Fall Asleep Learning About The Currency Reform Of 1948

Welcome to the I Can't Sleep Podcast,

Where I read random articles from across the web to bore you to sleep with my soothing voice.

I'm your host,

Benjamin Boster.

Today's episode is from a Wikipedia article titled Currency Reform of 1948.

And because it's a little bit short,

I'm going to include one about legal tender as well.

The Currency Reform of 1948 went into effect on June 20th,

1948,

In the Tri-Zone,

The three Western Occupation Zones of Germany.

From June 21st,

1948,

The Deutsche Mark DM,

Also D-Mark,

Was the sole legal tender there.

The two previously valid means of payment,

The Reichsmark and the Rettenmark,

Of equivalent value,

Both abbreviated as RM,

Were removed from circulation and replaced by the Deutschmark.

The Currency Reform of 1948 is one of the most significant economic policy measures in post-war German history.

It enabled the Western Occupation Zones to receive Marshall Plan aid and was thereby one of the requisites of the economic miracle of the 1950s.

From 1936 to 1945,

The financing of rearmament and the creation of money and compulsory levies from occupied territories resulted in a large excess of printed currency.

Shortly before World War II,

Food was only available with monthly food stamps at fixed prices,

And many civilian goods were only available with a ration card.

As the basic principles of price formation by supply and demand were invalidated by comprehensive rationing,

The external value of the Reichsmark was largely separated from the market.

Compounding the issue,

Restrictions on foreign exchange prevented the outflow of surplus money and resulted in a decline in any value the RM still had.

In 1945,

The money supply was 5 to 6 times greater than the actual value of the economy.

Immediately after the war,

There was a significant scarcity of goods caused by the destruction of the infrastructure,

Restrictions on agricultural production,

And the dismantling of industrial facilities as part of an Allied effort to prevent Germany from regaining military-industrial capacity.

A major cause was also the large-scale hoarding of goods by the German people in anticipation of a currency reform.

Near the end of February 1946,

The normal consumer food ration in the Bizone,

Territory occupied by the U.

S.

And U.

K.

,

Was reduced to 1,

014 calories daily.

A low caloric intake was another reason for the decline in industrial production.

In response to the ration change,

Weekly coal production dropped to well under half of the 1936 level.

The winter of 1946-47 was especially bitter and resulted in a poor harvest and a jump in unemployment,

Exacerbating the situation further.

In Berlin,

Prices rose for basic goods like coal lighters,

Soap,

And candles.

Food prices in the black market were often higher than the legal prices by a factor of more than 100.

In Berlin,

Many prices were posted in Reichmarks,

But would only be sold through bartering.

One significant example of an alternate means of exchange at the time was the cigarette currency,

The AMI.

In this case,

7 RM constituted about one cigarette.

Despite efforts of the Allied Control Council,

ACC,

To establish a new universal currency for all four zones of occupation,

The members of the Council were unable to come to an agreement due to conflicts over the assignment of authority over the reform.

On June 20,

1948,

The British government published British Military Government Law No.

61 in the Military Government Gazette,

The official publication for legal and public announcements in West Germany from 1946 to 1990.

British Military Government Law No.

61 was instrumental in the process of replacing the Reichsmark with the Deutschmark,

Since it spread the news to the German public about how this new currency was to be implemented.

As part of the Western Allies' coordinated efforts,

This law set the framework for implementing the currency reform in the British Occupied Zone,

Addressing critical issues like the distribution of the new Deutschmark and the removal of excess currency from circulation.

Multiple key provisions were outlined for the German public,

In particular the plan for the initial distribution of the new currency.

Article 1 of the law outlined the currencies recognized as legal tender in West Germany,

Specifying that the Allied Military Mark and Rottenbank notes would be devalued to one-tenth of their former value.

Additionally,

These currencies were set to lose their status as legal tender two months after the law's enactment,

Ensuring a clear transition to the new Deutschmark.

Furthermore,

Under Article 6 of the law,

Each West German Tri-Zone resident received an initial sum of 40 DM as start-up money,

Followed by a second installment of 20 DM,

Ensuring that all citizens had access to the new currency regardless of prior cash assets.

The reform began with an immediate cash infusion that was issued to individuals in the public sector,

A conversion of all RM cash holdings to DM,

And the establishment of the DM as the only legal means of payment.

