In 1922 the Reichsbank was freed by legislation from Govern ment control and so gained its nominal independence. For a few months it tried to arrest the fall in the mark, but the pressure of events was too much for it. The occupation of the Ruhr in early 1923 gave the mark its death-blow.
During most of 1923, the Reichsbank was perforce a passive spectator of the general collapse, and the first step to recovery, namely the institution of the Rentenmark, was taken by an or ganization nominally independent of the Reichsbank. Later on the Reichsbank was able to take definite and decisive action. At the end of 1923, it forced the Government to abandon its policy of ceaseless borrowing from the bank by the discount of Treasury bills; in early 1924, under the presidency of Dr. Schacht, it pro moted the establishment of the Gold Discount Bank; and in April 1924, it put into force a general rationing of credit. (See MARK.) Reconstitution of 1924.—During these months, the Dawes commission was at work, and among its duties was that of the reconstitution of the Reichsbank. In effecting this, the Dawes commission had two objects. One was the economic reconstruc tion of Germany, and the other was the organization of adequate reparations payments. As regards the last, the scheme was for the German Government to pay the sums due into the accounts held by the agent-general for reparations at the Reichsbank, for him in his turn to transfer to the recipient nations in such amounts and at such times as the state of the foreign exchanges permitted.
This second objective had a marked effect upon the new con stitution of the Reichsbank. Foreign control was clearly neces sary, and yet due regard had to be paid to German claims. Dr. Schacht gives in his book a very clear account of the negotiations. In sum, a council was set up, composed of an equal number of German and foreign representatives. This had certain powers, in cluding the appointment of the directors of the bank, who exer cised the executive control. These last, however, had to be Ger mans, and the president had to have his appointment confirmed by the president of the State. In case of dead-lock, the presi
dent could reject the first two nominees of the council, but the third choice of the council could be appointed over his head.
The new note issue was based on the American ratio system, and the relation between the various notes was fixed at 1 new Reichsmark= Rentenmark= i,000,000,000,000 old marks. The right of the Reichsbank to issue notes was extended from Io to 5o years, during which period the State could not abrogate it. Of the note issue 4o% had to be covered by gold or "gold ex change" (3o% to be gold), and this cover was provided initially by the German loan floated internationally in the autumn of Furthermore, 4o% of deposits had to be covered by "liquid assets," such as short-term bills. The compulsory redemption by the bank of notes in gold was postponed pending a general return by other nations to the gold standard.
Issue of uncovered notes beyond the 4o% ratio is permitted, subjected to a graduated tax on the excess and regulations as to the bank's discount rate. If by the issue of additional notes the ratio falls to 37-40%, the tax is 3%; between 35 and 37%, 5%; and between 331 and 35%, 8%, rising by a point for every point fall below 331%. The discount rate must be at least 5%, rising above this by at least one-third of tax payable. Other pro visions included the organisation of the State's debt to the bank, the reduction and fixation of the bank's capital, the allocation of profits between the shareholders and the State, and the retire ment of Rentenmark and other temporary notes. The independ ence of the bank from the State is definitely maintained.
The new Bank law came into force on iith October, 1924. The subsequent history of the Reichsbank is part of the general eco nomic history of Germany (q.v.). It is sufficient to add that the Reichsbank has played its part in the economic resettlement of the world. (N. E. C.)