Back Matter
  • 1 https://isni.org/isni/0000000404811396, International Monetary Fund
  • | 2 https://isni.org/isni/0000000404811396, International Monetary Fund

APPENDIX A Timetable of Key Events

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APPENDIX B Crown Conversions in Italy and Poland

1. Poland

At the end of the War there were in circulation in Poland about 2 billion rubles, about 2 billion German marks and 4 to 5 billion Austro-Hungarian crowns. As a result of a law of January 15, 1920 the Polish mark became legal tender and circulated beside these currencies. The exchange rate was 70 Polish marks for 100 crowns, but until conversion of the crowns the Polish mark was not widely used for large payments.

The conversion of crowns began over April 19 and April 26, 1920 when the 100-crown and 1,000-crown notes were exchanged without having previously been stamped. The conversion of smaller denomination notes was announced by a Finance Ministry decree of June 7, 1920. In February, 1922 the Polish authorities claimed to the liquidators of the Austro-Hungarian Bank that they had exchanged 2.7 billion crowns in the former province of Galicia.

Sources: League of Nations (1922), pp.68-69 and Zeuceanu (1924) pp. 242.

2. Italy

Italy inherited only a small amount of territory from the Austro-Hungarian Empire. In Venezia Giulia and Venezia Tridentina the rate of conversion was fixed at 0.40 lira per crown by a decree of April 5, 1919. This was subsequently raised to 0.60 lira per crown by a decree of November 27, 1919. However, for amounts in excess of 5,000 lira people were given Treasury Bonds. The original exchange of notes, without prior stamping, occurred between April 10 and 19, 1919.

In Dalmatia the exchange of notes could not proceed until the borders were established definitively by the Treaty of Rapallo on November 12, 1920. A decree of May 1, 1921 ordered an inventory of notes then in hand in order to prevent further inflows of unstamped notes. A decree of June 10, 1921 provided for the exchange of the first 3,000 crowns in full and beyond that up to a maximum of 10 percent of income (estimated by multiplying the 1920 tax paid by twenty). The conversion rate was 0.60 lira per crown for the first twenty percent of the total exchanged, 0.40 lira per crown for the next fifth, 0.20 lira for the third fifth and 0.10 lira for the remainder, for an average conversion rate of 0.28.

Austro-Hungarian notes ceased to be legal tender after June 19, 1921. In February, 1922, the authorities claimed to the liquidators of the Austro-Hungarian Bank that they had collected 2,500 million crowns.

Sources: League of Nations (1922), p.65 and Zeuceanu (1924) pp.247.

De Bordes (1924), p.42, reports that in March, 1918, less than 5 percent (roughly 1876 million) of the Austro-Hungarian crowns then in circulation were in Poland, and 1.25 percent (470 million) were in Italy. The amounts of notes eventually stamped in these countries appear to exceed these proportions, indicating that crown notes were imported. Poland certainly appears to have been a popular destination for unstamped notes. De Bordes (1924), p. 236, quotes Kerschagl to support this conclusion. “Both Poland and Hungary remained for a long time the hope of those who for one reason or another wished to put off the stamping of their notes to the last possible moment.”

APPENDIX C Gold Crown Conversion Rates

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Sources: Austria: de Bordes (1924) pp. 115-139, average rate in last week of each month.All others: League of Nations (1923) pp. 51-52 and League of Nations (1926c) vol. II, pp. 5-10; New York dollar exchange rates multiplied by dollar/gold crown conversion rate.

denotes the conversion rate for the Polish Zloty.

Conversion rates for the U.S. dollar are obtained by multiplying the above gold crown rates by the gold parity of 4.935 kr/$. (e.g. for March, 1919, $1=25.7 paper crowns).

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1/

This paper expands upon Section III of “The Economics of Currency Reform in the C.I.S.,” by David Folkerts-Landau, Peter Garber and Michael Spencer, forthcoming 1992.

1/

The Austro-Hungarian Empire emerged from the union of the Austrian Hapsburg Empire and the Hungarian Monarchy in the “Compromise” of 1867. This agreement created a monetary and customs union of two autonomous regions with their own administrations and budgets, but sharing commercial, defense and foreign policies. The common expenses were paid out of net customs receipts and contributions from the two governments (their “quotas”). Under the terms of the last pre-war agreement, Austria paid 63.6 percent of the residual common expenditures. The terms of the agreement, including the tariff structure and the distribution of expenses between the two states were renegotiated every ten years.

