Staatsbank - The Internal Foreign Exchange Rate Regime

The Internal Foreign Exchange Rate Regime

Another key task of the State Bank (on which it expended considerable resources) was attempting to control the circulation of foreign exchange within the G.D.R. This was primarily because of concerns that the circulation of foreign exchange (particularly the Deutschmark) could lead to the establishment of a parallel currency that would encourage the black market, damage the East German Mark and the internal economy, and undermine the international prestige of the G.D.R. on its own soil.

Thus citizens of the GDR who were in the possession of foreign exchange (typically Deutschmarks sent by Western relatives or, for a small minority such as writers and artists, overseas royalties earnings) were obliged to deposit this in a dedicated foreign exchange account with the state bank. In order to encourage compliance, and thereby help “drain” the circulation of foreign currency from the economy, these accounts carried a 1% interest rate premium over the nationally determined fixed interest of 3.25% per annum paid on all other consumer saving accounts.

However, although the interest rate on these accounts was 4.25% per annum, access to the hard currency in the account was far from easy. Technically the foreign currency on deposit was only available for use during authorised travel to Western countries, and was limited to the legitimate foreign currency travel expenses in the country concerned, plus the equivalent of 15.00 Deutschmarks per day for other expenses. As the G.D.R. only granted visas to travel to the West in limited circumstances to those below pensionable age (e.g. for weddings, funerals and serious illness of close relatives, business based attendance at international conferences and trade fairs), and then usually only for very short periods, this effectively “neutralised” the foreign exchange held in the accounts of all those under 65 years old and limited the usefulness of larger sums to those aged 65 and older.