Devaluation of franc imposed by Germany

Discussions on the economic history of the nations taking part in WW2, from the recovery after the depression until the economy at war.
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Peter H
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Devaluation of franc imposed by Germany

Post by Peter H » 09 Aug 2005 13:55

After the fall of France in 1940 the Germans imposed an "extreme" devaulation of the franc(1 franc=5 pfennig).
...this made the entire French range of goods ridiculously cheap for the German soldiers,who took advantage of this source of goods so readily that the military commander of Belgium and northern France warned of a sell-out of the the beginning the army postal service packages from Belgium and France were permitted in any number:the final restrictions were cancelled in August 1942.On business or vacation trips home,everyone could take as much as he could carry.
German soldiers in victory,1914 and 1940,article by Klaus Latzel,in The Great World War 1914-45.

Latzel relates further on the "personal booty-making for oneself and the beloved ones at home"---relatives would onsend money to their men serving in Occupied France,to purchase essentials and luxuries for them.Those with small businesses in Germany also used the opporunity to bulk buy cheaply purchased goods in France,via their Wehrmacht relatives,and onsell the goods at a handsome margin in their stores in Germany.

The conclusion was that this was legitimised "plundering"('before we stole,know we buy" wrote one German in July 1940).

I'd be interested if anyone can support Latzel's findings.

Jon G.
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Post by Jon G. » 09 Aug 2005 16:51

The forced devaluation of occupied countries' currency applied across the board, not only in France. Benelux and occupied Scandinavia also suffered under artificially low exchange rates that gave Germans disproportionate purchasing power. I haven't been able to find any sources off-handedly, but I'll see if I can find anything.

In a way, the low exchange rates were just the continuation of the basic barter economy that Germany enforced on her neighbours prior to the war by forcing producers to buy German goods as payment for their exports.

BTW, a similar scenario applied in post-war GDR, where you had to exchange 25 of your precious DM to 25 Ostmark that hardly were worth the paper they were printed on upon entry: the official exchange rate was 1:1 - unless you wanted to try your luck with black market exchange, where the Ostmark:DM rate was something like 7:1, again if memory serves.

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Post by Bronsky » 12 Aug 2005 15:47

Shrek wrote:The forced devaluation of occupied countries' currency applied across the board, not only in France.
The total contribution of occupied countries between 1940 and 1944 was estimated at (figures in RM million):

France: 35,250
Netherlands: 8,750
Belgium: 5,700
Denmark: 2,000
Italy (post-43): 10,000
Others: 22,300

France as the richest occupied country contributed the most booty. I've read somewhere that it was also more exploited as a % of resources than other western European countries but I don't have time to check by making the relevant calculations. Devaluation of the local currency is partly incorporated in the above figures, they were established by the wartime German authorities.

Essentially, forced devaluation is a way to levy additional occupation costs, i.e. extract more resources, from the point of view of the invader. This presents the additional benefit that the plundered country's administration is the one that has to cope with the consequences (inflation, rationing) so the cost of extracting that new "tax" is very low for the occupier as opposed to direct administration. The existence of Vichy France probably contributed to making things easier in France for the Germans than elsewhere as well.
Shrek wrote:In a way, the low exchange rates were just the continuation of the basic barter economy that Germany enforced on her neighbours prior to the war by forcing producers to buy German goods as payment for their exports.
Rather the opposite in fact. In exchange for easing the strain on its foreign currency reserves, Germany ended up accepting unfavorable terms of trade and the terms grew worse during the 1930's. Germany bought the agricultural surpluses of eastern Europe at prices which lay between 20% and 40% above world market levels, and ended up paying much higher than foreign purchasers offering convertible currencies like Britain and France. Germany therefore had to export increasing amounts per unit imported from southeast Europe.

The terms got better in the 1940-42 period, when Germany could bully its neighbor more than before the fall of France, but then they degraded again because to the balance has to be added as "export" the military aid sent to these countries to prop them up against Soviet advance. By 1944, Romanian oil was, when everything is accounted for, costing Germany dearly.

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Post by Jon G. » 12 Aug 2005 16:29

Alas I forget where I read that France's net GDP loss from German occupation amounted to 44%, by far the largest GDP loss of any occupied Western European country.

The principle that the occupied country has to cover the costs of occupation was not invented by the Germans, but they were very systematic in their exploitation. For Western Europe they seemed to have preferred to keep the chicken that laid golden eggs, rather than butcher it as they did in large parts of Eastern Europe. I don't know if the Vichy Franc was based in gold, but the 20 million Francs/day reparations that France had to pay for the privilege of German occupation were specified as Gold Francs.

The 'buy now - pay later' principle of the clearing account for foreign trade may eventually have worked to Germany's disadvantage, but in the short term it certainly helped the German economy. I doubt if there was any intention of repaying the debt worked up in full; in any event occupying your former trade partners (and devaluing their currencies in the process) must have made it a good deal easier to repay the debt.

Romania is perhaps a not so good example since this country was a partner of Germany, rather than under direct occupation.

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Post by David Thompson » 12 Aug 2005 16:47

3. France: With France we come to the group of countries that pay occupation costs in the real sense. From the time France was first occupied until the end of March 1944, she placed the following sums at the disposal of the Armed Forces, to the account of occupation costs: [See Table 3.]

