Invasion Currency: A U.S. Army Fiscal Problem in World War II

Invasion Currency: A U.S. Army Fiscal Problem in World War II
WALTER RUNDELL, JR.

AMERICAN HISTORICAL ASSOCIATION
THE SOUTHWESTERN SOCIAL SCIENCE QUARTERLY
Vol. 43, No. 2 (SEPTEMBER 1962), pp.143-151

    By the time American soldiers stormed foreign beaches in World War II, the Army had put forth every effort to make the troops 'combat ready."
Each soldier carried the requisites for fighting and survival in the first phase of the invasion. Included in the warrior's equipment were his rifle, bayonet, ammunition, field pack, K-rations, and a special kind of money - invasion currency. The Army did not equate the value of these items to the soldiers, since obviously the rifle was of prime importance. But the Army did consider it vital that the soldiers have a negotiable currency when he landed on foreign soil. In case the individual might need money for personal or military reasons, the Army felt obligated to supply him within the limits of his entitlement.

    Moreover, the Army, as an organization, used invasion currencies in World War II because it had to be assured of an adequate supply of money. To function successfully, the Army had to have funds, not only to pay its members, but also to make local expenditures. Having a negotiable currency for local expenditures was highly important, for it helped insure cooperation of liberated peoples. A liberated populace would be much more likely to furnish needed goods and services if the Army made payments in a readily acceptable medium of exchange. Supply officers needed a currency with which to purchase items from local economies; and manifestly, the Army could procure local labor more easily by paying daily in an acceptable currency than by offering a voucher to be redeemed at some future date.[1] Since the Army could never be certain of the currency situation in an invaded territory, it was imperative that it furnish its own funds. According to international law, the Hague conventions, and decisions of the United States Supreme Court, an occupying power can decree the legal tender.

    Therefore, any currency the Army chose to use in an invaded country was made legal tender by the authority of the military commander. [2] The Army used two types of invasion currencies in World War II - currencies denominated in the monetary units of invaded countries and currency denominated in terms of American dollars. Examples of the first type were Italian military lire, Allied Military Marks, and supplemental military yen. Yellow seal and Hawaii overstamp dollars represented the latter.

    Those invasion currencies denominated in lire, marks, and yen became legal tender through the decree of the military commander and not that of the United States Government. Hence, the government claimed it was not liable for their redemption. [3] Before the armed forces started using invasion currencies denominated in foreign monetary units, the Secretaries of War, State, Treasury, and Navy wrote a memorandum for President Roosevelt proposing the government's policy. They stated that the American Government at the outset of invasions should make no move to compensate foreign governments for invasion currencies. In the cases where friendly countries were being liberated, the restored governments were supposed to give full compensation to the liberating army. And in cases where enemy countries were being conquered, the economy of the vanquished nation was supposed to support the occupying force. The secretaries thought that if the President volunteered compensation from the beginning, the administration would be a "perfect target for 'hindsight' critics." Postponing settlement would give the "advantage of 'hindsight' and also make possible appropriate consultation with Congress if that should be deemed necessary or desirable." [4] The President followed the secretaries' suggestion. In the cases of the dollar- denominated currencies, the American Government was the issuing agency and was therefore responsible for redeeming these currencies.

    The Nazi Government, in contrast with the American, issued a German invasion currency which had a fixed rate of exchange with local currencies but which was redeemable in Germany. This currency was called Reichskreditkassenscheine, and the notes were printed in denominations of .5, 1, 2, 5, 20, and 50 marks. When the Wehrmacht entered any foreign country, it issued decrees making Reichskreditkassenscheine legal tender at a certain ratio with the indigenous currency. The rate of exchange was usually the pre-invasion rate between Reichsmarks and the local money. German troops received their pay in Reichskreditkassenscheine . Since the Reichskreditkassenscheine were legal tender only in the occupied areas, the soldiers had to spend their money there or forfeit its value upon returning to Germany. After 1 January 1945, the Wehrmacht adopted another military currency, the Verrechnungscheine . This latter currency, denominated in 1, 5, 10, and 50 marks, was used when troops were moving from one country to another and was not legal tender in Germany or occupied lands. German soldiers' currency was converted into Verrechnungscheine before they moved into another country. After they arrived at their destination, the Verrechnungscheine would be converted to the local currency or Reichskreditkassenscheine. The Verrechnungscheine, then, were comparable to the American Army's military payment orders. [5] By using these invasion currencies, the German Government effectively transferred the total cost of the occupation to the defeated country. [6]

