Deutsche Golddiskontbank

Deutsche Golddiskontbank, commonly known as the Golddiskontbank or Dego, was a German special-purpose bank created during the monetary and reparations crisis that followed the First World War. It was established on 19 March 1924 under the initial name Goldnotenbank, on the initiative of Reichsbank president Hjalmar Schacht. Its creation was intended to attract foreign exchange and foreign financial participation while helping Germany restart industrial production, finance imports of raw materials and manufactured goods, support exporters, stabilize the currency and meet international reparations obligations under the postwar settlement. The institution was designed as a discount and credit bank rather than as a conventional central bank. Its initial share capital was set at £10 million, equivalent at the time to approximately 200 million gold marks. The capital structure was deliberately denominated in pounds sterling, reflecting the importance and perceived strength of the British financial market. Half of the shares, known as Group A, were subscribed by the Reichsbank. Group B shares were distributed through a consortium of German banks, although the Reichsbank also acquired part of this block in order to preserve voting control. The bank theoretically possessed authority to issue up to £5 million of notes, but it never exercised that power, and the relevant authority was withdrawn from the legal framework shortly after its creation. Dego's central commercial function was to provide German exporters with credit at rates below those generally available in the market. It obtained resources through foreign rediscount agreements and by deploying its own capital. It also undertook currency-related operations and, from the second half of the 1920s, issued sola bills and similar instruments intended to ease pressure in the short-term money market. Although the bank was initially intended to remain separate from public finance and was exempt from Reich, state and municipal taxes, its activities expanded during the late 1920s. It began to manage public funds and took on a broader role in the German financial system. The international banking crisis of 1931 sharply increased demand for Dego credit. Foreign lenders called in German loans, confidence weakened and domestic credit contracted. The bank responded by issuing Group C shares, increasing its capital by 200 million Reichsmarks; the Reichsbank took up the entire issue. Dego used these resources to assist troubled banks and participated in international standby and restructuring arrangements. It also helped administer the 1931 standstill agreement under which foreign banks agreed not to call in certain German bank loans. The agreement was supplemented in 1932 and subsequently renewed for many years. After the Nazi seizure of power in 1933, the bank became involved in the regime's financial and economic policies. It helped place Mefo-related bills indirectly in the money market, supporting the concealed financing of rearmament. It also administered or processed foreign-exchange transactions imposed on Jewish emigrants. Securities, cash and other assets belonging to Jewish people seeking to leave Germany were routed through blocked accounts and related state-controlled arrangements; proceeds were converted and transferred after deductions or levies imposed by the regime. These activities connected the bank to the expropriatory and discriminatory financial mechanisms of Nazi Germany. During the Second World War, Dego continued dealing in sola bills and increasingly conducted price-hedging and credit operations connected with wartime claims. The Reichsbank and Deutsche Golddiskontbank were both shut down in 1945, with their functions transferred to successor institutions. The bank remained dormant while its legal dissolution and shareholder compensation were organized. It was formally dissolved on 1 October 1961, while the liquidation period continued until 30 September 1969. Remaining assets and accounts were placed under postwar public administration, and the shares ultimately became associated with the Bundesbank. The institution therefore survives as a historical example of a state-directed German financial intermediary rather than as an operating banking brand.

