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20.6.1948: Currency reform in Germany
British, U.S. and French troops dispersed 23,000 wooden crates around the country. Each was labelled with the innocuous inscription “Doorknobs.” Their content was, however, a lot more exciting than the label suggested. It was actually new money for the Germans, notes which had been printed in the United States. There were exactly 10 billion, 701 million, 720 thousand of the new German Marks, as the currency was to be called.

The Germans had lost faith in the previous currencies, the Reichsmark, the Rentenmark and the allied military mark. They needed a new, hard currency. Germany lay in ruins, there were shortages everywhere.

There was plenty of money, but people could buy nothing with it. Ration stamps attempted to control the shortages, but bartering was the order of the day, and cigarettes were the real currency. Of course, no economy could ever flourish like this. Money had to regain its value and its buying power, and that was only possible by making a radical break with the past. Things suddenly began to happen very quickly.

On Friday, June 18, there was a national radio announcement in Germany: "The military powers of Great Britain, France and the United States have passed the first law for the reform of the German monetary system. It will become valid as of June 20th. The old German currency will become invalid following the change. The new currency will be called the 'Deutsche Mark'."

On Sunday, June 20, the counters which had previously issued ration stamps began to hand out the new currency. Every German received 40 Deutschmarks that day, followed by a further 20 Deutschmarks one month later. That Sunday, all German citizens were equally rich or poor.

But the real question was, what would happen when the shops opened on Monday? How would the Germans cope with the new currency, how would prices develop? And would the new currency succeed in enticing the hoarded goods out of the warehouses of producers and shops?

What happened that Monday and in the days that followed was almost incomprehensible for the Germans. After nine years of war and post-war deprivation, the shop shelves filled with goods and suddenly everything was available again.

The weekly newsreel for cinema recorded the amazing events: "Shortly after the currency reform, we took our camera to the weekly market and recorded images which only a short time ago would have seemed like a fantasy. There were vegetables of all kinds, goods of the best quality. The customer asks the price, buys the goods and goes home satisfied. Now, money is important once more. The shelves are filling up, the warehouses are releasing all the items, which were unavailable for so long. Customers and shopholders realized the time to return to normality had come, in the summer of 1948.”

A miracle, but one for which there are many explanations in retrospect. Factories had been producing in advance for Day X. But they held back the finished articles until the currency changeover had taken place and they would receive new, hard money for their produce.

It was not just the Allied powers, but a man named Ludwig Erhard who ensured that the new currency instigated the “Wirtschaftswunder,” or economic wonder, and did not collapse after a short-lived bout of consumer spending.

Born in Franconia, Erhard was appointed as the economic director of the U.S.-British zone. He convinced the authorities to declare all rationing systems invalid as soon as the new currency was introduced. But it was an enormous risk. Everywhere in Europe, shortages were being dealt with by rationing and planned economic systems, but Erhard placed his trust in free market forces.

Limited financial resources and high prices were to be the incentive for an optimal interaction of supply and demand. Critics of the time accused Erhard, later to become Economics Minister and then the second Chancellor of the Federal Republic, of throwing an ailing economy in at the deep end.

But the risk payed off. Growth for the German economy averaged 10 to 12 percent a quarter, with inflation at a moderate level and productivity levels rising fast. That resulted in wage increases, which in turn stimulated demand and improved purchasing power.

By the end of the 1960s, Germany had reached full employment levels. Exports were flourishing, since the “D-Mark” had been severely undervalued in the first few years and German products were relatively cheap. These conditions were ideal for creating a strong export industry. In turn, the Deutschmark rose to become a highly desirable currency reserve and investment currency, as well as an anchor for Europe’s economies.

No wonder then that the Germans suffered pangs of nostalgia when parting from their beloved D-Mark in favor of the Euro. For who knows if the Euro will ever have as successful a career to look back on as the good old German Mark.
   
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What was the major reform made in Germany on 20 June 1948?
  The reform of the navy
  The currency reform
  The reform of the army
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