If one converts the above sums in terms of purchasing power, one arrives at considerably higher values for the first 3 years. The purchasing power and the rate of exchange did not become equalized until the year 1943. But not all goods financed by occupation costs are bought at the official prices; some are paid for at black market prices. One can assume that the black market played a very small role in 1940, since there were still ample stores of supplies available. Only beginning with 1941 is the black market taken into account here, when the inflation factor is placed at 4. In 1942 this figure became 6 (according to Veltjens), and it is estimated at 8 for 1943 and 1944. [100 Frs. equals --RM]

1940: official: 9.9; on the black market: --
1941: official: 7.7; on the black market: 1.9
1942: official: 6.4; on the black market: 1.1
1943: official: 5.0; on the black market: 0.6
1944 (beginning of): official: 5.0; on the black market: 0.6.

Exact documentation concerning the extent of black market purchases is available only for the Veltjens Action, which in France required 1555 million RM, or 31.1 billion francs at the official rate of exchange. The greater part of the purchases were made in 1942, amounting to about 1155 million RM. It is estimated that only about 400 million RM were expended in France in 1943. If one converts the 31.1 billion francs at the then rate of exchange on the black market, one arrives at the low sum of 318 million RM.

It can be assumed that a part of Armed Forces expenditures still goes into the black market--a particularly large proportion in the case of personal expenses, which, during the last years in France, constituted between 18 and 25% of total expenditures. Certainly it is not too high an estimate if it is as that one half of personal expenditures, and so perhaps 10% of all expenditures, went to the black market. It calculated that 5% was expended in the black market in 1941, since the latter was still of slight importance at that Certain Armed Forces expenditures for materiel (such as plies for Wehrmacht installations [Wehrmachtinvestitionen]) may have been made at higher than the official prices, if not at the really high black market prices. In this connection assumed here that 10% of materiel expenditures were at twice the official prices.

Until a short time ago, the French black market was fed still another source--the importation of Reich Credit Notes[Reichskreditkassenscheinen] from the other occupied regions. Although the issuance of Reich Credit Notes in France had practically ceased in October 1940, sums in Reich Credit Notes were currently presented with the accounting of occupation costs (1942: 460 million RM; 1943: 1180 million RM- 1st quarter 1944- 25 million RM.). Even though a portion of this was issued in France to begin with, it can be assumed that the greatest proportion--we place it at 75% for 1942 and 1943--comes from the other occupied regions; in 1942: 345 million RM., in 1943: 885 million RM. While it is not likely that the entire] sums went into the black market, it is thought that 75% of them did.

We obtain, therefore, for:

1942: 260 million RM
1943: 660 million RM
1944: 19 million RM.

Altogether, the following amounts were expended in the black market (in billions of Francs): [See Table 4]

Armed Forces expenditures in France were as follows: [See Table 5.]

The real sum of occupation costs amounted to about 28 billion RM. The "loss" through the black market, that can be figured by converting the sums spent in the black market to their relative value in purchasing power in the official market and then subtracting from these the real value of the black market purchases, is estimated to approximately 6.4 billion RM. In other words, for value of about 900 million RM received on the black market, one could have received a value of 7.3 billion RM in the official market, had the goods concerned been available in the latter.

In spite of the extent of black market purchasing, the real value of the occupation costs is still above the sum that would be received through conversion at the 5 pfennig rate of exchange (26.8 billion RM), since French prices were much lower than German prices at the beginning of the occupation period. The opinion expressed in the recent report of the Military Commander, ["The Contribution of the French Area to the War Economy,' Paris, April 1944.] namely, that due to black market purchases not even the sum of 26.8 billion RM was realized, must therefore be regarded as too pessimistic.

The German clearing debt with France, in which is expressed the value of her external contributions (import surpluses, French workers employed in the Reich), has increased greatly during the occupation years.

Conversion of the clearing debt must be effected at lower rates than at the purchasing power rates referred to above. For, since 1941, the French have levied a duty known as the "revenue de perequation" upon those exports for which higher prices were obtained than could be realized in the domestic market. This shows that export prices were, in part, higher than the French domestic prices. It is of course difficult to estimate the degree of this difference. The mean between the purchasing power rate based Upon the domestic price and the rate of exchange is shown here for 1941 and 1942: 1941--6:3; 1942--5:7.

From that time when the purchasing power rate approximated the rate of exchange (about 1943), the latter was adopted and it has been retained for the first quarter of 1944. Imports from France have been cheapened to some extent today, it is true, which might suggest conversion at a rate under the [official] rate of exchange, but the sums expended to that end [Verbilligungsbetraege] are still relatively low. Besides, many goods are still imported from France at less than Reich prices.

The clearing debt was as follows:

From November 1940 to August 1941: 8976 million Francs, 565 RM million purchasing power From September 1941 to August 1942: 28438 million Francs, 1621 RM million purchasing power
From September 1942 to August 1943: 54718 million Francs, 2736 RM million purchasing power
From September 1943 to end of March 1944: 44128 million Francs, 2206 RM million purchasing power.
Total: 7128 RM million purchasing power.

The total demonstrable French contribution is in the vicinity, then, of 5 billion RM. This sum does not include all of the French contributions, for example, captured raw materials valued at about 255 million RM, war booty, or the billeting services.
German costs assessed on occupied countries 1940-44

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