Occupation and Liberation
- a financial perspective
In the Archives of the Bank of England, to which I was kindly granted access by the Chief Archivist at the Bank, there are papers which refer to banking and related activities in Jersey in the period leading up to the Occupation in the summer of 1940 and that leading up to and following the Liberation in May 1945. The following article is based on this material.
In May 1939 discussions took place on the application to Jersey of United Kingdom Defence Regulations. The Regulations were intended to provide for various eventualities should war break out, but they did not anticipate the possible occupation of the Island. What was referred to in the discussions for the most part was the treatment of foreign securities held in Jersey, and there was apparently some misunderstanding on the part of the Jersey authorities, who assumed that on requisitioning foreign securities the United Kingdom Government would force holders to take UK Government securities in exchange. As a result it was proposed by the Bailiff of Jersey, Alexander Coutanche (later Lord Coutanche) that, instead, Jersey Government securities might be held.
At that time a rough estimate of the value of foreign (largely United States and Canadian) securities held in Jersey was put at £30-40 million (or £800-1,100 million at 1994 values). At a meeting in London on 4 May the Bailiff stated that in dealing with the question of the requisitioning of foreign securities the Government should bear in mind that residents of the Channel Islands were masters of tax evasion. In his view only a small part of the securities, the bulk of which was in bearer form, was deposited at banks for safe custody in the ordinary way, and those that were so deposited were probably not in the names of the owners. He said also that there might be a considerable amount of gold in Jersey.
The Bailiff thought it would be more satisfactory if returns of securities could be made to the States of Jersey who would provide the UK Government with a summary and that, when the time of requisition came, the Jersey authorities would acquire the securities themselves being reimbursed by HM Treasury. He felt that the local administration would probably be in a good position to chase those who attempted to evade the regulations. This arrangement appeared to find favour. In due course, by the Emergency Powers (Jersey) Defence Order in Council of 25 August 1939, the States of Jersey were substituted for His Majesty in Council as the authority empowered to make Defence Regulations for Jersey. As already noted, what had not been provided for in the Defence Regulations was the likelihood of the occupation of the Island. As the threat of occupation became more real, urgent action was taken to remove from the Island any securities and other financial documents that could be of value to the enemy.
On Sunday 26 May 1940, at 10 am at Berkeley Square House in London, senior officials of the big five clearing banks met and, after a lengthy discussion, it was agreed that the following message should be sent to Mr Desreaux, manager of the Library Place branch of Midland Bank:
- Jersey, very secret. Make immediate contact with managers of the big five banks and send us (Midland Bank) approximate total weight and cubic capacity of aggregate bearer bonds and American certificates held by all banks. Pack, seal, make ready for transfer by air on assumption being arranged for Monday. Exclude valueless bonds but do not delay action on that account. Notify Guernsey managers similarly secretly through Mr Farmer, National Provincial Bank, Guernsey by messenger only, per motor launch; telephone not to be used. Inspectors from each bank will probably arrive by plane today. Reply through Admiralty.
The intention was to send a Mr Murray representing the Midland Bank by plane from Hendon Airport, but there was no room for him on the plane. Telephone contact was made with the Jersey manager of Midland Bank who stated that he thought there was a possibility of transport by destroyer.
Responsibility for evacuating the bearer securities from the Channel Islands was left with the five banks, the sole co-operation of His Majesty's Government at that time being that the Government was expected to provide means of communication either by air or by destroyer. On 27 May the clearing banks had three representatives in Jersey and two in Guernsey who were making arrangements for the packing of the whole of the bearer securities, whether foreign or British, and American registered securities. It was expected that the total weight would be roughly 91½ tons, and it was thought that this could be carried by about six planes.
On 28 May, however, following a telephone conversation with Lord Drogheda of the Ministry for Economic Warfare it was stated that:
- It was not for the Treasury or the Ministry for Economic Warfare to make recommendations regarding the transfer of securities from the Channel Islands
- There was not the least likelihood of a destroyer or a Government vessel being available
- There was less likelihood every day of aeroplanes being available
It was suggested that as steamers were running to the Channel Islands the securities could be shipped by them.