I. North Africa

    The first occasion the American Army had to use an invasion currency was in the North African operation, which began in November 1942. The Army had no way of predicting its reception by the French Provisional Government, which nominally was loyal to Vichy. Since the Army could not depend on using franc currency, some alternative had to be devised. While the invasion was being planned, Henry Morgenthau, Jr., the Secretary of the Treasury, recommended that the Army use American dollars as its invasion currency. These dollars would not be standard United States dollars, but would be distinguished by having the Treasury Department seal printed in yellow rather than blue. These dollars with the yellow Treasury seal became known as 'yellow seal dollars." They could be easily distinguished from standard "blue seal" American dollars, so if any appreciable number fell into Axis hands, the entire series could have been declared non-legal tender. The State and War Departments agreed with the Treasury on the adoption of yellow seal dollars as an invasion currency. [7]

    The Army, in using American currency in North Africa, did not face the situation confronting Austria-Hungary when it used its own currency in countries it occupied in World War I. Wartime economic conditions had already made the metallic backing of the Austro-Hungarian currency inadequate, so when the dual monarchy extended the use of its currency into occupied territories, the currency suffered from further inflation. While economic conditions in World War II caused some inflation of the dollar, the use of yellow seal dollars overseas did not contribute notably to this inflation. [8]

    Gen. Dwight D. Eisenhower, commander of the North African invasion, known as Operation TORCH, had requested the War Department in July 1942 to use some currency other than the yellow seal dollar as an invasion currency. [9] But Gen. George C. Marshall, War Department Chief of Staff, informed General Eisenhower that since a sufficient supply of French currency could not be depended on, the yellow seal dollars would have to be adopted. [10]

    In addition to the yellow seal currency scheduled for the North African invasion, the War Department authorized the use of a limited quantity of gold coins. A total of $700,000 in gold was made available during the initial phase of the operation. The coins were used by the Twelfth Air Force in escape kits and by Gen. George S. Patton's forces to reward native informers and collaborators and to speed performance of essential services in cases where natives preferred specie to paper money. [11]

    Shortly before the beginning of Operation TORCH, a blunder involving the invasion currency almost revealed the secrecy of the operation. As yellow seal dollars were printed in the United States, they were shipped to London and stored in the Bank of England. One bright morning as the invasion was being mounted, an armored contingent roared up to the front door of the Bank of England. The commanding officer thought his mission was to take the invasion currency from the bank to the ships. His soldiers were primed for action. Their bullets were shined and bayonets fixed. Jeeps mounting .50 caliber machine guns were ready to stand guard over the transfer. Such a flourish naturally attracted attention to the fact that a military operation of some moment was in the offing. Before any soldiers commandeered the bank, the staff of the NATOUSA [12] fiscal director persuaded the armored commander to withdraw his force as unobtrusively as possible. [13] Some unexpected situations developed because of the American high command's failure to coordinate with the British on choosing the code name for the North African invasion. In England the word "torch" is the equivalent of the American "flashlight." Any time an Englishman innocently referred to a torch, he gave the Operation TORCH planners a real start. "We almost jumped out of our skins every time we heard the word," said Lt. Col. T. W. Archer, the NATOUSA deputy fiscal director, "thinking someone had spilled the beans about the North African invasion." [14]

    As the date of the invasion, 8 November 1942, drew near, many cables were exchanged between London and Washington in an effort to insure sufficient invasion currency at the right points in North Africa. From London, General Eisenhower requested that an additional $20,000,000 in yellow seal bills be turned over by the Navy to the British at Gibraltar. Marshall cabled Eisenhower that the $20,000,000 requested at Gibraltar could not be delivered because such a shipment would require diverting a cruiser or battleship which could not be spared at the time. But he stated further that an unlimited amount of yellow seal currency could be provided in five days plus transportation time. When Eisenhower asked what amount General Patton was carrying with his D-5 force, Marshall informed him the sum was $20,000,000 in yellow seal dollars. On 24 October, Marshall indicated the War Department had done what it could. He cabled Eisenhower: "The currency situation . . . [is] now in your hands. . . . Upon request every assistance will be furnished from this end." [15]