To alleviate the excessive money supply,

The conversion to DM reduced all cash holdings and bank accounts to 6.

5% of their Reichmarks denominations,

And the money supply was limited to a total of DM 10 billion,

With a possible increase to 11 billion with administrative approval.

The most immediate effect of the currency reform was the sudden availability of retail products on store shelves.

Though the increase in production was quick and coming,

It was not fast enough to explain the sudden relative abundance of goods.

At first,

It was primarily the result of the black market dissolving and the stocks of contraband held there entering the open market.

Production was nearly at pre-war levels by November 1948.

Coincidentally,

The reform was accompanied by a climatic improvement after the severe winter of 1946-47,

With abundant harvests in the agricultural year 1948-49.

The good weather,

Augmented by record usage of fertilizer and improved efforts on the part of the farmers,

Resulted in a harvest that dramatically exceeded expectations.

The improvement was compounded by the currency reform,

As farmers had a stable currency with which to hire labor,

Buy equipment,

And acquire fertilizers to work their fields.

Although this did not eliminate the necessity for the importation of food,

It represented progress since the agricultural center of Germany had been in the East.

The existence of a trusted currency also made international trade more viable,

Enabling West Germany to import additional food.

Now let's spend some time learning about legal tender.

Legal tender is a form of money that courts of law are required to recognize as satisfactory payment for any monetary debt.

Each jurisdiction determines what is legal tender,

But essentially it is anything which,

When offered,

Tendered,

In payment of a debt,

Extinguishes the debt.

There is no obligation on the creditor to accept the tendered payment,

But the act of tendering the payment in legal tender discharges the debt.

It is generally only mandatory to recognize the payment of legal tender in the discharge of a monetary debt from a debtor to a creditor.

Sellers offering to enter into contractual relationships,

Such as a contract for the sale of goods,

Do not need to accept legal tender and may instead require payment using electronic methods,

Foreign currencies,

Or any other legally recognized object of value.

Coins and banknotes are usually defined as legal tender in many countries,

But personal checks,

Credit cards,

And similar non-cash methods of payment are usually not.

Some jurisdictions may include a specific foreign currency as legal tender,

At times as its exclusive legal tender,

Or concurrently with its domestic currency.

The term legal tender is from the Middle French tendre,

Verb form,

Meaning to offer.

The Latin root is tendere,

To stretch out,

And the sense of tender as an offer is related to the etymology of the English word extend,

To hold outward.

Demonetization is the act of stripping a currency unit of its status as legal tender.

It occurs whenever there is a change of national currency.

The current form or forms of money is or are pulled from circulation and retired,

Often to be replaced with new notes or coins.

Sometimes a country completely replaces the old currency with new currency.

The opposite of demonetization is remonetization,

In which a form of payment is restored as legal tender.

Coins and banknotes may cease to be legal tender if new notes of the same currency replace them,

Or if a new currency is introduced,

Replacing the former one.

Piet Liefting's measure of demonetizing 100 guildernotes was aimed at war profiteers.

On October 6,

1944,

The recently repatriated Belgian government demonetized banknotes greater than 100 francs.

People having 100 francs were allowed to exchange up to 2,

000 francs per household for new banknotes.

Banks added withdrawal limits and current accounts were frozen.

The government of Ceylon passed the Prevention of the Avoidance of Income Tax Act on October 26,

1970,

Demonetized all currency notes of the denominations of rupees 50 and 100,

Bearing a date prior to that of the demonetization.

The United Kingdom adopted decimal currency in place of pounds,

Shillings,

And pence in 1971.

Banknotes remained unchanged,

Except for the replacement of the 10 shilling note by the 50 pence coin.

In 1968 and 1969,

Decimal coins which had precise equivalent values in the old currency were introduced,

While decimal coins with no precise equivalent were introduced on the 15th of February,

1971.

The smallest and largest non-decimal circulating coins,

The half penny and half crown,

Were withdrawn in 1969,

And the other non-decimal coins with no precise equivalent in the new currency were withdrawn later in 1971.

Non-decimal coins with precise decimal equivalents remained legal tender,

Either until the coins no longer circulated,

Or the equivalent decimal coins were reduced in size in the early 1990s.

