Historical Sketch

In 962, Otto I united the German and Roman kingdoms in personal union and created the Roman Empire with papal legitimation. In the 12th century the name Holy Roman Empire was created, in the 15th century the unofficial addition "of the German Nation" became common. The Roman Emperor had no direct territorial sovereignty. Since the Golden Bull of the Diet of Nuremberg in 1356, the Empire was an electoral monarchy, in which originally 4 secular rulers (King of Bohemia, Duke of Saxony, Duke of Brandenburg and the Count Palatine of the Rhine) and 3 ecclesiastical rulers (Bishop of Mainz, Bishop of Cologne, Bishop of Trier) elected the candidate. The body of the so-called electors changed in the course of time. Since 1452, except for the period 1742-1745, all emperors were from the House of Habsburg-Austria. The Holy Roman Empire was abolished by Napoleon in 1806 and replaced by the Confederation of the Rhine, which excluded Prussia and Austria. The 1815 Vienna Congress created the German Confederation as the successor to the Empire under Prussian domination. The creation of unified Germany under Prussian leadership led to the expulsion of Austria and the creation of the North German Confederation in 1866 without the four southern states of Baden, Bavaria, Hesse (by Rhine), and Württemberg. The Franco-Prussian War triggered the final step of the unification in 1871. The King of Prussia assumed the title of German Emperor whereas the constituent states retained formal autonomy under the sovereignty of their respective rulers. The German defeat in World War I brought the end to the monarchy in the constituent states and for the empire. Republican constitutions were proclaimed everywhere, and in early 1919 Germany became a republic, referred to as "Weimar" Republic since, at the time, the parliament had relocated from revolutionary Berlin. In 1933, the National Socialists took power and erected a 12-years dictatorship. During World War II, Germany initially occupied and dominated most of continental Europe, but was finally defeated by the Allied forces. In May 1945, all Germany was occupied and divided into four zones under control of the victors. The reconstitution was triggered by the reconstruction of the economy in the United States and British zones of control, creating the so-called "Bi-Zone", soon including the French zone as "Tri-Zone". The Soviet zone remained apart as it got economically aligned with the socialist block. In 1949, the split became final as the three Western zones merged into the Federal Republic of Germany (FRG) while in the Soviet zone, the German Democratic Republic (GDR) was proclaimed. The downfall of Communism and the dissolution of the Soviet Union triggered the unification of the two German states. In October 1990, the constituent states of the GDR joined the FRG so that the Democratic Republic disappeared while the Federal Republic was enlarged.

Monetary History Overview

The monetary sovereignty within the Holy Roman Empire rested with the constituent states, the emperor did not have any such rights. Throughout time, several efforts were made to regulate specie coinage and the weight units. The Imperial Diet of Esslingen in 1524 established the Cologne mark as reference weight for precious metals in which all future coinage standards would be expressed. The 1566 Imperial Diet of Augsburg defined the Thaler as the principal imperial silver coin and standardized the golden Ducat. In the mid-18th, three coinage areas emerged within the Empire, Northern Germany, Southern Germany, and Habsburg Austria, all based on the silver standard but using different weight standards for the specie coins.

In 1750, the standardization of silver specie in Northern Germany was pushed forward by Prussia. The Northern German (Prussian) Thaler, at 14 pieces per Cologne mark of fine silver, displaced earlier Thaler standards. In the Napoleonic Wars, Prussia became dominant throughout Northern Germany and enforced the adoption of its accounting standard. Subsidiary coinage of the Prussian territories was standardized in 1826 but remained diverse elsewhere, even if the Thaler was adopted as specie coin. In 1753, Bavaria and Habsburg Austria concluded a Coinage Treaty ("Münzkonvention") to adopt a common coinage standard based on the Thaler at 10 pieces per Cologne mark of fine silver, so-called Convention Thaler ("Konventionstaler") of two Convention Guilders ("Konventionsgulden"). Since the new accounting standard was at odds with the subsidiary coinage circulating in the Southern German states, so that the convention standard was adapted to create the Southern German Guilder at 24 pieces per Cologne mark of fine silver, about 17% lighter than the Convention Guilder which remained the Austrian standard. Coinage in Southern Germany was never unified to the same extent as Northern Germany since there was no dominating power, and this did not concern only the subsidiary coins. During the 19th century, the Brabant Thaler ("Kronentaler") had become increasingly popular, after it had flown in through trade from the Austrian Netherlands where it had been created in 1793. It was slightly over-valued and therefore gradually displaced the full-valued specie coins. The increase of industry and trade among the German states triggered the creation of a customs union and the ultimate creation of a unified German monetary area. In a first step, the weight of Southern Guilder was reduced by about in the Munich Coinage Convention ("Münchner Münzvertrag") of 1838 to facilitate the alignment with Northern monetary area. It also corrected the over-valuation of the Brabant Thaler, which then quickly disappeared from circulation. The Dresden Coinage Convention ("Dresdner Münzkonvention") of 1839 aligned the Northern and Southern German accounting standards since the weights of the base specie coins were now at a simple ratio. The Vienna Coinage Union ("Wiener Münzverein") adopted metric units instead of the Cologne mark and aligned the two German accounting standards with the Austrian one. The weight of the Thaler and the Guilder ("Vereinstaler", "Vereinsgulden") were lowered by about 0.2%. The introduction of a circulating gold coin ("Vereinskrone") failed as it was issued only in some Southern German states and only in small numbers. After the Prussian-Austrian war of 1866, the Vienna Coinage Union was dissolved without changing the Northern and Southern German coinage standards which continued as part of the renewed German Customs Treaty of 1867. Until the foundation of the German Empire in 1871 only four states never joined the various coinage conventions. The two Mecklenburg states took over the Prussian accounting in 1848 but without formally becoming part of the Northern German monetary area. The port cities of Hamburg and Bremen were largely oriented towards foreign trade with local accounting systems, the Hamburg Mark in the silver standard, while the Bremen Thaler was the only German gold standard used before 1871.

