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East Germany BANKING, FINANCE, AND CURRENCY
Investment activity in the East German economy in its broad
outlines is fundamentally a function of planning on the national
level. Funding for investment activities may be allocated by
direct provisions in the national budget, by disbursements made
from the resources of economic units, or by credits. General
investment goals for the various sectors of the economy are
defined in the five-year and one-year plans.
The East German banking system is highly centralized. The
State Bank (with regional and industrial branches), which is an
organ of the Council of Ministers and serves as the bank of
issue, is responsible for overall execution of currency and
credit policies. Integrated within the centralized system are
banks for the various sectors of the economy: institutions to
handle foreign trade, investment, agriculture, and small
enterprises. There are also savings banks, functioning directly
under oversight of the Ministry of Finance. Various economic
units and, less frequently, individuals may apply for credit,
which the banks grant in accordance with guidelines devised by
the State Bank and the Ministry of Finance and approved by the
Council of Ministers. Banks play an active role in the planned
economy of East Germany, exercising supervisory functions,
promoting the goals of the economic plans, and generally helping
to shape economic behavior in ways considered desirable by the
government.
In East Germany, prices have always been centrally
controlled; pricing policy is used as a tool to promote economic,
political, and social objectives. In production, alteration of
prices on selected input goods has been one method by which
central planners encourage greater efficiency. Prices for basic
consumer goods, by contrast, have by and large been held
constant, although some increases are masked by the introduction
of "new" or "improved" products.
The currency of East Germany is the East German mark, or GDR
mark, officially a nonconvertible, domestic currency.
International financial relationships are assessed on the basis
of the
valuta mark (see Glossary),
over which the Council of
Ministers has oversight. In East-West trade, Western currency is
used, and in Comecon trade the "Soviet foreign-exchange ruble" is
used
(see Foreign Trade
, this ch.). For noncommercial
transactions such as tourist trade, the State Bank establishes
the rates of exchange for the GDR.
Beginning in 1973, it became legal for East Germans to
possess foreign currency. The state tapped this supply of hard
currency through the establishment of a chain of Intershops,
which sold luxury and Western goods to tourists and to East
Germans with hard currency; exchanging East German marks
privately for hard currency remained illegal. In the late 1970s,
the government introduced regulations that required East Germans
to make their Intershop purchases in certificates obtained by
exchanging their foreign currencies at a bank (foreign tourists
could still use Western currencies in the Intershops), making it
possible to monitor the circulation of foreign currencies more
closely.
In terms of magnitude, East Germany has a currency problem
unique among the countries of Eastern Europe. Each year the
country is visited by millions of West German tourists and
relatives of East German citizens, who bring West German marks,
or Deutsche marks (also known as
D-marks--see Glossary) with
them. As a result, some portions of the population have access to
hard currency and the goods it can buy, while others do not. One
by-product of this state of affairs is a black market in
currency, in which one D-mark costs four or five GDR marks. This
situation causes several problems for the regime. First and most
obviously, the local currency is discredited because its de facto
value against any Western counterpart is markedly lower than the
official exchange rate. Second, the fact that hard currencies are
unevenly and inequitably distributed among the people on a random
basis threatens to create a distinction between "haves" and "have
nots." Third, the circulation of such monies can introduce
uncertainties in economic activity that can at least marginally
distort the balance intended in the plan.
From the leadership's point of view, the influx of Western
currency is far from ideal. However, it may be that the
advantages obtained from the acquisition of hard currencies
through the Intershops, the general popularity of such stores
with the people, and their utility in satisfying consumer demand
in some degree outweigh the disadvantages or problems that
accompany the existence of a second currency in the economy.
Data as of July 1987
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