Abstract
A remarkable change occurred in the overall attitude of the Zentral-bankrat (Central Bank Council) during the period of postwar reconstruction, following the outbreak of the Korean War at the end of June 1950. The explosive expansion of the domestic market led to a heavy balance of payments deficit. In September of the same year, it was predicted that the German credit quota in the European Payments Union (EPU) would soon be exhausted. The EPU's Managing Board discussed the German deficits, and decided to send two experts to West Germany. The experts agreed to recommend special EPU credit and proposed a programme of credit restrictions together with continued trade liberalization. This recommendation was decisive for the Bank deutscher Lander, the predecessor of the Bundesbank. The Zentralbankrat decided with a small majority to raise the discount rate from 4 to 6 per cent. The German balance of payments position improved dramatically in the spring of 1951. The restrictive monetary policy kept domestic demand at a low level and created pressure to export. This strategy was successfully practiced throughout the 1950s.
