01 The Hour
Monday
13 July 1931. Berlin. Reconstructed to the day.
One of the largest banks in Berlin was forced to close its doors. The record of that week supports the day and not the hour, so the day is what is given here.
Behind the closure sat a number. The Reichsbank's holding of gold and foreign exchange had stood at 700 million dollars in the middle of September 1930 and 613 million at the end of May 1931. The fall from that point to the middle of July took out 258 million, about 42 per cent. The Federal Reserve Bank of New York described the movement as tantamount to a run on the German banking system.
02 The Sequence
11 to 12 July 1931 The reichsmark closed at 23.69 cents in New York on the 11th. From the 12th, trading in the currency there was practically suspended.
13 July 1931 The Berlin bank closed its doors. The reichsmark broke to nominal quotations of 22 cents.
14 July 1931 The Federal Reserve Bank of New York announced that, with other Reserve Banks and the approval of the Board, it had agreed to renew its participation of about 25 million dollars in the outstanding 100 million dollar central bank credit to the Reichsbank first announced on 25 June.
14 and 15 July 1931 Both days were made official bank holidays. The government by presidential decree promulgated restrictive measures covering banking, foreign exchange operations and trading on the security exchanges.
15 July 1931 The Reichsbank's reserve of gold and foreign exchange held against its note circulation fell below the ordinary legal minimum of 40 per cent, to 35.8 per cent. Control of all foreign exchange operations was placed in the hands of the Reichsbank, and from that date trading on the Berlin foreign exchange market was officially under its control. The reichsmark touched 20.50 cents in New York.
After the holiday All banks other than the Reichsbank, the private banks of issue and the Gold Discount Bank were restricted to a limited class of business, chiefly the delivery of cash and transfers of funds to meet wages, salaries, taxes, unemployment aid and social welfare payments.
16 July 1931 The Reichsbank raised its discount rate from 7 to 10 per cent. In New York the city's bankers reached an informal voluntary agreement on a uniform course of action with their German clients: German checks and cable orders would be honoured to the extent of German credit balances, and acceptance lines then outstanding and in use, along with time deposits, advances and loans in Germany, would be maintained at about their existing amount.
Week of 20 July Representatives of Belgium, France, Germany, Great Britain, Italy, Japan and the United States met in London. The conference characterised the recent withdrawals of capital from Germany as excessive, and said they were caused by a lack of confidence not justified by the economic and budgetary situation of the country.
Rest of July, 1 August The restrictive measures were progressively modified but not eliminated. The principal business and industrial concerns offered 500 million reichsmarks, about 119 million dollars, as a deficiency guarantee of credit transactions entered into by the Gold Discount Bank, and the offer was accepted and sanctioned by decree. On 1 August the Reichsbank's discount rate went from 10 to 15 per cent.
03 The Hidden Dependency
The reserve was not only a buffer. It was a ratio with a number written into law, and the notes in circulation were on the other side of it.
On 15 July the Reichsbank's gold and foreign exchange held against its note circulation fell below the ordinary legal minimum of 40 per cent, to 35.8 per cent. The withdrawals had come out of the cover for the currency itself, and the cover had a floor.
What followed on the same date was not an adjustment to the cover but a change to who could ask for foreign exchange at all. Control of every foreign exchange operation went to the Reichsbank, and the Berlin market traded under it from that day.
The withdrawals had come out of the cover for the currency itself, and the cover had a floor.
04 What Still Worked
The Payroll Window
Delivery of cash and transfers of funds to meet wages, salaries, taxes, unemployment aid and social welfare payments stayed inside the permitted class of business at every restricted bank.
Three Unrestricted Institutions
The restriction on the class of business was written to exclude the Reichsbank, the private banks of issue and the Gold Discount Bank.
The New York Correspondents
Under the informal agreement of 16 July, German checks and cable orders were to be honoured in New York to the extent of German credit balances, and existing acceptance lines, time deposits, advances and loans were to be held at about their existing amount.
05 The Document
The Document 1 August 1931
Monthly Review of Credit and Business Conditions, Second Federal Reserve District, Federal Reserve Bank of New York, dated 1 August 1931.
It is a bulletin about the New York money market. Its section headed Banking and Credit in Germany carries the two bank holidays, the restricted class of business, the reserve ratio of 35.8 per cent and the daily reichsmark quotations, set down in the same register as the tables on wholesale trade and department store sales that follow it.
06 The Pattern Library
1 When one retail withdrawal channel closes or fails, demand concentrates on whichever channel is left open, and the capacity of that channel sets what a depositor can obtain.
Observed: Northern Rock 2007, Cyprus 2013, India 2016, Greece 2015, United States 1933, Argentina 2001, Lebanon 2019, Worldpay 2026, TSB 2018.
2 A currency replacement can require physical modification of each cash dispensing machine before the new notes can be issued, so the machine estate returns to service site by site rather than at once.
Observed: India 2016.
3 Withdrawal limits imposed on a domestic banking system can be written to exempt cards issued outside it, so one machine dispenses under two rules according to where the card was issued.
Observed: Greece 2015.
4 Domestic payment and deposit channels can continue operating while cross-border payment routes fail, with the central bank standing in as the intermediary for payments to and from the country.
Observed: Iceland 2008, Germany 1931.
5 When the institutions that convert payment instruments into cash are closed, wages and checks already received cannot be spent, and merchants and carriers extend their own credit in place of the missing conversion.
Observed: United States 1933.
6 A public employer short of the national currency can pay wages in an instrument it issues itself, which then circulates alongside the currency it stands in for.
Observed: Argentina 2001.
7 Withdrawal restrictions can be imposed by individual institutions and their trade association rather than by statute, so the limit differs from bank to bank and no law governs it.
Observed: Lebanon 2019.
8 A cash withdrawal ceiling set in nominal units has to be raised alongside the note denominations that pay it, because the ceiling can only be dispensed in the notes that exist.
Observed: Zimbabwe 2008.
9 A payment outage can hit card authorisation and merchant funding as separate faults, so acceptance at the terminal is restored while the money owed to the merchant arrives a day late under its own incident notice.
Observed: Worldpay 2026.
10 A retailer that loses electricity can go on trading by taking cash and rationing goods by hand, so the counter outlasts the checkout system that normally prices and settles the basket.
Observed: Texas 2021.
11 A systems migration can leave account records readable but wrong, including presenting one customer's account to another, so a working login is no guarantee that the balance on the screen belongs to the person reading it.
Observed: TSB 2018.
12 The size of a card processing failure can be counted twice, once on first attempts and once after the same card was presented again, and the second count can be about half the first, so part of the recovery runs through the cardholder at the till.
Observed: Visa Europe 2018.
13 A closure can be followed by a reopening in which the restriction is written by purpose rather than by amount, so the counter pays out for wages, taxes and relief while other business stays shut, and the test applied is what the money is for.
Observed: Germany 1931.
Changed today: Entry 4 gained Germany 1931, where control of all foreign exchange operations passed to the Reichsbank while the other banks reopened for a limited class of domestic business. Entry 13 added, on a reopening restricted by the purpose of the payment rather than by its amount.