Deutsche Golddiskontbank emerged from the financial disorder of post-First World War Germany. The Treaty of Versailles reparations burden, weak confidence in the German currency and limited access to international credit created a need for an institution capable of attracting foreign exchange while supporting domestic production. Reichsbank president Hjalmar Schacht established the Goldnotenbank on 19 March 1924. It was subsequently known as Deutsche Golddiskontbank, or Dego. The bank's capital structure was designed to appeal to international finance. Its £10 million share capital was split into Group A and Group B shares. The Reichsbank subscribed the £5 million Group A block, while a consortium of German banks acquired and distributed Group B shares. The use of sterling reflected the standing of the British currency and the importance of British financial markets to Germany. The Reichsbank also borrowed from the Bank of England to help finance its participation and retained effective control. Although Dego was theoretically authorized to issue notes, it never used that power, and the authority was removed soon after its establishment. Dego was intended to operate independently of ordinary public finances. It was exempt from several categories of public taxation and was initially barred from lending to the Reich, states and municipalities. Its practical purpose was instead to discount and extend credit, particularly to German exporters. By arranging rediscount facilities abroad and using its share capital, the bank could offer export loans at unusually favorable rates. It also financed imports of raw materials and other goods necessary for industrial recovery. In 1926 it participated in currency-stabilization activity, including the purchase of medium-term Pfandbriefe from the Rentenbankkreditanstalt. Later in the decade it issued sola bills to reduce congestion in the short-term money market. The institution's formal separation from government finance weakened after 1927, when its business was expanded to include public-money administration. The 1930 reorganization law further altered its legal framework. The banking crisis of 1931 then transformed its importance. Foreign creditors withdrew or demanded repayment, German banks faced a severe liquidity shortage and demand for Dego's subsidized credit rose sharply. Group C shares increased capital by 200 million Reichsmarks, all subscribed by the Reichsbank. The additional funds were used to help stabilize banks. Dego also drew on international standby facilities, including a reported US$50 million facility from the International Acceptance Bank in New York, which was made available to the Reichsbank through Dego. The bank participated in the 1931 standstill arrangement, under which foreign banks agreed not to call in certain German bank credits. Dego guaranteed part of the covered loans, with the guarantees themselves supported by the German government. A further agreement followed in 1932, and the arrangement was renewed repeatedly for many years. The Nazi period gave the bank a darker historical role. Dego became connected with the indirect placement of Mefo bills and related instruments used to finance German rearmament outside normal transparent budgetary channels. It also processed foreign-exchange transactions imposed on Jewish emigrants. Securities and cash were transferred into blocked or state-controlled accounts, sold or converted, and remitted only after deductions imposed by Nazi authorities. The so-called Dego levy applied to movable property and other assets permitted to leave Germany. These operations made the bank part of the financial machinery of persecution, dispossession and forced emigration. During the war, Dego continued issuing and trading sola bills and undertook increasingly important price-hedging transactions. It extended credit against claims whose payment was uncertain because of wartime conditions. In 1945 both Dego and the Reichsbank were closed. The postwar legal process provided for dissolution and compensation of shareholders under the 1948 currency reform. Dego was formally dissolved on 1 October 1961, with liquidation continuing until 30 September 1969. Remaining accounts were administered by public authorities, while the shares became associated with the Bundesbank. No operating successor brand remains.

• 1969

  Liquidation deadline

  [1]Deutsche Golddiskontbanken.wikipedia.org

  The liquidation process was scheduled to conclude on 30 September 1969.

• 1961

  Formal dissolution

  [1]Deutsche Golddiskontbanken.wikipedia.org

  The dormant bank was formally dissolved on 1 October 1961.

• 1945

  Operations cease

  [1]Deutsche Golddiskontbanken.wikipedia.org

  Dego was shut down after the end of the Second World War.

• 1933

  Nazi-era financial administration begins

  [1]Deutsche Golddiskontbanken.wikipedia.org

  The bank became involved in Mefo-bill financing and the administration of foreign-exchange controls affecting Jewish emigrants.

• 1931

  Capital increased during banking crisis

  [1]Deutsche Golddiskontbanken.wikipedia.org

  Group C shares increased capital by 200 million Reichsmarks, entirely acquired by the Reichsbank, to support crisis lending and bank rehabilitation.

• 1931

  German standstill agreement

  [1]Deutsche Golddiskontbanken.wikipedia.org

  Dego participated in a standstill arrangement that restricted immediate foreign-bank withdrawals from Germany and guaranteed part of the covered loans.

• 1930

  Bank reorganized by law

  [1]Deutsche Golddiskontbanken.wikipedia.org

  A law dated 1 December 1930 reorganized the institution's legal framework.

• 1927

  Public-finance responsibilities added

  [1]Deutsche Golddiskontbanken.wikipedia.org

  The bank's activities expanded to include management of public money despite its original separation from public finances.

• 1926

  Currency-stabilization activity expanded

  [1]Deutsche Golddiskontbanken.wikipedia.org

  Dego purchased medium-term Pfandbriefe from the Rentenbankkreditanstalt at favorable rates as part of its broader currency-related role.

• 1924

  Goldnotenbank founded

  [1]Deutsche Golddiskontbanken.wikipedia.org

  Hjalmar Schacht founded the institution on 19 March 1924 to attract foreign exchange, support German recovery and finance exports and imports.

