The West German Government on Wednesday (5 May) ordered the closure of all foreign exchange markets, as the Federal Bank stopped all dealings in the dollar.
The West German Government on Wednesday (5 May) ordered the closure of all foreign exchange markets, as the Federal Bank stopped all dealings in the dollar. The moves were seen as a measure to curb the speculative inflow of dollars, as a result of rumors of possible revaluation of the Deutschmark. The Federal Bank, under an agreement with the International Monetary Fund, maintains the dollar at a parity between 3.63 and 3.69 marks. To fulfil this commitment, the Federal Bank on Tuesday, had to support the dollar in Frankfurt by buying up nearly 800 million dollars pouring on the market. Talk of revaluation of the mark followed a recommendation to the government, by a group of economic research institutes, that it "float" the mark. This would mean the Federal Bank would cease to keep the German currency pegged against the dollar. The mark would then "float" to find its real value against the dollar, according to market forces of supply and demand.
The announcement to close the foreign exchange markets came out of the Federal Bank Council meeting in Frankfurt, attended by Economics Minister, Karl Schiller. There was also an announcement that a cabinet meeting of Chancellor Willy Brandt's government would be held on Friday (7 May). In the meantime, officials would discuss various possible courses of action to deal with the crisis. Repercussions of the dollar-mark crisis were felt throughout most of Europe, with several central banks withdrawing their support for the dollar.