REICHSBANK. The Reichsbank is the central bank of Ger many, corresponding to the Bank of England. It was founded in 1875, following upon the unification of the German empire. Under its original constitution, its management was divided be tween its shareholders, acting through a committee, and the Government, but the latter exercised the real control.
In considering the pre-war duties and functions of the Reichs bank, it must be remembered that it did not "grow up" like the Bank of England, but was founded as part of the set scheme of the German empire. Hence the close control exercised by the State, and hence the fact that it assumed certain duties which in England were performed by other organisms.
The chief points of difference were : (a) that the Reichsbank did not confine itself to being a bankers' bank; and (b) it performed the functions of the London provincial bankers' clearing houses. From these two points follows the fact that the Reichsbank had as many as 400 to 500 offices and agencies situated in every part of the empire, and was also accustomed to discount paper which did not invariably possess the standing required in London by the Bank of England.
The "giro" or clearing system was based on that of the Ham burg clearing house, which was absorbed by the Reichsbank on its foundation. The clearing system of the Bank of Prussia was taken over a year later. Clients, who might be other banks or private individuals, had to maintain a minimum "giro" balance with the Reichsbank, which, in 1913, averaged mks.25,000, and could then have money due to them paid in by their debtors at any office of the Reichsbank and remitted to their credit free of charge. This system was inaugurated with the deliberate object of facilitating trade, and its success is measured by the fact that 1913 witnessed 26.5 million "giro" entries in the books of the Reichsbank. It must be remembered that during the last century, cheques in Germany were hardly in use. Hence the need for this system.
Prior to 1871, the note issue was in the hands of various State and private banks. Political and other considerations made it un wise to attempt to suppress these, but the Reichsbank was given the right of issue, and its notes eventually outweighed in number and importance those of other banks. As has happened in Eng land, some private banks allowed their right of issue to lapse, and immediately prior to the war, only five banks were entitled to issue notes beyond the limits of their gold cover. These were : Reichsbank could issue, uncovered, mks. . • • 470,000,000 Bank of Saxony could issue, uncovered, mks. . . 17,000,000
Bank of Bavaria could issue, uncovered, mks. . . 32,000,000 Bank of Wiirtemburg could issue, uncovered, mks. . io,000,000 Bank of Baden could issue, uncovered, mks. . . io,000,000 Mks. . . . ...... . . 539,000,000 The predominance of the Reichsbank is apparent.
The Reichsbank was in theory bound to redeem its notes in gold on demand, but in practice it discouraged applications. This was a matter of national policy, as the Government was continu ally adding to the country's gold stocks in preparation for future events.
The existence of a fixed limit to the fiduciary issue of 47o million marks placed the Reichsbank in a similar position to the Bank of England (q.v.) under Peel's Act of 1844. There was, however, one vital point of distinction. The Bank of England could not exceed the limit without special authority from the Govern ment, and so only did so four times in the 7o years 1844-1914. The Reichsbank could always exceed its limit on payment of a five per cent. tax on the excess issue, and so habitually did so as a matter of course.
Reichsbank and the World War.—On the outbreak of war in 1914, the Reichsbank obligation to redeem notes in gold and its liability to tax on its excess note issue were suspended, while Treasury bills and bonds, with less than three months to run, were authorized to be used as cover to the note issue. (Cover was originally limited to Treasury notes redeemable in cash on demand, notes of the issuing banks which were allowed to be reckoned as specie and bills carrying at least two good names and maturing within three months.) A vigorous propaganda was instituted to concentrate gold in the hands of the Reichsbank, and this met with some measure of success. On the other hand, the bank was bound to discount such Treasury bills and bonds as the State re quired it to, and to issue notes against them. This was the method by which currency inflation was carried out in Germany. Dr. Schacht, in his book The Stabilisation of the Mark, states that the war inflation was such as to raise the per capita note circulation from mks.11 o to mks.43o. The history of the post war inflation period is told elsewhere (see CURRENCY ; GERMANY; MARK), but for the first few years the Reichsbank was under the control of the Government, and had to discount such Treasury bills as were presented to it and to issue notes against them. The amendment of the Bank Law of July 8, 1926, authorizes the Bank to discount Treasury bills of the Reich with a maturity of not more than three months, and to grant advances against such bills up to 400,000,000 Reichsmarks.