East German Mark


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Mark, East German

 

(DM-Ost), the mark of the Deutsche Notenbank, the state bank of the German Democratic Republic (GDR). It equals 100 pfennigs. The East German mark was created in 1948. The mark was substituted for currencies that had circulated throughout Germany: the reichsmark, Renten-mark, and the mark of the Allied Control Council, which had circulated in East Germany from May 1945 until June 1948. The established gold content of the GDR mark in 1953 was 0.399902 g of pure gold. According to the rate of exchange of the Gosbank (State Bank) of the USSR on January 1,1974, 100 marks equaled 40 rubles 50 kopeks.

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For a detailed discussion of the events which led to the unification of Germany and of the problems resulting from "generous" conversion rate of the East German mark and the wholesale take-over of western Germany's legal and institutional framework see OECD, Economic Survey of Germany, 1990 and 1991.
The problem, it seems widely accepted, stems from the decision of then-chancellor Kohl to speed up unification by exchanging West German and East German marks at near parity.
In 1990, Kohl acted with uncharacteristic boldness to reunify his country, welding the two uneven sides of Germany with his decision to swap worthless East German marks for rock-solid Deutsch marks at a rate of one to one.
Sales were based on East German marks at a supposed exchange rate of 1.
Given the partly conflicting targets of minimizing the risk of inflation, strengthening the competitive position of the East German business sector, containing budgetary cost and satisfying the high expectation of East German population, the rates for converting East German marks into D-Marks were seen as a compromise (general conversion rate for financial assets and liabilities of one D-Mark for two East Marks, preferential rate of 1:1 for limited amounts of private savings and for contractual payments such as salaries, wages and rents).
Market participants feared that the conversion of East German marks into West German marks would result in a worrisome increase in German monetary aggregates or unleash pent-up demand for German products.