    Shortly after the military operations in North Africa got under way, it became evident through the cooperation of the French in Algiers and Tunisia that there was sufficient local currency available for all disbursing needs. Making the situation even more favorable was the existence of presses which could print as much franc currency as required. When the American command discovered these conditions, it quickly withdrew the invasion currency in favor of North African francs. In Morocco, too, enough francs were in circulation so that the American Army did not have to rely on yellow seal dollars exclusively. As soon as a private American firm could print sufficient Moroccan francs, the Army withdrew the invasion currency and disbursed only francs. [16]

    Currency used in any military operation, whether a major invasion or a small-scale raid, was an extremely sensitive factor. Before the invasion of Southern France, OSS [17] troops staged a raid on the Riviera. Against the advice of the MTOUSA [18] fiscal director, the force carried with them brand new franc notes. The fiscal director, Brigadier General Leonard H. Sims, thought these crisp bills would certainly betray their source when they appeared in circulation, but his protest was ignored. When the time came for the raiding party to contact an American submarine lying off the coast, there was no message. Possibly, the Germans recognized the new notes when they turned up and surmised the source of their introduction. In any event, the raiding party was never heard from again. [19]

II. The Pacific

    The invasion currency used in most Pacific operations was the Hawaii overstamp dollar. In July 1942, this special series of American dollars was adopted for use in the Territory of Hawaii. Each bill in the series was over- stamped with "HAWAII" in large letters. The Hawaii dollars were introduced as part of a scorched earth policy. In the summer of 1942, the American Government could not predict the success of Japanese aggression. If the Japanese conquered the Hawaiian Islands, the United States Government wanted to make sure they would not benefit from any currency captured. Consequently, the government introduced this distinctive series. In the event of a successful Japanese invasion, the entire Hawaii overstamp series would have been voided as legal tender. In October 1944, after the danger of Japanese aggression in the Central Pacific passed, restrictions were lifted on the use of overstamp dollars. Standard American dollars could circulate in Hawaii once more, but the Hawaii series remained legal tender. The first use of Hawaiian dollars as invasion currency was in the Gilbert Islands operation of November 1943. Thereafter, the overstamp series was used in all Central Pacific campaigns through the invasion of the Palau Islands in September 1944. [20]

    The Army employed three invasion currencies in Pacific fighting that were denominated in terms of the monetary units of the invaded areas. They were the Netherlands East Indies guilder, the Philippine Victory peso, and Type "B" military yen. The Netherlands Government-in-exile furnished the Army with the guilders it used on New Guinea and other islands in the Netherlands East Indies. As of 20 September 1944, the Netherlands Indies Commission had furnished the United States Army Forces in the Far East with 95,336,057.075 guilders. At the existing rate of exchange of 1.8835 guilders to the dollar, the dollar equivalent was $50, 616,435. [21] For the return to the Philippines, the Army used a new series of pesos. These Philippine Victory peso notes were printed in the United States and were backed by silver reserves being held in the United States Treasury for the Philippine Commonwealth Government. [22] The Army prepared Type "B" supplemental military yen for the invasion of Okinawa. At the time of the invasion, the Army announced that these yen would circulate at par with yen notes from the Banks of Japan, Chosen, and Taiwan. During the Japanese occupation of the Ryukyus, all three of these yen notes were in circulation. [23]

III. Europe

    When the Allied forces invaded France, the operation was different in one notable respect from the earlier invasion of Italy. The Italian operation was against a nation totally our enemy, while that of 6 June 1944 was to drive the Germans from the homelands of governments-in-exile with which the United States had maintained constant contact. The policy, therefore, was not to use Allied military currencies, as in Italy, but to make arrangements with the governments concerned for the advance production of special or supplementary issues of their national currencies. The American Government was eager to avoid a repetition of its World War I experience in France, so was happy to get the concurrence of the French National Committee of Liberation in having a special issue of supplementary franc notes printed in America. In World War I, the United States Army had waited until it arrived in France before making an attempt to procure francs with which to pay troops and commercial bills. In a White House press conference shortly after the 6 June 1944 invasion, President Roosevelt stated that during World War I, American soldiers in France were paid in dollars. Furthermore, he said that a sizeable number of these dollars found their way into French mattresses and had been turning up for redemption ever since. [24]

