1945–1998

10 schillings – 1946 

Headquarters of the U.S. occupational forces in the OeNB 

The disastrous years after World War II had taught society and politicians how important nonpartisan team work was as the basic principle of an Austria for all citizens. Nobody doubted that reconstruction was possible. With the European Recovery Programme accomplishing a substantial part it was indeed successful. The Marshall Plan stood its test.

After the reconstruction of the Republic of Austria on April 27, 1945, the Oesterreichische Nationalbank could also resume its operations. The Central Bank Transition Act of July 3, 1945, provided its activities with the necessary legal backing for the time being.

The bank`s first main task was to create the prerequisites for the restoration of the Austrian currency. First of all, the money in circulation had to be withdrawn (Reichsmark and Allied military schillings) and converted into a new Austrian currency. It was possible to achieve this goal with the passage of the Schilling Act of November 3, 1945. Starting in December 1945 the schilling was once again Austria`s sole legal tender and unit of account.

A big part of the main building of the Oesterreiche Nationalbank in Vienna served as the headquarters of the American occupying power from 1945 to 1951, making the work of the central bank significantly more difficult. Making an all-out effort, the securities printing office nevertheless succeeded in producing the new schilling banknotes on schedule.

After the reintroduction of the schilling, several goals were at the center of the central bank`s attention: the critical excess liquidity had to be reduced, companies had to be provided with the funds needed for investment (failing this, reconstruction could be endangered), and the external value of the schilling had to be influenced in a way in which the economy could succeed in competing internationally.

Despite all these measures, inflationary conditions persisted. Even though the exchange of the Reichsmark bills and of the Allied military currency (at a ratio of 1 to 1) was restricted to ATS 150 per person, the amount of money circulating at the beginning of 1946 was six times higher than it been at the end of 1937. In May 1947 monthly inflation reached a double-digit range. The schilling still was undervalued by comparison with foreign currencies.

The decisive step to eliminate excess money was the Currency Protection Act of November 19, 1947. Some deposits were forfeited, others were transformed into claims against the Federal Treasury. In an exchange campaign the amount of cash could be drastically reduced. The banknotes issued in 1945 were withdrawn and exchanged into new schilling bills at a ratio of 3 to 1. Only ATS 150 per person were exchanged at a ratio of 1 to 1.

The social partners made an important contribution to controlling inflation, especially through the psychological influence they had. The employers` and employees` organizations agreed in the summer of 1947 to fix prices for the most important commodities, as well as on pay rises necessary because of inflation. The result was the first of a total of five price and wage agreements between the social partners. However, the massive upward trend of prices could only be stopped in 1952 when the central bank also supported the process by implementing a restrictive monetary policy. The end of the Korean War also helped the world economy to recover.

In order to adjust the system of multiple exchange rates which had developed due to the numerous foreign currency control regulations, a split exchange rate with the "basic rate" and "premium rate" as reference rates was introduced. In this system, the dollar value was ATS 14.40 for the basic rate and ATS 26 for the premium rate.

Between 1953 and 1955 the schilling exchange rate was unified. A range of capital market acts clearly helped consolidation.

After several decades with numerous political breaks, a more liberal atmosphere was now developing in Austria`s intellectual, cultural, political and economic life. Increasing material security helped promote the search for a new identity for a modern Austria that had just overcome the post-War period. Waves of refugees arriving from Hungary in 1956 and from Czechoslovakia in 1968 reminded Austrians of how fragile their recent progress was.

On September 8, 1955 – the year the Austrian State Treaty (Österreichischer Staatsvertrag) was signed – the Nationalrat (National Council) passed a new Nationalbank Act (this act is still applicable as amended in 1984). Though the act contains provisions that are restrictive to a certain extent – the central bank is obliged to take into consideration the federal government`s economic policy when exercising monetary and credit policy – it guarantees in particular that the central bank is independent of any obligation to lend to the public sector. Additionally, the instruments of open market policy and minimum reserve policy were included in the instruments of the central bank.

Austria’s economy proved to be very dynamic; the rate of unemployment, which had gone up as a result of the stabilization crises, was reduced very fast. This was – among other reasons – due to the new legal and economic framework the Nationalbank Act of 1955 embodied in the field of monetary policy. As domestic productivity growth accelerated, people in Austria became more and more convinced that their country was prepared to hold its own in international competition. Hence, liberalization measures could be carried out more easily while retaining the autonomy of Austria’s decision making.

For more than a decade the key indicators bore testimony to the high internal and external stability of the Austrian economy. In that time, Austria`s economy followed a well-balanced fiscal and monetary policy that allowed fast economic growth at low inflation while avoiding long-term external imbalances. Hence, monetary policymakers could put their focus on institutional refinements without being forced to intervene permanently.