1/

The term “Successor States” will here be expanded to include Austria, Hungary, Czechoslovakia, Romania and the Serb-Croat-Slovene State as the inheritors of the most significant portions of Austro-Hungarian territory.

1/

During the war, Germany had proposed unification with Austria, an idea that had first surfaced in the mid-19th century. The Germans therefore opposed any attempt to reach a preferential tariff agreement among the Successor States and threatened retaliatory measures. Since Germany was one of the most important trading partners for Austria and Czechoslovakia this threat succeeded in its aim. Unification was opposed by much of the banking and industrial community, which feared losing out to lower cost German competitors. In any event the unification scheme was specifically prohibited in the Peace Treaty of Saint-Germain signed by Austria. That Treaty, however, recommended a trade association among the Successor States.

2/

Austria and Hungary were considered by the Allies to be the successors of the Austro-Hungarian Dual Monarchy and were therefore held responsible for starting the war.

3/

After the dissolution of the Empire the different countries nationalized those parts of the former Austro-Hungarian rail infrastructure contained within their borders. This led to a very uneven distribution of rolling stock. Consequently, the Czech authorities, for example, did not allow rolling stock to leave the country and confiscated any Austrian cars that came in, effectively halting cross-border traffic. Moreover, there were shortages of coal, even in Czechoslovakia, which frequently prevented trains from moving. (Marz (1984), pp.292-293, de Bordes (1924), p.10)

4/

Austria, Hungary and Czechoslovakia retained the Imperial tariff of 1906, with the rates adjusted for depreciation. By 1924 the adjustment in Austria and Hungary involved multiplying the per unit tariff by 10,000, but even this was not enough to compensate fully for the change in the value of the crown. The multiplication factor was much greater in Czechoslovakia. Romania similarly adjusted the old Romanian tariff, and the Serb-Croat-Sloven state used adjusted Serbian tariffs. The very high tariff rates were apparently largely a strategic measure designed to increase the authorities’ bargaining power when they negotiated trade agreements with each other (Pasvolsky (1928), p.181). Each state introduced new tariff structures in 1924-25.

1/

These shortages of food and fuel in Czechoslovakia and Hungary were documented by the Inter-Allied Commissions in Austria and in these two countries. The Commissions arranged for emergency food shipments to the three countries in early 1919.

2/

The Austro-Hungarian Bank was established in 1878 when the Austrian National Bank was transformed into a bank of issue for both Austria and Hungary. It was granted an exclusive right to Issue banknotes but had to maintain two equal centers of operation in Vienna and Budapest. Its first charter covered the period July 1, 1878 to December 31, 1887. It was originally governed by one governor (appointed by the Emperor upon joint recommendation of the Austrian and Hungarian finance ministers), one vice-governor from each of Austria and Hungary and twelve councilors chosen by the general assembly of the shareholders, with a minimum of two from each country. Since Austrian banks dominated the shareholders, most of the councilors were Austrian. The founding statutes assigned 70 percent of note issues to the Austrian branch and 30 percent to Budapest. Similarly, the governments’ shares in the bank’s profits were divided 70:30. The charter was renewed in 1887 for a further ten years. In 1892 the Bank was charged with moving to a gold standard on January 1, 1900 at the conversion rate of 1 kg. of gold to 3,280 crowns. The Bank immediately commenced building up gold reserves with which to stabilize the external value of the crown and between 1890 and 1900 these rose from 108 million crowns’ worth to 919.6 million crowns (Zuckerkandl (1911) p.117). While the crown was never legally placed on a gold standard, in practice the Bank maintained convertibility (Pasvolsky (1928), p.17, Rasin (1923), p.7). After two temporary extensions the Bank’s charter was renewed in 1899 for a period extending to no later than 1910. The government of the Bank was changed to require that Austria and Hungary be represented equally on the council and to add Austrian and Hungarian deputy vice-governors. The distribution of profits was also changed to reflect Hungary’s increasing economic strength. Hungary insisted that its share of profits should be equal to the proportion of the Bank’s earnings acquired in Hungary. After two temporary extensions the charter was renewed for a final time in 1911 and was due to expire at the end of 1919.

1/

Marz (1984), pp.135-136, notes that in correspondence between the Austrian Finance Minister and the governor of the Austro-Hungarian Bank soon after the start of the war, no mention is made of the possibility of financing any part of the war expenses through taxation.

