Belgium Financial Situation During World War II
According to Localcollegeexplorer, Belgium’s financial situation at the beginning of the Second World War was healthy and this undoubtedly contributed to a faster recovery after the end of hostilities than elsewhere. Belgium, on the other hand, by lucky combination emerged from the conflict with relatively little destruction, and, by being used as a base for the allied armies in operations against Germany, was able to accumulate a considerable credit in dollars and pounds on account ” rents and loans “. At the end of the war its gold reserves – secured during the conflict in Great Britain, Canada and the US – were thus largely replenished, while the factories possessed significant quantities of raw materials. Furthermore, the government, returning from London,
At great exceptional expense, Belgium had in fact been forced first by the war, and then by the enemy occupation. From May 1940 to August 1944, state expenditure and financing made by the issuing institutions increased overall to 227 billion francs, of which only 29% could be balanced with normal budget revenues and the rest, 40%, had to be covered. with the opening of medium and short-term debts and, for 31%, with paper money issues. By 31 August 1944, the public debt had therefore risen to 156.2 billion francs from 66 that it was at 30 April 1940 and the percentages of total short-term debt had increased in a worrying way (from 18.5% to 38.7%). %) and medium term (from 1% to 24%). In the same period, the circulation of banknotes and coins had expanded to reach 106 billion in early September 1944 (with an increase of about 338% compared to May 1940 and 450% compared to the 1936-38 average) and deposits with banks and savings banks had reached 80 billion. However, the level of prices and wages had risen modestly, due to the rigid control and rationing system established by the Germanic authorities, and this allowed the Belgian government – with a decidedly too optimistic assessment and regardless of the existence of the black market – to sanction immediately after the release (agreement 5 October 1944) the parity of the Belgian franc with the pound sterling (176 and 5/8 francs = 1 pound) already established during the exile in London,
Immediately after (6 October), the implementation of the monetary and financial reorganization program began, with the collection of the denomination notes of 100 francs and up and the exchange at par with new notes up to the maximum amount, before 2000 francs. each, subsequently by another 3,000 per family. Circulation thus initially consisted of 14.4 billion francs in new notes (over 6.4 of metal coins and old small-denomination notes), to which, in the second half of November, about 7 billion were added. All the other tickets, if not declared, were canceled (about 4 billion), and, if declared and deposited, were registered by office on special accounts while the possibility of withdrawing sight and short-term deposits already existing with credit institutions was also severely limited. This complex of purchasing power subtracted from the free availability of the holders (about 105 billion) was blocked for 40% temporarily and for 60% definitively and severe restrictions were adopted in the credit and securities sectors.
While taking into account the inevitable, albeit limited, evasions, the execution of this deflation plan, prepared with care and in great secrecy, was successful and the improvement of the economic situation allowed already in 1945 to free part of the temporarily unavailable assets (from 42 billions at the end of the blockade operations these were reduced to 8.8 at the end of 1947). The permanently frozen assets were however a year later (14 October 1945) turned into a compulsory loan at 3 1 / 2% and at the same time – after careful checks – a tax plan was launched designed to allow amortization through the establishment of three extraordinary taxes: one graduated from 70 to 95% on exceptional war profits, one of 100% on profits resulting from supplies and performance to the enemy and a proportional 5% on all assets, with abatements at the base and various deductions and exemptions.
There was certainly no lack of criticism of this reform, judged by some to be too drastic and even untimely, and the rapid swelling of the fiduciary and banking circulation in 1945 (60.8 billion) seemed to support them. In 1946, however, circulation only increased by 16.5 billion and in 1947 by 7.2 and on the whole it cannot now be denied that a certain stability in the Belgian economic-financial situation has been achieved, albeit at a level of prices and wages. considerably higher than expected, that confidence in the franc remained solid and that production quickly returned to pre-war normalcy. At the same time, while the equilibrium of the balance of payments in 1945 and 1946 could only be achieved thanks, on the one hand, to the repayments of the Belgian advances to the allied armies and, from the on the other hand, to the loans concluded with the United States and Canada (100 million dollars each), in 1947 the balance was achieved mainly through the development of exports and the spontaneous repatriation of capital and income accumulated abroad. Furthermore, although the balance of the state budget could only be reached in the forecasts for 1948, since 1946 the Treasury has met its needs with ordinary means, without advances from the National Bank.
The internal public debt as at 30 June 1948 was 248.4 billion, of which 95.6 billion was consolidated. The foreign one amounted to 13.4 billion.
The organization and powers of the National Bank of Belgium, governed by the law of August 24, 1939, were modified by the law of July 28, 1948, which: 1) raised the Bank’s capital from 200 to 400 million francs, attributing the new shares to the Treasury, which in turn obtained the funds necessary for the purchase by taking them from the profits made by the Bank during the war; 2) any influence of a private nature in the management of the Bank can be said to have been eliminated, by delegating the appointment of directors to the government rather than to the shareholders’ meeting; 3) abolished the legislative sanction on the conventions to be stipulated between the State and the Bank for the setting of the “ceiling” of the advances that the Treasury and parastatal entities will be able to obtain from the Bank itself.
As of June 30, 1948, the actual monetary circulation amounted to 82.7 billion (32.6 in 1939) and rose to 157.8, also including bank payment means. At the same date, the reserves of the National Bank (taking into account the revaluation of 1944) consisted of 39.6 billion (32.1 at 25 December 1944) of which 26 in gold.
Belgium joined the International Monetary Fund (in which it participates with a share of 225 million dollars) and the announced parity of the franc is based on gr. 0,0202765 of fine.