A state-controlled specialist bank intended to mobilize foreign exchange and credit for German economic reconstruction, export promotion and financial stabilization. Its role later broadened into crisis finance, public financial administration and, under the Nazi regime, participation in rearmament finance and coercive foreign-exchange administration.

• Commercial banking · 1924

  Export credit

  Low-interest loans for German exporters were the bank's principal commercial activity. The facilities were intended to help German industrial companies sell abroad and obtain the working capital needed to restart production after the war and monetary crisis.

• Trade finance · 1924

  Raw-material and import finance

  Dego supported purchases of raw materials and other imported goods needed by German industry. Its foreign-currency funding and rediscount arrangements connected domestic borrowers with international banking markets.

• Money-market instruments · 1926

  Sola bills

  From the late 1920s, the bank issued sola bills and related instruments to relieve pressure in the short-term money market. These instruments remained part of its business during the war.

• Crisis finance · 1931

  Standstill and bank-support facilities

  During the 1931 banking crisis, Dego helped guarantee and fund arrangements designed to prevent foreign creditors from abruptly withdrawing German bank loans. It also used additional capital and international standby credit to support banks in difficulty.

• Foreign exchange · 1933

  Foreign-exchange administration

  Under Nazi rule, the bank processed state-directed foreign-exchange transactions involving emigrants' securities, cash and movable assets. These were not ordinary customer products but coercive administrative operations connected with the regime's emigration and dispossession policies.

• 1933

  Involvement in Nazi rearmament finance

  The bank was involved in the indirect placement of Mefo-related bills through block and sola bills. These instruments helped finance Nazi rearmament while limiting the visibility of the expenditure in ordinary public accounts.

  Source

• 1933

  Processing of discriminatory foreign-exchange controls

  Dego processed securities, cash and other assets of Jewish emigrants under Nazi foreign-exchange rules. Assets were placed in blocked arrangements, converted or sold, and reduced by state-imposed discounts and levies before limited foreign-currency transfers were made.

  Source

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• 1945

  Cease operations and enter liquidationOther

  Background

  Germany's defeat ended the institutional framework of the Reichsbank and its associated wartime financial bodies.

  Action taken

  Deutsche Golddiskontbank was shut down, with its functions transferred to successor institutions and its remaining affairs placed into a prolonged liquidation process.

  Aftermath

  The bank was formally dissolved in 1961, with liquidation continuing through 1969.

  Source

• 1933

  Support Nazi foreign-exchange and rearmament policiesStrategy

  Background

  After the Nazi takeover, state financial institutions were incorporated into the regime's economic, rearmament and racial policies.

  Action taken

  Dego participated in Mefo-related bill transactions and processed coercive foreign-exchange transfers affecting Jewish emigrants.

  Aftermath

  The bank became implicated in concealed rearmament finance and the financial dispossession of people persecuted by the Nazi regime.

  Source

• 1931

  Increase capital to address the banking crisisStrategy

  Background

  The international banking crisis caused foreign credit withdrawals and a severe shortage of domestic lending.

  Action taken

  The bank issued Group C shares that increased its capital by 200 million Reichsmarks; the Reichsbank subscribed the entire issue.

  Aftermath

  Dego used the new resources to assist banks in distress and to support international stabilization facilities.

  Capital increase. 200 million Reichsmarks added (1931)

  Source

• 1926

  Broaden activity into currency stabilizationStrategy

  Background

  The bank was expected to contribute to monetary stability in addition to financing trade.

  Action taken

  Dego purchased medium-term Pfandbriefe from the Rentenbankkreditanstalt at a low interest rate and continued related rediscount operations.

  Aftermath

  Its role expanded beyond narrow export lending into wider financial-system support.

  Source

• 1924

  Create a foreign-exchange and export-finance specialist bankStrategy

  Background

  Germany needed foreign currency, industrial inputs and export credit during the postwar reparations and monetary crisis.

  Action taken

  The Reichsbank established Goldnotenbank, later renamed Deutsche Golddiskontbank, with sterling-denominated capital and a mandate focused on discounting and credit rather than ordinary central banking.

  Aftermath

  The institution became a major state-controlled intermediary for export finance and international credit.

  Source

1. 1Deutsche Golddiskontbanken.wikipedia.org