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BIS, Bank for International Settlements, World War Two, 1929 Young Conference, J.P. Morgan


It is ironic that these extreme reparations helped cause the hyperinflation in Germany that brought Hitler to power in 1933.  Then later the BIS, originally established to drain wealth out of defeated Germany, was used by Hitler during World War II as a major source of revenue for their war effort.  

Realizing that the devastated German economy was not in the best interests of any country, world leaders combined forces trying to solve the problems.

In several separate conferences, most notably the Young Conference which was convened in 1929 to solve the difficulties surrounding Germany’s reparation payments, participants outlined guidelines for establishing an international bank, at the behest and acting under the authority of central banks throughout the world.  

The founding members of the BIS were the central banks of Belgium, France, Germany, Great Britain, Italy and Japan with groups of commercial banks from the United States and Japan, neither of which wanted their government overseen central banks to be directly involved.  

In the USA, then, a banking group which included J.P. Morgan & Company of New York, The First National Bank of New York, and the First National Bank of Chicago represented the country. “²  Interestingly, Owen Young, key in developing the plan for the BIS “3, was a banker for the J.P. Morgan Group.

These banks are significant, as they were key to providing their clients access to trade in foreign  countries during the Second World War, when all such trade should have been stopped by law.  

After the Young Conference, it took several other meetings to establish the bank. During these meetings the idealist outline originally set forth in the Young Conference was altered to adjust to the political and economic facts of the chaotic world of 1930.

One of the difficulties was deciding how much control the governments should have over the bank, and how much opportunity to interfere in its operations “⁴  In fact, in 1930, Paul Einzig speculated, “Opinions are divided between those who fear that the bank will become a power independent of those governments to which it owes its existence, and those who are concerned lest it remain too much under the control of the political authorities.“⁵

In the end, both concerns proved to be true; directors from Germany were always very much under the control of its political leaders, while directors from other nations, including the American group, worked completely independent, and in fact, against, their own governments, in some situations.

In the end, the air of the bank was defined thus: “to promote the cooperation of central banks and to provide additional facilities for international financial operations; and to act as trustee or agent in regard to international financial settlements entrusted to it under agreements with the parties concerned.“⁶

At the time of the bank’s founding in 1930, this meant handling reparations payments and acting as the holding agent for the German annuities used to pay war debts twice yearly.

However, by the time the “Hoover Debt Holiday” ended the need for the payments in a few years, the Bank for International Settlements was firmly ingrained, and had every motivation to stay that way.  

The BIS – Always Business As Usual

Very significant in the original constituent charter of the BIS, is “said power” number 10: “The Bank, its property and assets and all deposits and other funds entrusted to it shall be immune in time of peace and it time of war from any measure such as expropriation, requisitions, seizure, confiscation, prohibition, or restriction of gold or currency export or import, and any other similar measures.“⁷

In other words, whatever happened in the world outside, inside the BIS it was going to be business as usual.  In any case, the governors of these banks, or in the case of the commercial banking groups, an appointee, were on the board of directors of the BIS.

To become deciding issues, while not considered such at the time of the bank’s founding in 1930, were provision giving special considerations to Germany, whose economy, after all, the central banks “claimed” they were trying to improve.  Therefore, Germany was given two extra seats on the board of directors.  The board consisted of the governors, or heads, of the seven central banks/commercial conglomerates represented, seven more people, “representative of finance, industry or commerce,” and appointed by the governor of each country’s bank, and one extra representative from Germany and France, for a total of sixteen members.

This makeup of the board tended to make it difficult for the more distant non-reparation countries to have any influence unless they could unite with the countries historically and geographically closer to bank.  Therefore, the countries of Germany, Italy and France had a great deal of influence at the BIS. ⁸

The Banker’s Bank

Of note in the statues of the BIS is that it is allowed to: Act as an agent or correspondent of any central bank; (and) arrange with any central bank for the latter to act as agent…” Additionally, the BIS, “may enter into special agreements with central banks to facilitate the settlement of international transactions between.”

“For this purpose it {the BIS} may arrange with central banks to have gold earmarked for their account and transferable on their order, to open accounts through which central banks can transfer their assets from one currency to another and take such other measures as the Board may think advisable within the limits of the powers granted by these statutes.“⁹

Therefore, the BIS was ready to lend against gold without delay, and could sometimes reduce steps of utilizing gold credit from four steps to one over traditional ways, besides saving much in time and commissions.“¹⁰

Another item of note is that transferring gold to the account of the BIS did not necessarily mean it had to be physically moved by a central bank to the BIS.  It would, however, be earmarked in the vaults of a central bank “for the BIS,” when in reality, it was providing gold credit for another client country of the BIS.  Therefore, the BIS name on the holding would grant it particular immunity, and at the same time, conceal the actual ownership of the gold.“¹¹

In her treatise on the BIS, Dulles commented that the representatives of several central banks and financiers from many countries met at the BIS and worked together in a friendly way, but “it is also true that they were seriously limited by political factors.“¹²  As Einzig said, “As to weaknesses and limitations….the BIS is exposed to the pitfalls of political intrigues.  Its important decisions are liable to be government largely by the necessity of political compromise. (emphasis added) “¹³

This political compromise was necessary, even though the bank was forbidden to ever make loans or have deposits in the name of any government.  The central banks were responsible for any monies which would be loaned or used by their countries.  Thus the accounts at the BIS were held as “Central Banks for the account of others,” thereby avoiding direct dealing with the governments.“¹⁴

However, these financiers were closely tied with each country’s political leaders, and would exercise their influence in behalf of their own countries. 

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