German monetary union: historical background
1 July 1990 is a date that has gone down in history. It was the day on which people in the German Democratic Republic (GDR), eager to withdraw their first Deutsche Mark banknotes, formed long queues outside banks. The night before, the roughly 24.7 million accounts held by the GDR's population of around 16 million were switched to Deutsche Mark. Many east Germans could hardly wait to hold the new currency in their own hands. To cope with the huge rush, town halls and even schools served as auxiliary payment points alongside banks. GDR citizens used the new currency to purchase painting and decorating equipment, footwear and second-hand vehicles – goods which mobile traders had shipped to the previously Communist country in the days leading up to the currency changeover, ready for sale in Deutsche Mark. Long-distance journeys were also very popular among east Germans.
For the people of the GDR, 1 July 1990 was a milestone on the path to a new political era. Following the fall of the Berlin Wall, the currency changeover in East Germany was another huge stride towards German reunification. It introduced not only the Deutsche Mark to the GDR but the idea of the social market economy as well.
East and west lay the foundations
The Deutsche Bundesbank played a crucial role in making German monetary union a success. First, it participated in political negotiations on the modalities of German economic and monetary union which had been drafted by a commission made up of representatives from the two German countries. Second, as the pan-German central bank, the Bundesbank was charged with supplying the GDR with Deutsche Mark. And time was of the essence. On 6 February 1990, the then Federal Chancellor Helmut Kohl announced that a monetary union would be offered to the GDR. On 18 May, Theo Waigel, the then Finance Minister of West Germany, and Walter Romberg, his East German counterpart, signed the State Treaty Establishing the Monetary, Economic and Social Union between the two countries. That Treaty entered into force on 1 July 1990, making the Deutsche Mark the official legal tender in the GDR.
Flown into the GDR
Spurred by the fast pace of events, the Bundesbank shipped around 440 million banknotes and 102 million coins into East Germany in record time ahead of 1 July. To distribute currency on the ground, the Bundesbank opened 15 new branches with offices, cash desks and vaults and also set up a Provisional Administrative Office in East Berlin. Bundesbank personnel liaised with staff from the then GDR State Bank, who provided local assistance, to overcome any challenges they faced. They standardised the two countries' incompatible accounting systems for cashless payments, organised police protection for cash-in-transit shipments across the German-German border and even went as far as transporting the new currency by air – not all the GDR's roads were suited for heavy transport vehicles. The Deutsche Mark, the common currency in both western and eastern Germany, became a symbol of German unity. The German Democratic Republic acceeded to the Federal Republic of Germany on 3 October 1990, bringing to an end the division of Germany.