2/

Not surprisingly this provided a very attractive opportunity to escape the inflation tax. In a high inflation-rate economy debtors profit from a devaluation of their debt. Hence the Bank’s operation provided an easy way for creditors to the government to become debtors to the Bank, On one day, November 7, 1918, advances on War Loans were made totalling 609 million crowns. Between October 26, 1918 and February 2, 1919, advances rose by 5,225 million crowns (Rasin (1923) p.19), These advances were facilitated by the Austrian government’s commitment to compensate the Bank for any losses incurred on these loans. The debts incurred were greatly devalued by the ensuing hyperinflation. Czechoslovakia had prevented the Austro-Hungarian Bank from providing these advances in Czechoslovakia in November, 1918, but had been unable to convince the Austrians to end the policy, Marz (1984) pp. 325-326 argues that in fact both parties were acting rationally. Most of the War Loans were held by German Austrians and to a lesser extent by Hungarians, while the Czechs held comparatively more cash. Thus, this policy allowed Austrians and Hungarians partly to escape the inflation tax at the expense of the Czechs and others holding bank notes, Zeuceanu (1924), p.132, reports that many investors arranged an easier escape by simply reporting false names and addresses on their loan applications.

1/

Accounts of the Austro-Hungarian Bank July 23, 1914 to Oct. 26, 1918

(‘000 crowns)

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Source: Rasin (1923), pp. 8-10.

2/

Marz (1984), p.207, reports official indices prepared in December, 1921, that show that the cost of living rose by 1,226 percent between July 1914 and November 1918. When housing costs are removed from the index (rents had been frozen early in the war) the price increase grows to 1,540 percent. This index does not reflect black market prices and so underestimates the true inflationary impact, given that there were serious shortages of basic consumer items for most of the period.

1/

In late 1918, Czechoslovakia, Poland, Romania, the Serb-Croat-Slovene State and Italy were given representation on the board of governors of the Austro-Hungarian Bank. However, all the notes continued to be printed in Budapest and Vienna. Czechoslovakia, having inherited much of the industrial sector of the former empire had a stronger tax base than either Austria or Hungary and therefore had less of a need to finance government spending through printing money. Prior to pushing for Successor-State commissioners at the Bank, Rasin had tried to have instituted an international commission to control the Bank and prevent further issues of uncovered notes. He had also argued, unsuccessfully, against further discounts of War Loans and against the extension of Bank credit to governments (Rasin (1923) pp. 16-17).

2/

Pasvolsky (1928), p.96-97, de Bordes (1924), p.19 and the Economist (July 19, 1919), p.94, report that large numbers of German Austrian civil servants and bankers who had been stationed outside the territory covered by the Republic of Austria were expelled and returned to Vienna where they were absorbed into the Austrian civil service. League of Nations (1926a) reports that as of October, 1, 1922, there were 246,473 employees in the central administration, and government enterprises and railways (other than the Southern Railway), The elimination of 44,870 jobs between October, 1922 and July, 1923 was “possible without drastic reorganization of the administration” (League of Nations (1926a), p.52). The League of Nations reconstruction program with Austria called for the elimination of 100,000 positions, which was considered a conservative target. The Financial Committee found that state officials and their families constituted more than ten percent of the population of Austria in 1921 (League of Nations (1921). De Bordes (1924), p.11, reports that the number of unemployed rose from 46,203 in December, 1918 to a peak of 186,030 in May, 1919, of which 131,500 were in Vienna alone, a city of roughly 2 million people.

1/

Austro-Hungarian currency circulated in these countries and also in parts of Italy and Poland. These two countries also exchanged these notes for domestic currency; however, the amounts were small and, more importantly, the experiences of those countries did not correspond to successor state or breakaway reforms. The details of their currency reforms are in Appendix B.

2/

There were far more crowns circulating at this time than Serbian dinars. In Serbia there were 50 percent more crowns than dinars and in Croatia/Slovenia and Vojvodina there were twice as many crowns as dinars (Lampe and Jackson (1982), p.378).

3/

A decree of Dec. 12, 1918 had forbidden the import of Austro-Hungarian banknotes into the Serbian parts of the Dual Monarchy and a decree of Jan. 30, 1919 extended this ban to the rest of the Kingdom. The stamping operation was implemented by a decree signed on December 25, 1918, but announced on January 8, 1919. This provided for the stamping of the 100, 50, 20, 10, 2 and 1 crown notes, but not the 25, 200 and 10,000 crown notes.

4/

“The forgeries of stamps became so numerous that the officials themselves could no longer detect whether the stamps were genuine or forged, so that the Government was compelled to accept large quantities of these falsified notes which were presented for the second stamping.” (Steiner (1921), translated in de Bordes (1924) p.235).