    Unfortunately, the President's sly comment on wartime manners and morals was not based on fact. Although the 1944 invasion of France did not begin until June, planning for the French supplemental currency began long before then. The Bureau of Engraving and Printing started printing the French currency around 15 February 1944. The Treasury began designing the invasion currency for Germany, the Allied Military Mark, during the first week of January 1944. [25]

    Although the French National Committee desired having the supplemental francs printed in America, the refugee governments of Holland and Belgium arranged to have stocks of Dutch florins and Belgian francs produced in the United Kingdom. These national currency supplies were placed at the disposal of the SHAEF [26] G-5 [27] currency section, which transferred requested amounts to disbursing officers of various Allied forces. In World War I when American soldiers exchanged their dollars for foreign currencies, they had to reconvert to dollars at the existing rate of exchange. But in World War II, the Army guaranteed to exchange the invasion currencies received as pay into dollar credits at the rate prevailing when the pay was disbursed. [28]

   SHAEF reported the advances of supplemental national currencies made to American Army disbursing officers to Washington by radio. The War Department thereupon charged the equivalent dollar value to applicable appropriations. Periodically the United States Government made the amounts charged available to the governments supplying the currency. These issues of French, Dutch, and Belgian currencies printed in the United States and England and taken to the Continent by the armed forces and repatriated governments were not properly speaking military currencies, despite their use as invasion currencies. Rather, they were supplementary additions to the nations' regular currencies in circulation at the time the Germans withdrew. The control and full legal responsibility for such currencies rested with the restored governments in liberated countries. [29]

    Any large-scale tactical movement on the Continent upset finance office routine. While the task of funding troops with invasion currencies prior to landings was great, the problem of exchanging one invasion currency for another when troops crossed a national boundary was equally immense.

    " 'Supplying a new currency at each border caused more confusion in finance offices than any other single factor," declared Lt. Col. Raymond E. Graham, commandant of the 59th Finance Disbursing Section. [30] In an attempt to minimize the confusion resulting from moving from one country to another, the Eighth Air Force instructed its fiscal officers to study troop concentrations so they could determine which units would be moving to an area where a different currency was used. From a study the Eighth Air Force made in Italy, it predetermined its currency needs for the invasion of Southern France. [31]

    Finance officers with the air forces also had to estimate requirements for various European currencies used in escape purses. In case airmen were shot down over occupied territory, the local money and maps in the escape purses often were the means by which they could reach the friendly underground. When missions were flown from England, the escape purses usually contained Belgian, Dutch, and French currencies. [32]

    Although invasion currencies involved high-level negotiations within the United States Government and between Allied Governments, the Army's fiscal operations were rarely as dramatic as any tactical phase of the war. The finance offices performed their routine tasks of paying the troops and commercial bills, budgeting, and accounting for their expenditures - administrative functions, however prosaic, that are vital to the successful operation of any undertaking. Toward the end of the war and in the first year of occupation, the financial operations did get exciting as currency control broke down and the Army incurred a deficit of $530,775,440. [33] But as the American forces took the battle to the enemy on his home ground, the finance men made their closest contact with the heroic drama of combat by supplying the soldiers with invasion currency.


Notes:

1 Statement of the Treasury Department on Invasion Currency, 14 Mar 45. KCRC (Kansas City Records Center).

2 Dooley vs U. S. (1901), 152 U. S. 222.

3 Ltr, Secretary of the Treasury, to Senator Robert Taft, 17 Dec 45. DRB (Departmental Records Branch, Alexandria, Virginia).

4 Memo for the President from the Secretaries of State, Treasury, War, and Navy, re* Position of State, Treasury, War and Navy Departments on Negotiations with Exiled Governments Concerning Use of Their Currency for Military Operations, no date. DRB.

5 The military payment order was a device whereby a soldier stationed overseas could transmit any portion of his pay to a dollar-denominated account in the United States.

6 (1) Hans J. Dernburg, "Currency Techniques in Military Operations," 11 Apr 45. (2) Memo, Cmdr. Frank A. Southard, Jr., Financial Advisor, G-5, to Fise Dir, 31 May 45, sub: Certain Types of German Military Currency, G-5/ 12 3. 9. KCRC.

7 (1) Memo, Robert P. Patterson, Under Secretary of War, for the Secretary of War, 5 Aug 42, sub: Money for U. S. Troops in Europe. DRB. (2) Throughout the war, some confusion existed about the nomenclature of yellow seal dollars. In some quarters, they were persistently referred to as "gold seal" dollars. The gold seal dollar went out with the gold standard in 1933, so any gold seal currency in circulation during World War II was not legal tender. Any reference to the Army's wartime invasion currency as "gold seal" dollars was therefore inaccurate.

