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The German Currency Union of 1990 — A Critical Assessment: The Impact on German Monetary Policy

In: The German Currency Union of 1990

Author

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  • Peter Bofinger

Abstract

The monetary unification1 between the Ostmark of the German Democratic Republic (GDR) and the West German D-Mark that was achieved on 1 July 1990 constituted one of the most important challenges in the history of the Deutsche Bundesbank. The immense difficulty of that task was above all due to the fact that two different problems had to be tackled simultaneously: The GDR had a system of money and banking which had been designed to the requirements of a centrally planned economy. There was de facto a ‘monobank’ fulfilling simultaneously the functions of a central bank and of commercial banks. With the introduction of the D-Mark the Bundesbank had to set up a completely new central banking network, while the commercial bank functions had to be transferred to private (West German) banks.2 With the monetary union a common currency area was created between two regions that had not only strongly diverging income and productivity levels but also a completely different economic order.

Suggested Citation

  • Peter Bofinger, 1997. "The German Currency Union of 1990 — A Critical Assessment: The Impact on German Monetary Policy," Palgrave Macmillan Books, in: Stephen F. Frowen & Jens Hölscher (ed.), The German Currency Union of 1990, chapter 11, pages 203-226, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-349-25368-5_11
    DOI: 10.1007/978-1-349-25368-5_11
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