1/

These procedures were outlined in a decree of November 5, 1919, reproduced in Steiner (1921), vol. II, p.463.

2/

Steiner (1921), vol. II, p.466, and Pasvolsky (1928), p.475, report that the exchange rate was changed three times: from 2.5 crowns per dinar, to 3:1 on June 17, 1919, to 3½:1 on November 11, and ultimately to 4:1 on January 1, 1920. The official rate stayed at 4:1 at least until February, 1921. The pre-war conversion rate maintained by the Empire was a highly favorable two dinars per crown, which later rose to four dinars per crown. The gold parity between the Austro-Hungarian crown and the Serbian dinar was 0.95:1.

3/

Zeuceanu (1924), p.245. Pasvolsky (1928), p.475, and Notel (1986) p. 176, report that approximately 8 billion crowns were converted to dinars, of which at least 1 billion were believed to have had forged stamps. However, Marz (1984) pp.326 reports that about 5 billion crowns were stamped in the first round, and that only 4 billion were stamped in the second round, apparently because of a relatively unfavourable conversion rate.

4/

Three-quarters of its shareholders were Serbian, and that pattern was reflected in the distribution of loans. Half of net profits went to the government and 5 percent were used to build up foreign currency reserves, with the remaining 45 percent being distributed among directors and shareholders (Lampe and Jackson (1982), pp.390-391).

6/

Pasvolsky (1928), p.484, 487.

1/

Pasvolsky (1928), p.471, 480.

2/

An article in an Austrian newspaper on February 15 predicted the upcoming stamping. The Czech Ministry of Finance had in fact, in a decree of January 30, 1919, announced that a survey of currency and deposits would be taken in order to evaluate the possible revenue to be gained from a capital levy. An article in the Economist on February 1, 1919 said that “it is assumed in Vienna that the crown will there [in Czechoslovakia] be replaced by the franc.” The same article stated that “it is assumed that the crown will disappear in all the new states, including Hungary.”

3/

The border closing was intended to prevent people from transferring their notes abroad to avoid the tax. Indications are that this was largely ineffective and that substantial sums did In fact move into Austria, suggesting that unstamped notes were perceived to have greater value than stamped notes, or at least that notes with the Austrian stamp would be more valuable. Rasin (1923) p.28, did not believe that many people were able to evade the stamping. However, he appears also to have been unaware that the plans had been leaked, and later, on p.40, he attributes the Austrian decision to stamp banknotes to “pressure from the Czechoslovak Republic.” The knowledge of the impending stamping and capital levy created a reverse run on the banks in Czechoslovakia as holders of banknotes tried to convert them into deposits or to purchase goods and assets that were exempt from the levy. The Economist (March 15, 1919) reports that in the week between the announcement and the beginning of stamping the interest rate paid on chequing accounts fell from 3 percent to 0.5 percent and that on savings accounts fell from 5 percent to 1.5 percent. There was a simultaneous boom in stock prices.

1/

Different procedures were used in certain border territories more than a year later. Unstamped notes were converted to Czech crowns at approximately 4:1, sometimes after payment of a fee. These conversion rates reflected the current exchange rate between Czech and Austrian crowns. In New York in October 1920, 100 Austrian crowns traded for $0,355 while 100 Czech crowns cost $1.24, which implied a conversion rate between them of roughly 3.5 Austrian crowns per Czech crown.

2/

These forced loans were “irredeemable by the creditor but repayable on the part of the state at any time” (Rasin (1923), p.25-26). They were considered as advances towards the payment of the capital levy and the tax on incremental wealth (the difference between one’s pre-war and post-war assets) that were introduced on April 8, 1920 to reduce the stock of currency in circulation. Sums presented for stamping of less than 300 crowns were exempt (Rasin (1923), p.28).

3/

Only Poland and Czechoslovakia converted current accounts and Treasury bills. They were not required to do so under the terms of the peace treaties.

4/

The one- and two-crown notes remained in circulation for a while after the stamping and many were smuggled into the country. To prevent this it was announced on September 23, 1919 that they would be exchanged subject to a 10 percent tax. The Czech authorities also did not convert the 10,000 crown notes and the 25 and 200 crown notes which had been printed, after November, 1918, on only one side of the sheet. None of these notes had ever been legal tender in Czechoslovakia.