The 6D coin was permitted to remain in large circulation throughout the United Kingdom due to the London Underground Committee's large investment in coin-operated ticketing machines that used it.

Old coins returned to the Royal Mint through the UK banking system will be redeemed by exchanging them for legal tender currency with no time limits,

But coins issued before 1947 have a higher value for their silver content than for their monetary value.

Individual coins or banknotes can be demonetized and cease to be legal tender,

But the Bank of England does redeem all Bank of England banknotes by exchanging them for legal tender currency at its courts in London,

Or by post,

Regardless of how old they are.

Banknotes issued by retail banks in the UK,

Scotland and Northern Ireland are not legal tender,

But one of the criteria for legal protection under the Forgery and Counterfeiting Act is that banknotes must be payable on demand,

Therefore withdrawn notes remain a liability of the issuing bank without any time limits.

In the case of the euro,

Coins and banknotes of former national currencies were in some cases considered legal tender from January 1,

1999 until various dates in 2002.

Most countries continue to exchange pre-euro notes and coins for a period of time.

Only Ireland continues to do so.

Legally,

Those coins and banknotes were considered non-decimal subdivisions of the euro.

When the so-called Swiss dinar ceased to be legal tender in Iraq,

It still circulated in the northern Kurdish regions.

Despite lacking government backing,

It had a stable market value for more than a decade.

This is also true of the paper money issued by the Confederate States of America during the American Civil War.

The Confederate currency became worthless by its own terms after the war,

Since it could only be redeemed a stated number of years after a peace treaty was signed between the Confederacy and the United States,

Which never happened as the Confederacy was defeated and dissolved.

During World War II,

The United States printed a series of Hawaii overprint notes as an emergency issue after the attack on Pearl Harbor.

The intent of the overprints was to easily distinguish United States dollars captured by the Imperial Japanese Armed Forces in the event of an invasion of Hawaii,

Which never happened,

And render the notes worthless via demonetization.

Demonetization is currently prohibited in the United States,

And the Coinage Act of 1965 applies to all U.

S.

Coins and currency,

Regardless of age.

The closest historical equivalent in the U.

S.

,

Other than Confederate money,

Was from 1933 to 1974,

When the government banned most private ownership of gold bullion,

Including gold coins held for non-numismatic purposes.

Now,

However,

Even surviving pre-1933 gold coins are legal tender under the 1964 Act.

Banknotes and coins may be withdrawn from circulation but remain legal tender.

United States banknotes issued at any date remain legal tender even after they are withdrawn from circulation.

Canadian one and two dollar bills remain legal tender,

Even if they have been withdrawn and replaced by coins.

But Canadian one thousand dollar bills remain legal tender,

Even if they are removed from circulation as they arrive at a bank.

However,

Bank of England notes that are withdrawn from circulation generally cease to be legal tender,

But remain redeemable for current currency at the Bank of England itself,

Or by post.

All paper and polymer issues of New Zealand banknotes issued from 1967 onwards are still legal tender.

However,

One,

Two,

And five cent coins are no longer used in New Zealand.

A cashless society is an economic state whereby financial transactions are not conducted with money in the form of physical banknotes or coins.

Cashless societies have existed based on barter and other methods of exchange.

In modern usage,

The term usually refers to financial transactions conducted by transfer of digital information,

Usually an electronic representation of money,

Between the transacting parties.

Sometimes currency issues such as commemorative coins or transfer bills may be issued that are not intended for public circulation,

But are nonetheless legal tender.

An example of such currency is mondy money.

Some currency issuers,

Particularly the Scottish banks,

Issue special commemorative banknotes,

Which are intended for ordinary circulation,

Though no Scottish banknotes nor notes from Northern Ireland are legal tender in the United Kingdom.

As well,

Some standard coins are minted on higher quality dyes,

As uncirculated versions of the coin,

For collectors to purchase at a premium.

These coins are nevertheless legal tender.

Some countries issue precious metal coins which have a currency value indicated on them,

Which is far below the value of the metal the coin contains.

These coins are known as non-circulating legal tender,

Or NCLT.

Status by country,

Australia The Australian dollar,

Comprising notes and coins,

Is legal tender in Australia.