8 Ernst H. Feilchenfeld, The International Economic Law of Belligerent Occupation (Washington, D.C.: Carnegie Endowment for International Peace, 1942), p. 76.

9 Radio, Eisenhower, London, to AGWAR, 13 Jul 42, 317. DRB.

10 (1) Radio, Marshall, for CG, US Forces, London, 2 Sep 42, R-331. (2) Radio, Eisenhower, to AGWAR, 25 Aug 42, 1498. DRB.

11 (1) Radio, Marshall, for CG, US Forces, London, 2 Sep. 42, R-331. (2) Cable, Eisenhower, to AGWAR, 19 Sep 42, 2415. DRB.

12 North African Theater of Operations, United States Army.

13 Interv, author with Lt. Col. T. W. Archer, Office of the Comptroller of the Army, 3 Mar 54.

14 Ibid.

15 (1) Cable, Eisenhower, to AGWAR, 22 Oct 42, 3944. (2) Cable, Marshall, to CG, ETO, 24 Oct 42, R-2395. DRB.

16 Logistical History of NATOUSA-MTOUSA (Naples: G. Montanino, 1945), p. 396.

17 Office of Strategic Services.

18 Mediterranean Theater of Operations, United States Army.

19 Interv, author with Lt. Col. T. W. Archer, 3 Mar 54.

20 (1) "History of Fiscal and Finance Activities in the Middle Pacific from 7 December 1941 to 2 September 1945," pp. 21-23, 14-15. OCMH (Office of the Chief of Military History). (2) Dernburg, op. cit.

21 Ltr, G. C. C. J. de Beaufort, Asst to the Chairman, Economic Financial Shipping Mission of the Kingdom of the Netherlands, Board for the Netherlands Indies, Surinam, and Curacao, to Mr. Harold Glasser, Asst Director of the Division of Monetary Research, Treasury Department, 20 Sep 44, File 4.23. DRB.

22 Statement of the Treasury Department on Invasion Currency, Press Service 45-45, 14 Mar 45. OCF (Office of the Chief of Finance) .

23 "Tenth Army Action Report, Report of Operations in the Ryukyus Campaign, Chapter 11, Staff Section Reports, Section XIX - Finance." KCRC.

24 Report on White House Conference, Tuesday, 13 Jun 44, from Press Br. Bureau of Public Relations, WD. DRB.

25 ( 1 ) Minutes of meeting held in Mr. McCloy's office 1 Feb 44 - Meeting of U.S. members of ad hoc Committee on Monetary and Fiscal Planning - Western Europe, signed Maj. Charles C. Hilliard. (2) Minutes of meeting held in Mr. McCloy's office, 7 Jan 44. DRB.

26 Supreme Headquarters, Allied Expeditionary Forces.

27 Civil Affairs and Military Government branch of the General Staff.

28 Report on House Resolution 130, Appendix A> signed Henry L. Stimson, Secretary of War, 28 Apr 45, p. 1.

29 (1) Ltr, Secretary of the Treasury, to Senator Robert Taft, 17 Dec 45. DRB. (2) History of the Fiscal Services, 1940-1943 , (unpublished manuscript in OCF), pp. 582-583.

30 Interv, author with Lt. Col. Raymond E. Graham, OCF, 3 Feb 54.

31 Ltr, Maj. Burnis Archer, Asst AG, Hq, Eighth Air Force, to CG s, 1st Bombardment Div, 2d Bombardment Div, et al , 19 Aug 44. KCRC.

32 Ltr, Capt. John R. Philpott, Adj, Hq, 93d Bombardment Grp, to CG, 2d Bombard- ment Wing, 17 Mar 43. KCRC.

33 Lt. Col. Paul A. Feyereisen, "Foreign Currency Balances of United States Army After World War II - Their Utilization," 7 Sep 49, Plans and Policy Office, Office of Army Comptroller, p. 3. DRB. For the complete account of the Army's currency control problem in World War II, see Walter Rundell, Jr., "The U. S. Army's Currency Management in World War II," unpublished doctoral dissertation, The American University, Washington, D.C., 1957, and available through University Microfilms, Ann Arbor, Mich.