1/

The amounts stamped are from Zeuceanu (1924), p. 245. and represent the total amounts claimed by the Czech authorities as having been stamped to date. The amounts confiscated are from Razin (1923), p.28 and these exclude the results of the exchange of notes in the “border districts” (chiefly Carpatho-Russia). He reports that in the initial stamping operation 7.4 billion in banknotes and 2.1 billion in Treasury Bills and current accounts was submitted, resulting in the total of 9.5 billion quoted in Marz (1984), p.326. As of October 31, 1921, 8 billion in banknotes had been submitted of which 2.5 billion had been retained. Since sums under 300 crowns and those belonging to public and certain social institutions were exempt the forced loan actually took in only about 30 percent of the stock of notes.

When the liquidators of the Austro-Hungarian Bank went to Prague to verify the authorities’ claim they found that only 8.3 billion crowns were available to be turned over.

2/

Anti-Austrian sentiment outside Austria resulted in the expulsion or voluntary withdrawal of most German-Austrian civil servants from Czechoslovakia, Hungary and the Serb-Croat-Slovene State soon after the dissolution of the empire. To get an indication of the size of the experienced staff of the new banking office consider the following figures reported by Zeuceanu (1924), pp.431-435. As of Nov. 20, 1920, of the 3,113 employees and pensioners of the Austro-Hungarian Bank recognized by the liquidators, only 283 (9 percent) were of Czechoslovak nationality, of which 85 were retired, and at least seven resided outside the Czechoslovak Republic. On the other hand, by the beginning of the War the Prague branch was the Austro-Hungarian Bank’s most profitable and the Czech-owned banks dominated banking in Czechoslovakia (Rudolph, (1976), p.73).

1/

Marz (1984), p,327: “The lack of border supervision must have facilitated the introduction of large quantities of banknotes in defiance of the ordinance. There are indications that many Czechoslovak residents tried to evade the imminent capital levy.” Pasvolsky (1926), p.40: “One of the results of the stamping of currencies in Yugoslavia and Czechoslovakia was an influx of unstamped notes into Austria, which compelled the Austrian government to take a similar step several days after the process was completed in Czechoslovakia.” F. Steiner, Manager of the Anglo-Austrian Bank in Vienna, wrote that “in order to prevent an influx of banknotes from the States in which they had been stamped, the Austrian Government ordered that banknotes should be stamped in Austria as well” (Steiner (1922), p.37). As an indication of the magnitude of this transfer, de Bordes (1924), p.42 reports a Board of Trade document which estimates that just over 31 percent of the Austro-Hungarian currency in circulation in March, 1919 was in Czechoslovakia. However, the 8.4 billion crowns converted by the Czechs constituted only 22 percent of the currency supply. Thus, approximately 3.5 billion crowns in Czechoslovakia were not stamped there. Rasin (1924), p.32, estimates, on the basis of equal per capita note holdings throughout the Empire, that approximately 2 billion crowns held in Czechoslovakia (exclusive of Carpatho-Russia) were withheld from the stamping operation. However, since Czechoslovakia was comparatively more industrialized and urbanized than other regions of the former monarchy, this probably understates the flow of unstamped notes. For example, the Economist of March 15, 1919 reported that 12 billion Austro-Hungarian crowns circulated in Czechoslovakia. In its May 3 report from Prague, the figure of approximately 8.2 billion notes stamped represented a “pleasant surprise” (p.726).

1/

This figure is reported by Zeuceanu (1924), p.246, de Bordes (1924), p.42 and Young (1925), p.12. Marz (1984), p.328, says 4.8 billion crowns were submitted for stamping, while Schumpeter (1925) says 5.9 billion were stamped. De Bordes (1924), pp.34-37, reports a distribution of banknotes estimated by the Board of Trade which shows 21 percent of Austro-Hungarian notes circulating in Austria in March, 1919.

2/

At this time the Austrian authorities intended to introduce a capital levy. This policy had been publicly debated and was widely expected to be implemented. Joseph Schumpeter, who became Finance Minister on March 15, 1919 had argued strongly for such a tax in Schumpeter (1991). However, the levy was never imposed.

3/

See Marz (1984), p.328. Unstamped notes were more valuable than stamped notes because, since the stamps were apparently easily forged, the value of these notes included an option on future conversion to whichever of the stamped currencies proved more valuable.

4/

Debts contracted, but not paid, before March 26 were denominated in unstamped crowns.