Australian notes are legal tender by virtue of the Reserve Bank Act 1959,

S36-1,

Without an amount limit.

The Currency Act 1965 similarly provides that Australian coins intended for general circulation are also legal tender,

But only for the following amounts.

Not exceeding 20c if 1c and or 2c coins are offered.

Not exceeding $5 if any of 5c,

10c,

20c and 50c coins are offered.

Not exceeding 10 times the face value if the coins offered are greater than 50c,

Up to and including $10.

To any value for coins of other denominations above $10.

The 1c and 2c coins were withdrawn from circulation from February 1992,

But remain legal tender.

Although the Reserve Bank Act 1959 and the Currency Act 1965 establishes that Australian banknotes and coins have legal tender status,

Australian banknotes and coins do not necessarily have to be used in transactions,

And refusal to accept payment in legal tender is not unlawful.

A provider of goods or services is at liberty to set the commercial terms upon which payment will take place before the contract for supply of the goods or services is entered into.

If a provider of goods or services specifies other means of payment prior to the contract,

There is usually no obligation for legal tender to be accepted as payment.

This is the case even when an existing debt is involved.

However,

Refusal to accept legal tender and payment of an existing debt,

Where no other means of payment or settlement has been specified in advance,

Conceivably could have consequences in legal proceedings.

Australia Post prohibits the sending of coins or banknotes of any country except via registered post.

In 1901,

Notes in circulation in Australia consisted of banknotes payable on gold coin and issued by the Tradium Banks and Queensland Treasury Notes.

Banknotes circulated in all states except Queensland,

But were not legal tender except for a brief period in 1893 in New South Wales.

There were,

However,

Some restrictions on their issue and other provisions for the protection of the public.

Queensland Treasury Notes were issued by the Queensland Government and were legal tender in that state.

Notes of both categories continued in circulation until 1910,

When the Commonwealth Parliament passed the Australian Notes Act 1910 and the Banknotes Tax Act 1910.

The Australian Notes Act 1910 prohibited the circulation of state notes as money,

And the Banknotes Tax Act 1910 imposed a tax of 10% per annum on all banknotes issued or reissued by any bank in the Commonwealth after the commencement of this Act and not redeemed.

These Acts effectively put an end to the issue of notes by the Tradium Banks and the Queensland Treasury.

The Reserve Bank Act 1959 expressly prohibits persons and states from issuing a bill or note for the payment of money payable to bearer on demand and attended for circulation.

Canada In general,

Canadian dollar banknotes issued by the Bank of Canada and coins issued under the authority of the Royal Canadian Mint Act are legal tender in Canada.

However,

Commercial transactions may legally be settled in any manner agreed by the parties involved with the transactions.

For example,

Convenience stores may refuse $100 banknotes if they feel that would put them at risk of being counterfeit victims.

However,

Official policy suggests that the retailers should evaluate the impact of that approach.

In the case that no mutually acceptable form of payment can be found for the tender,

The parties involved should seek legal advice.

Under the Currency Act,

There are limits to the value of a transaction for which only coins are used.

A payment in coins is a legal tender for no more than the following amounts to the following denominations of coins.

1.

$40 if the denomination is $2 to $10.

2.

$25 if the denomination is $1.

3.

$10 if the denomination is $0.

10 to $1.

4.

$5 if the denomination is $0.

05.

5.

$0.

25 if the denomination is $0.

01.

In the case of coins of a denomination greater than $10,

A payment is a legal tender for no more than the value of a single coin of that denomination.

Where more than one amount is payable by one person to another on the same day,

Under one or more obligations,

The total of those amounts is deemed to be one amount due and payable on that day.

China In the People's Republic of China,

The official currency Renminbi serves as the unlimited legal tender for all transactions.

It is illegal for any public institution or individual to refuse the currency when settling public or private debts.

El Salvador In June 2021,

El Salvador became the first country to accept Bitcoin as a legal tender,

After the Legislative Assembly had voted 62 to 22 to pass a bill submitted by President Nayib Bukele classifying the cryptocurrency as such.

Eurozone Eurocoins and banknotes became legal tender in most countries of the Eurozone on the 1st of January 2002.

Although one side of the coin is used for different national marks for each country,

All coins and all banknotes are legal tender throughout the Eurozone.

