"Finance and Banking in the Austrian Empire and the Republic of Austria"

[Excerpt from Volume XXX, pp. 348-349.]

Republic of Austria

Finance and Banking.—When in the last days of Oct. 1918 the various parts of the Austro-Hungarian monarchy constituted themselves on one side independent states (the Austrian Republic, the Czechoslovakian Republic, Hungary, and the republic of West-Ukraine), and for the other part decided on joining already established nations (Italy, Rumania, Yugoslavia); or joined territories detached from other states. and forming new states (Poland), there existed in all these territories one uniform paper currency in circulation,
i.e. the notes of the Austro-Hungarian Bank, enjoying a fixed rate. It was clear that such conditions could not be maintained for any length of time, and that, in view of the connexion between paper money of fixed rate and State finance, it was impossible to continue this unity of currency. All the states concerned, which succeeded the Austro-Hungarian Monarchy, were in such financial straits that they considered the continued recourse to the issue of notes a necessity. The note-printing press, however, was in Vienna, and the Austro-Hungarian Bank was actually under the deciding influence of the new German-Austrian Government. It was urgently necessary for the new states to obtain an independent currency,
i.e. to make themselves independent, so far as the printing of notes was concerned, of the Vienna note-printing press. This was comparatively easy for those who had joined already existing states, but more difficult for the newly formed states which were obliged in the first instance to create a new currency. In these conditions the money problem, at the moment of the dissolution of the Austro-Hungarian Monarchy, was merely a technical problem of printing, and the question how to obtain printing-plates, banknote-paper and printing-ink appeared for the moment the most important points of currency policy. After the Italian Government as early, as Nov. 1918 and the Rumanian Government in Feb. 1919 had made the necessary preparations to substitute respectively the
lira and the
lei for the Austro-Hungarian
“krone,” in the territories occupied by them, the Government of the Serbo-Croatian-Slovenian State proceeded in Jan. 1919 to mark the Austro-Hungarian notes circulating within their territory by stamping them. On Feb. 25 1919 the Czechoslovakian Government followed suit by stamping the
kronen notes circulating in their country. Then the Austrian Government could not remain idle. It could not wait until all the other states had passed from the Austro-Hungarian
krone to a national
krone. It had to get rid of the Austro-Hungarian
krone, in order to avoid the danger of such notes as for one reason or another had not been stamped by the other states returning to German Austria and there increasing the inflation. The
kronen notes circulating in German-Austria were therefore also specially marked, and, by a regulation of March 25 1919 having the force of law, it was decreed that all notes not so marked would not be legal tender within the German-Austrian State.

A decree of Feb. 27 1919 had ordered the stamping over of all notes of the Austro-Hungarian Bank circulating within the territory of the German-Austrian Republic, with the exception of the notes for one and two
kronen (which also subsequently were ordered to be stamped). With the execution of this regulation the German-Austrian currency was separated from that of the other “succession states,” and there was only one special
kronen note, which was stamped as recognized legal tender for Austria.

The German-Austrian Republic also used the note-printing press as its chief expedient for covering the national expenses. At the time of the carrying-out of the stamping process, at the end of June 1919, the stamped German-Austrian notes in circulation amounted to 7.6 milliards of
kronen; at the end of 1920 the circulation had risen to 30 milliards. In consequence there was a further depreciation in the exchange. On Dec. 31 1920 the dollar was quoted in Vienna at 668
kronen, as compared to 5
kronen in pre-war times.

The republic of Austria at first not only maintained the system of restricting exchange operations, introduced under the Empire during the war, but even made it more severe. Only in the summer of 1920 was any relaxation permitted, in so far as the forced release of foreign currencies obtained for goods exported was generally cancelled. In Nov. 1920 further modifications were made, so that by the end of 1920 the only restriction of money transactions with foreign countries remaining in force was the prohibition to import or export
kronen notes. The regular exchange operations on the Vienna Bourse were however, not revived. They were replaced by a system of restricted exchange business under the special supervision of the still existing
Devisenzentrale.

The general political conditions and the depreciation of money had led to such an
impasse that up to 1921 the whole financial system of the republic was in a state of uncertainty. On the one hand, the Austrian State, by the peace treaty of St. Germain, was made liable toward foreign countries for an amount not specifically determined. On the other, it was found necessary for political reasons to introduce a system of providing the population with cheap victuals. As these had to be obtained almost exclusively against payment in foreign currency abroad, and it was desired to sell at home at the lowest possible prices, there resulted a considerable discrepancy between the expenses necessitated by this part of the State budget and the income derived. At the beginning of 1921 the deficit of the Austrian budget was estimated at hardly less than 50 milliards of
kronen per annum. To cover this deficit the Austrian State, with the help of the Allied Powers, contracted loans abroad, and for the rest relied on the note-printing press. Only a small part of the expenses of the State could be covered by taxation, notwithstanding that all direct taxes were greatly increased and a new direct tax, an extraordinary property tax, was specially introduced in 1920. Of this property tax, the fixing of which required enormous preparation, it was permitted to make prepayments in Feb. 1920 under specially favourable conditions. Such prepayments brought in over 7 milliards of
kronen, but more than half of these prepayments were made in war loan. The situation of the Austrian State budget was therefore in 1921 a most unfavourable one. An improvement could only be expected on the one hand by doing away with the system, which could not be permanently maintained, of providing necessaries for the population below cost price at the expense of the State, and on the other by a radical reform of the many State and municipal enterprises (post, telegraph, telephone, State railways, salt mines, tobacco manufactories, town railways, illumination and power works).