The newly created Empire passed a currency law in December 1871 based on the 1st German Mark as gold currency. Coinage issuance began in 1872, specie coins and high-value subsidiary coins in silver were issued in the name of the constituent states, but accepted everywhere, while for the first time in German history, the low-valued subsidiary coinage was uniform. The State Bank ("Reichsbank") began operations as central bank in 1876 and issued paper money. The Mark remained stable until the outbreak of World War I. The gold standard was suspended in 1914, and the Mark depreciated as the military defeat came closed. The devastations of the war and the political instability of the late 1910s accelerated the economic decline. The piece conditions of 1919 with enormous German reparations led to a collapse and forced depreciation of the Mark that turned into hyperinflation in early 1923. To stop the development, the 2nd German Mark ("Rentenmark") was created as stable parallel currency in mid-October 1923, with issuance limited by a mortgage on commercially used assets and the exchange rate pegged to the US Dollar. The Reichsmark continued depreciating for another month until its value stabilized during November. The monetary stabilization was successful, and in October 1924, the second phase of the currency reform could be carried out. The 3rd German Mark ("Reichsmark") brought Germany back to the gold standard. The transition to the "Rentenmark" occurred on par while the depreciated 1871 currency had twelve zeros removed at the conversion. In the economic crisis of the 1930s, the gold standard was abandoned but Germany did not follow the 1934 devaluation of the US Dollar. The Reichsmark, however, became increasingly inconvertible under the National Socialist rule. Throughout World War II the German currency remained stable and did not depreciate even when the military defeat became apparent. In post-war occupied Germany the currency situation did not change. The Reichsmark continued circulating, supplemented by United States Military noted that obtained wider circulation in the western occupation zones. The Allied command of the four zones suspended the defunct official rate against the US Dollar in May 1945 but did not define a new rate instead. Only in May 1948, a new peg was re-instated by the authorities of the United States and British "Bi-Zone", tacitly adopted by the French authorities, without extent to the Soviet zones. In June 1948, the Allied Military Authorities of the three Western occupation zones of Germany carried out a currency reform, followed by the Western Allied zones of Berlin three days later. This triggered a currency reform in the Soviet zone and the creation of two monetary areas in Germany, a year before the political split occurred in 1949. The Bank of the German States began operations in the "Tri-Zone", later renamed into German Federal Bank ("Deutsche Bundesbank"). The 4th German Mark got introduced as new national currency. The Reichsmark currency was converted at 10%, both cash and deposits were confiscated above a threshold value. The Mark was pegged to the US Dollar and devalued by 20% in September 1949, at the same time as the British Pound but to a lesser extent. Due to the rapid economic recovery in Germany the currency remained stable and even appreciated against the US Dollar during the 1960s. In 1971, the Mark got floated, and Germany joined the European currency system. In preparation for the unification of the two German states in 1990, an economic and monetary union was established between the Federal Republic (FRG) and the Democratic Republic (GDR) that led to the introduction of the German Mark in the GDR in July 1990, three months before unification, and the on par exchange of the German (GDR) currency. Deposits above a threshold were cut by 50%, and the former banknotes and coins were demonetized immediately. Germany is a founding member of the European Monetary Union and has introduced the European Euro in 1999. The German banknotes and coins were withdrawn in 2002.

Germany joined the International Monetary Fund (IMF) on 14.08.1952.

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