Although some Eurozone countries do not put 1 cent and 2 cent coins into general circulation,

Prices in those countries are by general understanding always rounded to whole multiples of 5 cent.

1 cent and 2 cent coins from other Eurozone countries remain legal tender in those countries.

Council Regulation EC 97498 limits the number of coins that can be offered for payment to 50.

Governments that issue the coins must establish the Euro as the only legal tender.

Due to variations on the legislative meaning of legal tender in various Member States and the ability of contract law to overrule the status of legal tender,

It is possible for merchants to choose to refuse to accept Euro banknotes and coins within specific countries within the Eurozone.

For example,

The Netherlands,

Italy,

Belgium,

Finland and Ireland have de jure or de facto removed the use of 1 cent and 2 cent coins and adopted cash rounding to the nearest multiple of 5 cents.

National laws may also impose restrictions as to maximal amounts that can be settled by coins or notes.

France Legal tender was enacted the first time for gold and silver coins in the French Penal Code of 1807.

In 1870,

Legal tender was extended to all notes of the Banque de France.

Anyone refusing such coins for their whole value could be prosecuted.

Republic of Ireland According to the Economic and Monetary Union Act 1998 of the Republic of Ireland,

Which replaced the legal tender provisions that had been re-enacted in Irish legislation from previous British enactments,

No person other than the Central Bank of Ireland and such persons as may be designated by the Minister by Order shall be obliged to accept more than 50 coins denominated in Euro or in cent in any single transaction.

Republic of India The Indian rupee is the de facto legal tender currency in India.

The Indian rupee is also legal tender in Nepal and Bhutan,

But the Nepalese rupee and Bhutanese ngultrum are not legal tender in India.

Both the Nepalese rupee and Bhutanese ngultrum are pegged with the Indian rupee.

The Indian rupee used to be an official currency of several other countries,

Including the Straits of Settlements,

Now Singapore and parts of Malaysia,

Iraq,

Kuwait,

Bahrain,

Qatar,

The Trucial States,

Oman,

Aden Colony and Aden Protectorate,

Now parts of Yemen,

British Somaliland,

British East Africa and Zanzibar.

New Zealand has a complex history of legal tender.

English law applied as applicable to local circumstances either from the 6th of January 1840 or from the 14th of January 1840.

The English Laws Act 1858 subsequently confirmed that English legislation passed prior to the 14th of January 1840 was and had been the law of New Zealand,

As applicable to local circumstances.

The UK Coinage Act 1816 therefore applied and British coins were confirmed as legal tender in New Zealand.

Usually until 1989,

The Reserve Bank established in 1934 did not have the right to issue coins as legal tender.

Coins had to be issued by the Minister of Finance.

United States Before the American Civil War,

Silver coins were legal tender only up to the sum of $5.

Before 1853,

When U.

S.

Silver coins were reduced in weight 7%,

Coins had exactly their value in metal from 1830 to 1852.

Two silver 50-cent coins had exactly $1 worth of silver.

A gold U.

S.

Dollar of 1849 had $1 worth of gold.

With the flood of gold coming out of the California mines in the early 1850s,

The price of silver rose,

Gold went down.

Thus 50-cent coins of 1840 to 1852 were worth 53 cents if melted down.

The government could increase the value of the gold coins,

Expensive,

Or reduce the size of all U.

S.

Silver coins.

With the reduction of 1853,

A 50-cent coin now had only 48 cents of silver.

This is the reason for the $5 limit of silver coins as legal tender.

Paying somebody $100 in the new silver coins would be giving them $96 worth of silver.

Most people preferred bank check or gold coins for large purchases.

During the early part of the war,

The federal government first issued United States notes inheriting the nickname Greenback Notes from the contemporary New Demand Notes,

Which were not redeemable in gold and silver coins,

But could be used to pay all dues to the federal government.

Since land purchases and duties on imports were payable only in gold or the New Demand Notes,

The Demand Notes were bought by importers and land speculators for about 97 cents on the gold dollar and never lost value.

1862 Greenbacks legal tender notes at first traded for 97 cents on the dollar,

But gained or lost value depending on the fortunes of the Union Army.

The value of legal tender Greenbacks swung wildly,

But trading was from 85 to 33 cents on the gold dollar.