1/

The Austrian government also maintained fairly strict foreign exchange restrictions (see de Bordes (1924), Ch. V, and League of Nations (1922), p. 55). In April, 1919, the government reorganized the exchange control office (“Devisenzentrale”) and placed it under the control of the Ministry of Finance. All purchases of foreign exchange had to be made with the approval of this office and exports had to be denominated in foreign exchange and were only permitted after the an equivalent amount of foreign exchange was deposited with the Devisenzentrale. Purchases of foreign exchange were made through the Devisenzentrale, and imports of Austrian crowns were prohibited. The Devisenzentrale differentiated between two types of accounts in Viennese banks, the ausland crown and inland crown accounts. The former were accounts, owned by foreigners, whose balances had been released from restrictions by the Devisenzentrale. Crowns in inland accounts could be transferred only to residents of the Successor States. Approval for transfers between accounts was rarely given. Because they could be exchanged freely, ausland crowns commanded a substantial premium over inland crowns. For example, in Vienna in December, 1921, £1 was puchased for 22,000 inland or 11,000 ausland crowns.

2/

Although Zeuceanu (1924) reports that the liquidators found considerable confusion in the books and concluded that the separation of accounts was purely “illusory” (p. 12). This was partly a consequence of the fact that the assets of the Bank in liquidation were being used to cover issues of notes by the Austrian and Hungarian Sections.

3/

Since the charter of the Austro-Hungarian Bank did not expire until December 31, 1919 the Bank naturally strongly protested both the expropriation of its assets and the institution of rival note issuing agencies in Czechoslovakia and the Serb-Croat-Slovene State.

1/

See also Pasvolsky (1928), p.191. (League of Nations (1920) contains a proposed scheme for economic recovery in the successor states written at an unknown earlier time by an Austrian identified only as “Herr Meinl”. In it he maintains that “the economic revival of the countries of the former dual monarchy is only possible if economic union and free traffic between the Succession States are re-established.” Opponents of union with Germany often proposed the establishment of economic union with successor states.

2/

At the end of 1918 the money supply in Romania consisted of 2.5 billion lei in National Bank notes, the Banque Generale notes, 100 million lei in metallic currency, and the equivalent of 7.5 billion lei in German marks, Russian rubles and Austro-Hungarian crowns.

3/

The Romanian government had in December, 1918, ordered the stamping of the lei notes issued by the Banque Generale under the German occupation forces, although this order was replaced in January, 1919, by a decree accepting unstamped Banque Generale lei at par. A decree of May, 25, 1919, provided for the exchange of these notes for National Bank notes.

4/

The conversion of ruble notes was begun in September, 1920 at various rates of exchange depending upon location and kind of ruble (Romanoff or Lwoff). The exchange of wartime-issue lei was begun in 1920 by the conversion of 1,000 lei notes and the encouragement to use this currency to pay taxes.

1/

Steiner (1921), p.553, and League of Nations (1938c), p.56, reproduce a Ministry of Finance announcement that 8.5 billion crowns had been stamped, Pasvolsky (1928), pp.389-390, states that this was roughly twice as many as had been anticipated. He attributes at least part of the difference to the relatively favourable conversion rate between lei and crowns which resulted in “large inflows of crowns” between the announcement of the conversion rate and the actual stamping process.

2/

League of Nations (1922), p.70. Zeuceanu (1923), pp.242-243, reports that in February, 1922, the Romanian authorities submitted claims for 8.7 billion crowns, of which 6.8 billion were exchanged in the territory of the former Austro-Hungarian monarchy.

4/

The details of the stamping operation were described in a March 17, 1920, decree. At the time of stamping, 50% of the notes were to be retained in a capital levy. Crown deposits, made before March 8, 1920, were converted at par and appear to have been exempt from the 50% levy. A later decree on December 18, 1920, froze 20% of all deposits except those belonging to non-residents.

1/

The Economist reports that 3 billion crowns were taken in by this levy, Pasvolsky (1928), p.302, reports 4 billion were collected. However, this retention was later reversed by a decree of June 30, 1920, which required the return of all the first 10,000 crowns retained from each individual, except that none was returned if the amount retained exceeded 25,000 crowns. Further changes were made when a 20 percent tax on capital was introduced in the spring of 1921.

2/

Being the last to stamp the old notes Hungary should have paid particular care to the legality of the unstamped notes. Since the borders were not closed and because small denomination unstamped notes remained legal tender, there arose the possibility of arbitrage driven by Gresham’s Law. Since the Austrian crown was more depreciated than the unstamped crowns in Hungary, people brought unstamped small denomination notes to Hungary, bought dollars and then returned to Austria where the dollars could purchase a larger number of crowns. According to Kerschagl, “a month after the stamping the importation of one and two crown notes into Hungary was prohibited by law, as these notes had gradually lost their purchasing power everywhere else, and were now pouring into Hungary” (quoted in de Bordes (1924), p.236). There was also substantial forging of stamps.

