking constitution and of the Reichsbank
in particular, and has insured their preservation for the
future by seasonable reforms. Above all, the Revised
Bank Act has given the Reichsbank, in accordance with
the important expansion of its business, a broader material basis by increasing its own means and a greater
freedom by extending its note privilege; it has guaranteed
the necessary unity in the regulation of German monetary circulation by binding private banks of issue to the
discount rate of the Reichsbank. On this foundation the
Reichsbank will succeed, it may confidently be hoped, in
fulfilling its great tasks of serving as a support and mainstay of the German monetary system, of helping it over
difficult periods, of assisting the whole German nation in
its vigorous growth, and of sheltering it from all dangers
which can arise from shocks to its monetary and credit
system.




355




APPENDIX.
LAW OF JUNE i, 1909, CONCERNING CHANGES IN
THE BANK ACT.
We, William, by the grace of God, German Emperor,
King of Prussia, etc., ordain, in the name of the Empire
and with the consent of the Bundesrat and the Reichstag, the following:
ARTICLE I .

Section 24 of the Bank Act of the 14th of March, 1875,
is changed to the following form by the repeal of article
2 of the law of June 7, 1899.
The net annual profit of the Reichsbank is to be divided
at the close of each year in the following manner:
1. In the first place, a regular dividend of 3% per cent
of the capital is to be distributed among the shareholders.
2. After 10 per cent of the balance has been transferred to the reserve fund the new balance shall be distributed in the proportion of one-fourth to three-fourths
among the shareholders and the imperial treasury, respectively.
If the net earnings are less than $% per cent of the
capital, the difference is to be made up from the reserve
fund.
The premium gained on the sale of Reichsbank shares
is to be added to the reserve fund.
Back dividends having a four-year standing after
maturity are canceled in favor of the Bank.




357

National

Monetary

Commission

ARTICLE 2.

Article 5 of the law of June 7, 1899, is amended by the
following provision:
The total amount of tax-free uncovered notes to be
apportioned to the Reichsbank, according to section 9 of
the Bank Act, including the shares of the banks numbered
2 to 12, 15 to 17, and 20 to 33, which have accrued to the
Reichsbank, is to be fixed at 550,000,000 marks, and the
total note circulation for all the banks is to be raised to
618,000,000 marks.
The amount of notes in circulation, according to the
reports which are submitted at the end of March, June,
September, and December of each year, for the purpose of
determining the tax (section 10 of the Bank Act), raises the
shares of the Reichsbank to 750,000,000 marks, and the
aggregate circulation to 818,771,000 marks.
ARTICLE 3.

The notes of the Reichsbank are legal tender. In all
other respects the provisions of section 2 of the Bank Act
remains in force.
ARTICLE 4.

I. In section 18 of the Bank Act the words " German
currency" are changed to "German gold coins."
II. Section 19, paragraph 1, of the Bank Act is changed
to the following form:
The Reichsbank is required to accept at full face value
the notes of those banks which are announced by the
Imperial Chancellor, according to section 45 of this act,
not only in its main office in Berlin, but also in its branch




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offices either in cities of more than 80,000 inhabitants or
in the city where the bank which has issued the notes is
located, as long as the issuing bank punctually fulfills its
duty of note redemption.
Similiarly, the Reichsbank is required to exchange to
bearer its notes for the notes of each of the announced
banks in its branch offices which are located in the same
States where the issuing bank is operating, as far as the
amount of the notes of these branch offices permit such
exchanges.
The notes accepted or exchanged, according to paragraphs 1 and 2, may be presented by the Reichsbank
either for redemption or as payments to the same bank
which issued them, as well as payments in the city where
the latter has its principal office.
ARTICLE 5.

