Richard Reisch, Schillingwährung und Oesterreichische Nationalbank (1931)

Richard Reisch’s article publishes a lecture delivered on 8 July 1931 to the International Economic Course in Vienna. Speaking as president of the Austrian National Bank to an international commercial audience, he combines an account of the schilling’s stabilization with an explanation of central banking under crisis conditions. The argument moves from the monetary reconstruction of 1922–24 through domestic credit regulation to the vulnerability of currencies sustained by foreign borrowing. Its central tension is between maintaining monetary discipline and adapting its instruments to an economy threatened by capital withdrawals and panic.

Reisch begins with the destructive interaction of inflation and public finance. Wartime and postwar depreciation reduced the crown to one fourteen-thousand-four-hundredth of its prewar value; by summer 1922, unstable prices had made ordinary commercial calculation speculative. Government revenues depreciated faster than expenditure, expanding deficits that were financed through further note issuance. The Geneva reconstruction programme broke this spiral by combining a new central bank with an internationally guaranteed loan, allowing the government to stop borrowing from the printing press. Foreign-exchange proceeds supplied the National Bank with resources to defend the stabilized crown from January 1923. The December 1924 schilling legislation subsequently gave this practical stabilization a more convenient legal denomination: one schilling replaced 10,000 paper crowns.

Monetary stability thus preceded the new monetary unit. Reisch likewise distinguishes practical convertibility from a formal obligation to redeem notes in gold. Following the removal of exchange restrictions in December 1926, holders could obtain foreign exchange on gold-standard countries, although gold itself scarcely circulated. The achievement was a functioning connection to gold values, not the restoration of metallic everyday money.

Turning to institutional theory, Reisch criticizes the National Bank’s statutory description for confusing central banking with the commercial mobilization of savings. The bank does not collect interest-bearing schilling deposits for investment; its distinctive power is to grant credit through fiduciary note issuance. That power nevertheless encounters creditworthiness requirements, a minimum gold-and-foreign-exchange cover of 24 percent, and restrictions principally limiting discount business to commercial bills with maturities no longer than ninety-two days. Such bills arise from transactions whose proceeds should repay them. Investment-related financial bills, by contrast, risk repeated renewal and impede control over the aggregate volume of credit.

These restrictions serve monetary regulation, but Reisch rejects the equation of every increase in notes with inflation. Temporary holiday demand and crisis hoarding can enlarge circulation without increasing effective demand for goods:

Denn gehortete Banknoten bewirken keine Vermehrung der Kaufkraft, keine Vergrößerung der Güternachfrage; solche Banknoten sind vielmehr „unwirksam“ und sie können auch regelmäßig nach Abflauen der Krise wieder für Spareinlagen oder Effektenemissionen „abgeschöpft“ werden, erlangen daher für den Güterverkehr überhaupt keinen Einfluß.

English translation: For hoarded banknotes produce no increase in purchasing power, no expansion of demand for goods; such banknotes are instead “inactive,” and they can also generally be “absorbed” again into savings deposits or securities issues once the crisis subsides, thus exerting no influence at all on the exchange of goods.

The decisive issue is therefore the cause, use, and economic effect of issuance. Lasting expansion financing government consumption is his principal example of harmful inflation. Without endorsing comprehensive price-level management, he assigns central banks responsibility for preventing monetary disturbances and moderating excessive expansion or stagnation through interest rates. Yet domestic credit needs cannot determine policy alone:

Kreditpolitik und Währungspolitik, die gleicherweise von der Notenbank geführt werden müssen, gehen aber nicht immer parallel zueinander; und diese Inkongruenzen gestalten die Aufgabe der Notenbanken oft sehr schwierig und mögen es erklärlich ercheinen lassen, daß die Politik der Notenbanken in allen Ländern fortgesetzt die Zielscheibe heftiger Kritik bildet; diese ist um so leichter, als auch die nationalökonomische Wissenschaft in allen auf das Kreditwesen überhaupt und die Notenbankpolitik insbesondere bezüglichen Fragen noch nicht zu voller Klarheit vorgedrungen ist und vielmehr für die verschiedensten Anschauungen Argumente zur Verfügung stellt.

English translation: Credit policy and currency policy, both of which must be conducted by the central bank, do not, however, always run parallel; these incongruities often make the central banks’ task very difficult and may explain why central-bank policy in every country continually becomes the target of fierce criticism; such criticism is all the easier because economic science, too, has not yet attained full clarity in any of the questions concerning credit in general and central-bank policy in particular, and instead provides arguments for the most diverse views.

This conflict becomes acute in his analysis of “borrowed” currencies. In Austria and Germany, war and inflation destroyed liquid capital, encouraging short-term foreign borrowing. Conversion of those loans into domestic money increased central-bank exchange reserves and apparently strengthened monetary cover. But repayment could reverse the process abruptly. Reserve strength therefore concealed dependence on callable foreign liabilities.

Reisch connects this structural exposure with the psychology of inflation memories. Foreign withdrawals could provoke residents to export their savings, turning an initially unfounded fear into an actual currency emergency. No reserve could accommodate the simultaneous expatriation of all domestic wealth. Nevertheless, reserves exist to defend the currency, not to remain untouched; he accepts their deployment even below the prescribed minimum during a temporary panic:

Denn auch die Währung ist nicht Selbstzweck, sondern nur ein Instrument der Wirtschaft, welches sich innerhalb gewisser Grenzen den Bedürfnissen der Wirtschaft anzupassen und daher auch einer Panikstimmung im Rahmen des Möglichen Rechnung zu tragen hat.

English translation: For the currency, too, is not an end in itself, but only an instrument of the economy, which must adapt within certain limits to the economy’s needs and therefore also accommodate a mood of panic insofar as possible.

This qualified flexibility does not eliminate defensive measures. Higher interest rates and credit restriction should discourage flight; exchange controls or a moratorium remain dangerous last resorts. His preferred additional protection is central-bank cooperation, directly or through the Bank for International Settlements, providing temporary foreign-exchange loans until confidence returns. International monetary stability is a shared interest, not merely a national concern.

The lecture concludes by making explicit what its crisis analysis has established: modern currency increasingly depends on credit and therefore on confidence.

Allgemeines Vertrauen kann aber nur bei voller Zuversicht in die Aufrechterhaltung des Friedens, der Rechtsordnung und der sozialen Struktur gedeihen.

English translation: General confidence, however, can flourish only with complete assurance that peace, the legal order, and the social structure will be maintained.

The article’s relevance lies in this conjunction of gold-linked discipline, contingent crisis management, and international interdependence. Reisch defends stabilization while acknowledging that reserve ratios and interest-rate policy cannot by themselves secure a monetary system exposed to mobile capital and political fear.