Foreign Relations of the United States, 1948, Germany and Austria, Volume II

862.515/3–1048

Memorandum by Frank G. Wisner, Deputy to the Assistant Secretary of State for Occupied Areas, to the Under Secretary of State (Lovett)¹

top secret

[Washington,] March 10, 1948.

I. The Problem:

To review the present US position with respect to currency reform on a quadripartite basis in Germany.

II. Discussion:

The “Discussion” is set forth at Tab “A”.

III. Conclusions and Recommendation:

Although important points of difference continue to exist in the current quadripartite discussions, further concessions may be made by the Soviets. In brief, we may be approaching agreement in the ACC on quadripartite currency reform for all of Germany. The question arises whether this is desirable from the US standpoint, since quadripartite currency reform might enable the Soviets to frustrate further the economic recovery of western Germany by the use of obstructive and delaying tactics with respect to such a currency reform program. Furthermore, a quadripartite currency, as compared with a bizonal or trizonal currency, would deprive us of a very important monetary instrument for achieving the effective economic administration of the western zones and might impede the realization of some of the arrangements which we are now working out on a tripartite basis.

On the record, General Clay’s instructions still stand as favoring the achievement of quadripartite reform if attainable promptly. The progress in the negotiations in Berlin necessitates an immediate review of our position to determine whether it is still in our interest to have a quadripartite currency reform in view of the changes in the European situation which have occurred since the decision to propose such a reform.

It is considered that the institution of currency reform on a bizonal (or tripartite) basis, instead of on a quadripartite basis, would represent a very definite move toward recognition of the East-West partition of Germany but, at the same time, an important move toward much needed economic stability in western Germany. It is believed, therefore, that a decision in this regard is one which should be taken at the top level within the Department and after consultation with the Secretary or the Under Secretary of the Department of the Army.²

However, it is recommended that General Clay be instructed that the policy of this government is no longer to reach quadripartite agreement on currency and financial reform in Germany, and that, accordingly, his objective should be to withdraw from quadripartite negotiations not later than the end of the sixty day limit now agreed upon in ACC for discussion of quadripartite currency reform.³

IV. Concurrences:

This memorandum is concurred in by EUR, CE, L, OE, andE.

Frank J. Wisner

[Annex]

Tab “A”

II. Discussion:

It was agreed at a U.S. Delegation meeting in London, at the close of the CFM, that currency reform in Germany, particularly in the bizonal area, was an urgent matter. The Secretary authorized General Clay to make one final attempt to achieve quadripartite agreement to financial reform, including currency conversion, in the ACC. Accordingly, General Clay introduced a revised US plan on January 20 in the ACC. This proposal dealt with currency printing and conversion rather than the broader aspects of financial reform.⁴

On January 30, the Soviet delegate put forward a counter-proposal which differed from the United States proposal chiefly by envisaging immediate creation of a central finance department and bank of issue. General Clay took the position that such creation is premature pending the establishment also of other central administrative departments requisite to an integrated program for economic unity.⁵

On February 11, the ACC decided that an effort should be made within a time limit of sixty days to obtain agreement in ACC on a program of currency conversion, including the treatment of public and private debt; in the meantime, preparations should go forward for the printing of a new currency in the American sector in Berlin under quadripartite controls.⁶

The latest advice to General Clay with respect to the United States position on achieving a quadripartite agreement for currency and financial reform in ACC was set forth in Warx 95596 of February 9, as follows: “Policy objective is to reach quadripartite agreement provided attainable promptly.”⁷

While in Washington recently Ambassador Murphy got in touch with Mr. Draper and both of them felt some concern that a quadripartite plan might be forced upon us which would not fully protect the needs of the bizonal area and which might result in delaying tactics by the Soviets with consequent confusion in the bizonal economic program. Mr. Draper queried General Clay. The latter cabled a reply on February 13, the gist of which is that in view of Soviet agreement to the printing of a new currency in Berlin and their revised position that the creation of a central financial administration is not a prerequisite to ACC agreement, General Clay found it necessary to continue the negotiations since to do otherwise would cause it to appear that the US is making a move to partition Germany. Accordingly, General Clay agreed to the above-mentioned limited period in which further negotiations would go forward in the ACC. It is understood that General Clay also indicated on February 13 to Mr. Draper that preparations were being made so that a bizonal currency could be issued by June 1, in event of failure to achieve ACC agreement.

In a cable, dated March 7, to Mr. Draper, General Clay states that in Finance Directorate meetings, subsequent to the ACC meeting of February 11, the Soviets have again sought to make the main issue the creation of a Central Finance Agency and a German Central Bank of Issue. Meanwhile, the Soviets have been slow in discussions on arrangements for the printing of a new currency. Also, General Clay summarizes, under the following general headings, the important quadripartite discussions which have taken place from February 11 to date: capital levy, treatment of the Reich debt, funds of “active Nazis”, frozen bank accounts in the Soviet zone, funds belonging to government authorities (i.e., treatment of mark holdings of members of the Occupying Forces, and of German local, provincial and higher budgetary authorities), and funds belonging to Occupying Powers. General Clay states that he is by no means convinced of the sincerity of the Soviet offers and that it seems likely that the Soviets are playing for time and trying to put us on record as against economic unity. He adds that such action on their part does not affect his target date for bizonal or trizonal action.

1. Another copy of the memorandum, filed under 740.00119 Control (Germany)/3–1048, indicates that the memorandum was delivered to Under Secretary Lovett on the afternoon of March 10.

2. The source text bears Under Secretary Lovett’s following handwritten marginal notations opposite this paragraph:

   “(a) OK to consult with Army (& Treasury if necessary)

   “(b) OK to change instructions to Clay after agreement with Army & (Treas if necessary)

   “(c) Better act fast.”

3. Lovett approved this recommended change in policy on March 11. The matter was then taken up with the Department of the Army which sent a cable to Clay, notifying him of the change in policy. Clay concurred in the change and indicated that he had felt for some time that quadripartite agreement could not be reached. (Memorandum toy Charles Hilliard ofO, March 23, not printed, 862.515/3–2348.)
4. For an outline of the American plan under reference, see footnote 2, p. 870.
5. Regarding the Soviet plan under reference in this paragraph, see telegram 258, February 1, from Berlin, p. 870.
6. For the report on the Control Council’s meeting of February 11, see telegram 342, February 12, from Berlin, p. 873.
7. The message under reference here is not printed.