The continued acceptance of small-denomination notes and the delay in stamping, and finally in exchanging, the notes probably accounts for the difference between the figures reported to the liquidators and those given by Young. The report to the liquidators was made in early February, 1922, but the actual exchange of stamped notes in Hungary did not begin until after June 21 of that year.

3/

The Hungarians also exchanged 793 million crowns that bore the Yugoslav stamp, from territory regained from Yugoslavia.

1/

There were also post office savings bank notes (about 250 million crowns) and so-called “White Notes” issued by the short-lived Soviet government in 1919 (about 3.5 billion crowns) circulating in Hungary. These were also legal tender and were converted to new notes by the State Note Institute.

2/

Similar movements of notes out of the Serb-Croat-Slovene State also appear to have occurred.

1/

Notel (1986), p.176, reports that of the approximately 8 billion crowns exchanged in the Serb-Croat-Slovene State, “about one-eighth was thought to have come from smuggling and forgery.”

1/

Notel (1986), p.176, claims that about a half of the crown notes exchanged originated outside the borders of the new Romania and bore forged stamps. De Bordes (1924), p. 326, quotes Steiner as saying that the Romanian authorities did not attempt to discriminate against notes with forged stamps.

3/

Romania did not begin collecting the crown notes until January, 1920, and finished the operation in October.

5/

Returning the notes to Austria for destruction was no easy matter. Poland’s 2.7 billion crowns’ worth of notes were packed into 2,917 cases and weighed 70,544 kilograms. (Zeuceanu (1924), p.571)

1/

The gold reserves of the bank amounted to 243 million gold crowns. Conversion rates for gold crowns into the currencies of the successor states are given in Appendix C.

2/

For simplicity, in this section the term “Successor States” will include Italy and Poland since they also occupied territory formerly part of the Austro-Hungarian Empire and were parties to the liquidation negotiations.

3/

The Treaty of St. Germain provided for the liquidation, carried out under the direction of the Reparations Committee, to begin on September 11, 1919. However, work could not begin until a peace treaty with Hungary was signed. The Reparations Committee decided on a further delay until the Treaty of St. Germain was ratified on July 19, 1920 (the Treaty of Trianon was not ratified until July, 26, 1921). Due to conflicts over the rights and responsibilities of the liquidators, work did not actually get underway until April, 1921.

4/

The gold was distributed on the basis of 1910 populations and the number of notes stamped. The gold crown amounts distributed were: Italy (4.6 million), Poland (7.25), Romania (14.0), Yugoslavia (10.0), Czechoslovakia (15.35), Austria (7.2) and Hungary (7.1). Gold crown conversion rates are given in Appendix C.

1/

This distribution of gold was made conditional upon the states’ ratification of the treaty signed after the Second Vienna Conference, which resolved the major issues of the liquidation. The gold crown amounts distributed were: Yugoslavia (14.6 million), Italy (8.5), Romania (20.9), Czechoslovakia (20.9), Poland (7.3), Austria and Hungary (13.7 each).

1/

All the statistics in this section, unless otherwise attributed, are taken from League of Nations (1926c), and are reported on a year-end basis, so that annual changes are calculated as the change from December 31 of the previous year to December 31 of the given year. For Austria, the data to end-1922 are those of the Austrian Section of the Austro-Hungarian Bank. For Hungary the data to July, 1921 are those of the Hungarian Section.

2/

This growth in borrowing was a response to extremely low discount rates. On November 29, 1921, the discount rate was raised from 6% to 7% and on September 4, 1922, it was raised again to 9% and credit rationing was introduced (Young (1925), p.12)

3/

By September, 1922 the price index had rise by 2,033% over the December 1921 level, but prices declined sharply in the last quarter. The worst monthly increase occurred in August, 1922 when the price index rose by 128.7% (Young (1925), p.293).

1/

The worst month was July in which the price index rose 98% (Young (1925), p.322).

2/

Notel (1986), p.202 reports that the wholesale price level fell by more than 40 percent and the cost of living by about 50 percent during this time.

4/

Comparable figures for Austria are not available. The worst inflation rate in the region was that of Poland where the cost of living index rose 119,656,600 percent over the same period.

1/

To increase the bank’s gold reserves, the government raised an internal loan of gold coins, bullion or convertible currencies that raised the equivalent of $11.7 million.

