When the present German Empire was established in 1871, the reform of the legislation upon currency and banking was felt to be a pressing necessity. In their coinage some German states had ranged themselves under the thaler system and others under the gulden, but in all there was a mass of old coin in circulation of obsolete denominations. The silver standard had been adhered to by all. Every member of the North German confederation, except the cities Hamburg, Lübeck, and Bremen, and the principality of Lippe, was issuing paper currency for the supply of its own wants. And finally thirty-three banks of issue, with capitals ranging from 1,200,000 marks to 35,000,000, had been established, each upon such basis as the state or city establishing it found good, some holding perpetual charters, some incorporated for terms of years, and some holding only rights revocable at pleasure. These banks differed materially as to the limit of their authorized issues, and were under different obligations as to the holding of reserve. To reduce this mass of confusion to order and to establish unity of system in currency and banking, was a problem which constantly taxed the German mind for the first four or five years of the new Empire.

The law of December, 1871, provided for unity of coinage and prepared the way for the subsequent introduction of the gold standard by the act of July, 1873.1 Another law of April, 1874, provided for the extinction of the paper currency issued by the several German states, by creating a currency of imperial treasury notes reichs-kassenscheine, convertible into gold upon demand at the Treasury, but not a legal tender, and authorizing the distribution of the notes to the several states, to be used by them in taking up their local issues. Of the imperial paper 120,000,000 marks were distributed to the states in the ratio of population, and 55,000,000 more were advanced in amounts as required, and with this aid twenty local issues, amounting in the aggregate to rather more than 180,000,000 marks, were extinguished. And finally by a law of March, 1875, the banks of issue were brought under a common system, and the reform may be said to have been completed.1

1The coinage laws of 1871 and 1873 are to be found, with copious annotations by Soetbeer, in Bezold's Gesetzgebung des Deutschen Reichs, Th. II., Band i., this part of the volume being also issued separately as Soetbeer's Deutsche Münzverfassung. See pp. 35, 67. For a translation see Laughlin, Bimetallism in the United States, p. 237.

The German law of July, 1873, is often spoken of as a law "demonetizing" silver. In fact it provided for coining gold money and substituting this for silver, but it did not demonetize the silver remaining in circulation. A part of this silver was sold in London between 1873 and 1879, and the remainder is being gradually absorbed by its conversion into subsidiary coin.

The new system required the establishment of a central bank to be under the immediate supervision and direction of the imperial government, and the subjection of all other banks of issue to a uniform set of regulations and also to imperial supervision. To secure the first of these two objects, advantage was taken of the peculiar position of the Bank of Prussia. Originally established as a government bank, with a capital of 2,000,000 thalers supplied by the state, this bank had been enlarged by the admission of private stockholders until its capital had risen to 20,000,000 thalers, but without the surrender by the state of its power of control or of its disproportionate share of the profits. As a part of the new system, the Bank of Prussia now became the Bank of the Empire Reichsbank. The Prussian government was paid for its share of the capital and surplus, and also received 15,000,000 marks for its interest in the goodwill of the establishment; and the capital was then raised by subscription to 120,-000,000 marks, the whole of which was thus placed in private hands. The imperial government reserved to itself a direct power of control through the banks, having due regard to the amount of the notes previously issued by each and to their probable needs in the future1; and by this apportionment the limit for the allowed uncovered issue of every bank taken by itself was determined. For all notes issued by any bank beyond this limit of uncovered issue, the law requires that cash, shall be held, the bank being allowed to count as cash for this purpose German coin, gold bullion, and foreign gold, imperial-treasury notes, and the notes of other banks; and if any notes are issued beyond the limit, and not thus covered by cash, a tax must be paid on them at the rate of five per cent, per annum. To insure the prompt application of this rule, every bank is required to report its condition at four fixed dates in every month; and any excess of notes, shown by any such report, above the allowed limit and not covered by cash, is then taxed 5 of one per cent. It is also required that the cash held, exclusive of the notes of other banks, shall in any case be equal to at least one third of the total circulation, and that the remainder shall be protected by discounted paper, having not more than three months to run. The notes issued under this system thus rest upon a solid basis of specie. By a provision prohibiting the issue of any notes of lower denomination than one hundred marks the presence of an ample specie circulation in the country was secured and also a field for the reichs-kassenscheine the minimum denomination of which was ten marks.

1 The bank law of 1875 is to be found with Soetbecr's annotations in Bezold, Gesetzgebung, Th. II., Band i., p. 255.

A translation of this and of later German legislation relating to banking is to be found among the publications of the National Monetary Commission, the imperial chancellor and also by the appointment of the board of direction, giving to the shareholders the election of a committee charged with certain duties of consultation. Government control is therefore far greater than that exercised over the Reserve banks in the United States and somewhat more complete than in the case of the Bank of France. The Bank was required to receive and make payments, and to conduct other financial operations for the imperial treasury, without compensation, and also to manage free of cost the receipts and payments of the several states of the Empire. It was thus made in everything except its ownership a national bank on a large scale, although not the largest, and had its privileges secured to it for fifteen years.