HOW GERMANY PAYS

Greymouth Evening Star, 25 March 1922, Page 6

HOW GERMANY PAYS

E. D. Kissau writes as follows in tho London “Daily Mail’’ : — How will Germany pay reparations in good money ? She is lavishly printing paper marks, but the Reparations Commission does not accept those. The reparations are payable theoretically, in gold, but there is not enough of that for the purpose. The Reparations Commission requires the equivalent of gold in sterling or other good money.

So far tho reparations payments received by this country have been almost entirely in kind, or have been set off against German balances already here. When cash payments become due, how will they be made?

It will be necessary for the German Government to get sterling through the foreign exchange market in the same way as a Gentian importer does in paying sterling for British goods. And sterling means a sum at a British bank in pounds, shillings, and pence.

A concrete example will illustrate tho wav in which this can happen.

Air England, of London, buys 80.000 marks’ worth of hardware from Herr Deutsch, of Berlin. Air England has £lOO at a London bank, and, the current exchange being 800 marks to the £l, he instructs his bank to remit 80,000 marks to tho credit of Herr Deutch at a Berlin bank.

Stripped of its complications, this transaction means in effect that tho £lOO still remains on deposit at the London bank —not in the name of Air England, but of someone in Germany, probably a bank or exchange firm. By such transactions, German banks and firms become possessed of sterling—that, is, sums on deposit in British banks.

When the German Governnfeiit wishes to obtain sterling to pay reparations it goes into the exchange market in Germany and bins this sterling from

the firms that possess it. This puts the German Government in possession of sterling deposits in London, probably at those banks that have special German connections.

An instruction from the German Government to those banks to transfer so much to the Bank of England—instructions that would probably not give any indication of the purpose of the transfer—is all that is necessary in order to effect the payment of reparations to the Reparations Commission.

There are, of course, other ways, besides exports to Great Britain, by which Germany can obtain sterling balances. Any mark notes shipped from Germany and sold to speculators and others here mean the transfer of so much sterling to German hands. Again, if a loan of, say, 20 million pounds were raised in London for the German Government, or for German commercial undertakings, it would directly place Germany in possession of that amount of sterling.

Moreover, trade with other countries might indirectly give Germany sterling through the complicated process of the foreign exchange market. Sales of German goods to New York would give Germany command of dollars which she could sell in exchange for sterling. This broad explanation of the means by which Germany obtains good money of other States to pay reparations in cash, is sufficient to make it clear that she must either get credit here or elsewhere, by raising a loan or selling mark notes (as she has lavishly done in the past), or sell sufficient German goods or perform sufficient services (shipping and the like) outside Germany in order to obtain command of good money.