Courtesy Reuters

The Dawes and Young Loans: Then and Now

THE German Government on June 14 declared the discontinuance from July 1 until further notice of all payments in foreign currencies on its foreign market debt, the major issues of which are known as the Dawes and the Young bonds. This important declaration followed an announcement by the Reichsbank that for a period of six months the Bank would be unable to provide any more foreign exchange for the transfer of service on German long and intermediate term obligations of any kind. The Reichsbank pronouncement brought to a definite close the negotiations which foreign committees had been carrying on at Berlin on behalf of the holders of German bonds other than those of the Reich. The declaration by the Government brought into serious question the integrity of the external market obligations of the Reich itself -- a matter of far greater importance in principle even though substantially less significant in amount involved.

Strong protests against the unilateral action of the German Government in suspending transfers on the Dawes and the Young loans were promptly lodged by the trustees of the two issues, by the bankers who had sponsored the sale of the American participations therein, and by the interested governments, including that of Great Britain, which was one of the co-signatories of the underlying treaties, and that of the United States, whose investors had purchased the largest single national share of the bonds. These protests alleged generally breach of contract, and absence of force majeure as justification for the breach, and drew attention in vigorous terms to the privileged and unusually solemn character of these particular issues and hence the serious nature of the action of the German Government. Simultaneously discussions of the capacity and willingness of Germany to meet the service of the whole body of its foreign debt flared up all over the world in a way that recalled past discussions of the now substantially extinguished reparation obligation.

Of the nations directly interested in the prospective defaults on the Dawes and

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