GIPE-PUNE-OIIOI2 - DSpace@GIPE

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THE RE~MAKING OF THE REICHSBANK
Qrd¢r"todiscounuhese commercial papers the Reichsbank
may find itself compelled to issue more notes' and tend
to have its legally sanctioned . cover correspondingly
diminished.' As soon as thi~ tenderi~y appears the Reichs~
bank raises the rate of discount, i.e., makes loans at higher
rates, thus putting a damper on the enthusiasm of the
company~promote~s and other expansionists. They are
thereby compelled to cry a halt to approaching the Note~
Bank. for money with commercial papers in hand. This
period is very hard for the business men as the money ...
market becomes tight. But, for the Reichsbank this is the
time for husbanding out its resources and preserving the
safety of the country's reserve.
In the, second place, the legal cover may be
endangered by a strong fluctuation in the foreign
exchanges. There may be a rise in the rates of the
pound~sterling, the dollar, or other foreign currencies com~
pared to the Mark. It may then become !?rofitable to
transport Marks in gold buillion or coin to foreign countries
instead of bills ,of exchange, as the so~called. "gold point"
is reached. Under these conditions the German traders
are sure to take the notes to the Reichsbank and demand
payment in coin or bullion for the corresponding values.
Naturally, therefore, the Reichsbank's supply of gold
tends to diminish . To counteract this tendency the
Reichsbazik raises the rate of disco,unt. thus enabling
itself to dp with less notes.
This technique works automatically and is as much
French as British or Germc1n. 2 '/' It need be observed.
24 See the chapter on Die KTeditpolitilt .leT Reichsbanlt in Prion: KTedit­
:1Jolitilt (Berlin. 1926).