Austria contributed to European integration by joining EFTA (European Free Trading Area) in 1960.

In the latter half of the 1960s, it became more and more obvious that the Bretton Woods System (the international currency system based on gold/dollar convertibility) could not be maintained in the long run. The U.S.A. was confronted with continuous balance of payments deficits, and leading European countries had to deal with recurring crises of their current account balances; these circumstances made it indispensable to reform monetary policy radically. For the time being, a more flexible multilateral adjustment of exchange rates seemed to be an attractive option.

Restrictions of capital movements, which were imposed due to America’s balance of payments problems, led to the formation of a eurodollar market in Europe. By mid-1971, the gold convertibility of the U.S. dollar had been formally lifted; this put an end to the Bretton Woods System.

In the 1970s, Austria`s willingness to carry out reforms and its stability consciousness were put to a hard test. A recession abruptly interrupted the periods of economic growth in 1975. Towards the end of the decade, skepticism about the "Austrian model," which had found considerable international attention before, was on the rise.

Significant international balance of payments disequilibria led to fast and substantial foreign currency fluctuations, which made it increasingly difficult for Austrian monetary policymakers to intervene successfully. The intent was to neutralize the effects on domestic economic activities caused by foreign exchange flowing into and out of the country. Further aims of Austrian monetary policymakers were to position the Austrian schilling properly within the framework of rapidly shifting exchange rates, and to keep under control the upward trend of prices in view of the high real rate of growth.

Though Austria took various measures, the inflow of foreign capital had – by the end of the 1970s – climbed to a level that was incompatible with the domestic stability objective. The temporary unpegging of the schilling rate finally led to a strategy of independently determining the schilling`s exchange rate among a number of selected European currencies in the "snake." A basket of "indicator currencies" served as a means of orientation for Austrian monetary policy.

After the first oil price shock and the continuing fall in economic growth, Austrian economic policymakers tried to steer the economy by using a broad and harmonized set of measures. This instrument consisted of controlling the credit field, a limit on bank lending, demand-side and supply-side fiscal stimulation as well as the effort to introduce an independent low interest-rate policy. Towards the end of the decade it became clear that the comprehensive intervention and regulation system noticeably obstructed the necessary structural change (also of banking). Finally in 1979 the Austrian authorities had to relinquish the effort to conduct an independent policy of low interest rates.

1979 was a very bad year for the headquarters of the OEsterreichische Nationalbank in Vienna, and had serious consequences. During the night of August 29 a great fire broke out, which along with the water from fire hydrants destroyed five stories of the building, including the entire management floor with the General Council meeting room and the library. The architecture of the building was changed completely during the restoration work from 1980 to 1985 done under the planning of Carl Appel. The renewal is most obvious in the case of the new mansard roof.

Strengthening economic efficiency became the leitmotiv of the sociopolitical reform ideas of the 1980s. This was to be carried out by encouraging the comparison of competitive efficiency. The opening up of Eastern Europe at the end of the decade gave Austria the opportunity to throw off its position as a border state. A dialogue in which the partners openly discussed their different interests in order to find a viable solution for a united Europe became possible.

The experience of the 1970s showed Austrian monetary policymakers that the schilling exchange rate should be oriented on the Deutsche Mark. The Deutsche Mark orientation was supposed to make it easier to ensure internal price stability. The informal integration into a greater monetary area additionally stimulated the structural change in the Austrian economy: only a continued productivity increase could guarantee the position of the Austrian enterprise in the long term. Under such circumstances monetary policy was directed toward creating stable, but not necessarily undemanding conditions.

The Austrian economy accepted this challenge in the course of the 1980s. This development involved, however, a strong rise of unemployment that proved difficult to reduce at first. In the second part of the decade real growth accelerated. Competitiveness improved, which was reflected by a current account that was largely in balance.

The key development of the 1990s was Austria`s integration into the European Union. Austria, Finland and Sweden became new members of the EU in 1995. In the same year Austria joined the Exchange Rate Mechanism of the European Monetary System (EMS).

The amendment of the Federal Act on the Oesterreichische Nationalbank (1998 amendment of the Nationalbank Act) that was required for Austria to meet the legal preconditions for Austria’s participation in Stage Three of Economic and Monetary Union (EMU) as of January 1, 1999, was officially announced in April 1998. This amendment expressly states that in fulfilling the tasks and objectives of the European System of Central Banks (ESCB), the Oesterreichische Nationalbank and its decision-making bodies shall act independently of Community institutions or bodies and any governments of the Member States.