1/

The crown was pegged at 1,000,000 to $14, which was its current exchange value. The prewar value of the crown had been 100 to $20.26.

2/

Schilling accountancy had been required since legislation on December, 20, 1924.

3/

Because of their relatively high silver content, the first issues of schilling coins were hoarded and quickly disappeared from circulation.

1/

During 1924, as the pound appreciated, so too did the Hungarian crown so that when Britain returned to its prewar gold standard conversion rate, the Hungarian and Austrian crowns traded at par.

2/

The principles behind the League programs were crafted at the Brussels Conference of 1920. There were also subsequent League programs for Bulgaria (1926, 1928), Danzig (1925, 1927), Estonia (1927) and Greece (1928).

3/

The Reparations Committee excepted from all treaty charges the customs revenue, sugar tax, and tobacco and salt monopoly revenues used to secure the debt service. In return, Hungary agreed to pay 200 million gold crowns over twenty years starting in 1924, with payments rising from 5 million gold crowns in the first two years (see League of Nations (1926b) p.201 for a schedule of payments). The Committee also excepted from charges the revenues assigned by the Austrian government as security for their reparations loan for a period (League of Nations (1926a) p.151).

1/

“Through its independence and its autonomy, the Bank will be strong enough to resist any further interference on the part of the State and to oppose any demand for an issue of paper money,” (League of Nations (1921), p.22).

2/

The Austrian Reconstruction loans were issued in the United States, Belgium, Great Britain, France, the Netherlands, Italy, Sweden, Switzerland, Czechoslovakia, Spain and Austria. Service was guaranteed by France, Great Britain, Italy and Czechoslovakia (24.5 percent each), Belgium and Sweden (two percent each), and Denmark and the Netherlands (one percent each) (League of Nations (1926a) pp.39-42). The Hungarian loans were issued in Great Britain, the United States, Italy, Switzerland, Sweden, the Netherlands, Czechoslovakia and Hungary.

1/

In the Austrian program a “Committee of Control of the Guaranteeing Powers” was Instituted to whom the Commissioner-General also reported. This committee monitored progress under the program and ensured that the provisions of the Protocols were being satisfied. In Hungary, a “Committee of Control” was composed of representatives of the creditor countries, which gave them an opportunity to monitor the program. They could not interfere with or block policies in Austria and Hungary, but could complain to the Council of the League if they felt that the Commissioner-General was delinquent.

2/

For Hungary, the revenues held as security for the loan were gross customs revenues, net proceeds from the tobacco and salt monopolies, and net receipts from the sugar tax. In the fiscal year 1925-1926 these revenues amounted to 258 million gold crowns, while the service of the League-sponsored loan was only 33 million (League of Nations (1926a) p.171). Austria promised the customs and tobacco monopoly revenues as security for the loan, and in fiscal year 1925 these raised 240 million gold crowns, while the debt service amounted to only 56.7 million (League of Nations (1926b), p.110).

1/

“The Commissioner-General will not, so long as the progress of the reform scheme is up to or in advance of the programme drawn up…object to particular items of expense or require modifications of the taxation system except on the ground that the particular expense or feature in the taxation system is such as in his opinion to compromise the later progress of the scheme; but if the progress of reform is at any time behind what Is prescribed for the six-monthly periods…he may…object to any item of expense and may also, or alternatively, require the Hungarian Government to increase the yield of existing taxation or to impose new taxes.” (Protocol II, Article IV of the Hungarian accord). The modified control agreed upon by the Austrian government and the League of Nations in September, 1924 contains similar wording.

2/

In the case of Hungary, there were no disbursements after June 30, 1924 for financing purposes. However, dispensation was given to use 100 million gold crowns for capital expenditures. Thus, when the Commissioner-General was removed, 70 million gold crowns had been used to finance deficits, 100 million had been allocated to capital expenditure and 80 million remained unallocated.

1/

For example the Serb-Croat-Slovene authorities started their initial stamping operation within six weeks of the creation of their state. The Czech government initiated their program less than four months after deciding on separation. If the Austrian operation is assumed to have been entirely a defensive one, it may have taken only one or two months to plan and carry out.

1/

These inflows might be sterilized by reducing the supply of notes from the central bank. However, if the amount of notes is substantial this represents a significant loss in seigniorage, which is often the most important source of revenue. If not sterilized, the inflows exacerbate inflationary pressures.

The Dissolution of the Austro-Hungarian Empire: Lessons for Currency Reform
Author: Mr. Michael G. Spencer and Mr. Peter M. Garber