I. In section 8, paragraph 6 (C), of the Bank Act, the
words "and checks" shall be inserted after "bills."
II. The following words shall be inserted in section 13 3
of the Bank Act after "solvent: " "as well as checks which
are indorsed by not less than two persons known to be
solvent."
III. The following words shall be inserted in section 17
of the Bank Act after " solvent:" "or in checks which are
indorsed by not less than two persons known to be solvent."
IV. In section 32, paragraph 1, of the Bank Act, after
the phrase "the sale and purchase of gold and bills," the
words " and checks " shall be inserted.




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V. The following provision shall be appended to section
47 of the Bank Act:
SEC. 47^. With regard to the reserve against the circulating notes of the private note banks which are exempt
from the restrictions of section 42, the provisions of section 17 shall be applicable.
ARTICLE 6.

I. Article 6 of the law of June 7, 1899, *s amended as
follows:
The following sentence is to be added to section 13 of
the Bank Act, paragraph 3?— (C), after the words "of
their exchange value."
"To these are to be added the bonds of domestic quasi
public agricultural credit institutions, which are issued
to bearer, as well as the bonds of the above institutions
and banks, which are payable to bearer and which are
issued on the basis of loans granted to a domestic municipal corporation or which are guaranteed by such a
corporation."
II. The following provision is to be inserted under
figure 9 in section 13 of the Bank Act:
" 9 . To issue interest-bearing loans for not longer than
three months on pledges of the right of claim of debts
registered in the debit books of either the Empire or one
of the German States, to the maximum amount of threefourths of the exchange value of the converted debt."
III. Section 20 of the Bank Act is appended by the
following provisions to be designated as sections 20a and
20b.




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SEC. 20a. If the right of claim of debts registered in
the debit books of either the Empire or one of the German
States (sec. 13, fig. 9) is pledged to the Reichsbank, the
signatures of the persons, for which the Reichsbank is
kept responsible according to section 38, are adequate for
the recording of the pledge in the debit books in the name
of the Reichsbank. Inasmuch as this latter provision
requires the signatures of two members of the board of
directors, the authentication of the application is valid
when made by other officials of the Reichsbank named
by the board of directors to the debt administration.
The provisions of section 183 of the law concerning
voluntary jurisdiction are applicable to the authentication.
SEC. 206. If the pledge of the right of claim of debts
has been registered in the name of the Reichsbank in the
debit books (sec. 13, fig. 9), the Reichsbank retains the
right to the pledge even when it has been transferred to
a third party, unless the right of the latter has been
recorded in the debit books before the entrance of the
pledge of the right to the claim or if at the time of registration the right of the third party has been either known
or, save for gross negligence, could have been known to
the Reichsbank.
If the debtor does not meet his obligations guaranteed
by the pledge of the right to the claim, the debt administration is authorized and required, upon the written
request of the Reichsbank, to issue to the latter, without demanding any proof of the delay on the part of the
pledger to meet his obligation, certificates of indebtedness to bearer for the whole or a corresponding part of
the claim, unless such issue is prohibited by judicial




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order or when the right to request such issue or to make
other arrangements was recorded in favor of a third
party prior to the pledge of the right to the Reichsbank.
The pledge of the right of claims may also be used for
the purpose of defraying the cost incurred in the issue
of the certificates of indebtedness.
The debt administration shall inform the Reichsbank,
at the time of issuing certificates of indebtedness to the
latter of the later transfers of the right to the claim.
The provisions of section 20 stipulate for the compensation to be demanded by the Reichsbank out of the
certificates of indebtedness to be issued by the debt
administration.
ARTICLE 7.

Section 22 of the Bank Act is to be changed to the
following provision:
The Reichsbank is required to take charge of the
business of the imperial treasury without compensation.
The Reichsbank is authorized to assume the obligation of administering the similar business of the federated
States.
ARTICLE 8.

Articles 3, 4, 5, and 6 of this law shall go into effect on
the ist of January, 1910. The other provisions shall
go into effect on the ist of January, 1911.
Issued over our imperial signature and seal.
Given at the New Palace, the ist of June, 1909.
(Signed)
WILLIAM,




VON BETHMANN HOLLWEG.

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