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Centenary of the Great War: the National Bank in wartime

Queues outside the National Bank, end of July 1914 [1]

Queues outside the National Bank, end of July 1914

As 2014 looms, we have to acknowledge that it is now almost a century since the outbreak of World War I. That historic event will therefore be commemorated in all kinds of ways throughout Belgium. This edition of ‘Spotlight’ describes what happened to the National Bank during the Great War.

The event that triggered WWI, the assassination of the heir to the Austro-Hungarian throne and his wife on 28 June 1914, caused an immediate commotion on Europe’s financial markets. The National Bank of Belgium, too, faced a bank run, as the population lost confidence in banknotes and wanted to exchange them as soon as possible for metal money. Bank historian Pierre Kauch wrote: “In the week from 27 July to 1 August a total of more than 50 million in silver was withdrawn from the treasury in Wildewoudstraat and immediately hoarded.” This was because people hoped that the metal would be worth more than the face value of the coins.

The National Bank had realised that war was coming, and had already made secret preparations in 1912, producing 5 franc banknotes which came into circulation in August 1914 to replace the silver 5 franc coins. However, it was to no avail, as the Bank’s stock of silver and small coins was in danger of being totally exhausted. A law was therefore passed which relieved the Bank of its obligation to exchange banknotes for coins. Savers continued to withdraw their money, and now began to hoard banknotes as well.
The German threat drew ever nearer, and the Bank’s stocks of metal, printing plates and finished banknotes were transferred to the Antwerp branch in secret, so as not to cause further alarm among the people. On 20 August the German troops marched into Brussels and the National Bank closed its doors. From September, in response to the request by the Brussels banks to reassure the population, the National Bank issued new banknotes. These were the ‘Current Account’ type, so called because they were backed by the amounts held by individuals at the Bank. The five denominations ranged 1 to 1000 francs. The 1 and 2 franc notes, in particular, were essential for trading purposes and for paying wages..

Provincial Support and Food Committee / City of Ghent, undated, [2]

Provincial Support and Food Committee / City of Ghent, undated,

Meanwhile, Belgium had become an occupied country and the German mark was introduced as legal tender. There was a fixed exchange rate against the Belgian franc, with 1 mark being worth 1.25 francs.
In the interim, the National Bank had shipped its metal stocks, printing plates and banknotes via Antwerp to the Bank of England in London for safe-keeping. The occupying power ordered the Belgian government in Le Havre to fetch everything back to Belgium. The government refused, and the Germans then withdrew the National Bank’s right of issue. The Governor Théophile de Lantsheere was officially removed from office. Vice-Governor Leon Van der Rest took over his duties for the occupying power. The right of issue was entrusted to Société Générale, which set up an issuance department for the purpose. Although Société Générale was the issuer, its banknotes were printed on the presses belonging to the National Bank. These banknotes appeared in circulation from January 1915 and also comprised six denominations ranging from 1 to 1000 francs.

As described above, the population hoarded banknotes as well as coins. Moreover, the Royal Mint’s workshops were idle and all metal was needed for the war industry. In addition, the bank moratorium blocked deposits and the Germans had appropriated the cash stocks of many financial institutions. Finally, owing to the transport problems inherent in the war, it was difficult for banknotes to reach the provinces. That naturally led to a shortage of cash. As a result, more than 600 municipal authorities were forced to issue their own banknotes. This was known as emergency money. The commonest denominations were 1, 2 and 5 francs, or smaller than 1 franc. The primary purpose of the emergency money was therefore to remedy the shortage of small coins. The municipal authorities also used emergency money to pay their staff and to support refugees, the unemployed and the needy. This emergency money was used for military remuneration as well, and to pay the war contributions imposed by the Germans. In addition, there were organisations providing food and assistance that issued food vouchers and cash vouchers, and there were firms and factories that issued wage vouchers and shopping coupons.

Soup distribution in the Cash Room, 1917 [3]

Soup distribution in the Cash Room, 1917

As early as 1916 the National Bank set up a working group that planned everything to be done once the war was over. The Bank also promised the government that it would advance the money needed for reconstruction.
In addition, the Bank performed a social role during the war. Leon van der Rest was deputy chairman of the National Assistance and Food Committee. During the winter of 1916-17 the Bank handed out more than 1000 cups of soup, free of charge, every day on its premises. Cities, municipalities, provinces and businesses could also count on the Bank’s logistical help. Charitable institutions which were short of money could likewise count on its support.

The Société Générale issuance department was dismantled on 20 November 1918 and its banknotes were gradually exchanged for notes issued by the National Bank. In 1915 it had been agreed that the issuance department would close within three months of the end of the war. Although it was the government’s intention to phase out the emergency money as quickly as possible after the war, it was 1926 before all the emergency money had been removed from circulation. An even bigger problem was the huge quantity of German marks which were one of the causes of the post-war hyperinflation. But that is another story, to be told some other time.

The first general meeting of the Bank’s executive board after the First World War, painted by Herman Richir, 1925 [4]

The first general meeting of the Bank’s executive board after the First World War, painted by Herman Richir, 1925

Nina Van Meerbeeck
Museum guide