Also on 28 May, in a letter to the Governor of the Bank of England from the Chief General Manager of Westminster Bank, the banks acknowledged with gratitude the assistance which had been placed at their disposal by His Majesty's Government for urgent and priority communication with the Channel Islands and they record that the securities were packed ready for transport in both Jersey and Guernsey. It was noted that the bearer securities held in the Channel Islands fell into four categories
- Bearer securities being the obligations of the Island States' themselves;
- Bearer securities expressed in sterling;
- Bearer securities expressed in French francs;
- Restricted securities, the property of residents, which have been registered with the Bank of England but which have not been vested; restricted securities, the property of non-residents, which are not subject to requisition and have therefore not been registered with the Bank of England.
The chief general manager went on to say that the object of his letter was to advise the Bank of England that the banks would not of their volition and without expressed order by His Majesty's Government proceed to evacuate the bearer securities which they held in safe custody in the Channel Islands, as in their view they were not charged with the responsibility of undertaking the risks and perils which thereby might be entailed.
The chief general manager of Westminster Bank wrote to the Governor of the Bank of England again on 4 June to tell him that the whole of the bearer securities held by banks in the Channel Islands had been packed, without distinction or segregation, into sealed sacks and pending instructions remained packed and ungetatable. He indicated that customers in the Channel Islands making enquiries about their own bonds or asking for a return of their own bonds in the hands of bankers, could be met only with the answer that the bonds "are not available at present". The chief general manager went on to say that "in these confined Islands lightly populated by a peculiarly gossipy people, many now have an idea that something is happening - they know not what - and that this would not appear to be in the interests of public security, especially as there are so many alien servants in the Channel Islands".
On 17 June it was reported that there had been a run on the banks in Jersey and that the total currency remaining available for withdrawals was down to £170,000. As Lloyds' deposits alone in the Island were said to be £2 million, this presented obvious problems. It was noted that to send more currency to Jersey would seem foolish in the circumstances and that the only solution appeared to be a local moratorium, if the matter had gone too far to be met by limiting withdrawals to some nominal figure like £5 in any one instance. On 19 June a telegram was sent to managers in Jersey to tell them that the bearer securities had duly arrived at Southampton that morning. The managers were asked to send by the next boat all the securities they held of whatever type, whether for safe custody or otherwise, and also to send by the same boat duplicate records and to encourage all customers by whatever means to transfer their accounts, or the major portion of the balances of their accounts to their credit, to other branches in the United Kingdom, or to the Head Offices. Balances of customers non-resident in the Channel Islands with whom managers were unable to communicate were transferred to the Head Offices.
The Deputy Governor of the Bank of England, on 19 June, was asked also what he thought the clearing banks should do. To quote "the question arises as to whether it is the duty of the clearing banks to undertake either total or partial evacuation from the Channel Islands, and upon this point they would like to have the views of His Majesty's Government". The chief general manager of the Westminster Bank went on to suggest that the clearing banks would normally regard it as their duty, short of ordered evacuation, to remain in the Channel Islands in order to provide such banking services as may be possible for their customers, whether the Islands come under enemy occupation or not, and, if this be a correct view, the total evacuation of banking businesses from the Islands would thereby be negatived. As regards partial evacuation,it was thought that the practicability of this was doubtful because, if it were known locally that the bulk of the staff and the ledgers and records had been withdrawn from the Islands, it might not become possible even to continue any reasonable banking services for the population, which in the main must remain in the Islands.
The view of the Home Office, agreed with HM Treasury, was that the branch banks should carry on and should retain adequate staff to transact in each Island in which they operate the business which may be expected in these new conditions. The relevant letter to the Deputy Governor, dated 20 June, concluded by stating that it was understood that the destruction or removal of assets, or documents likely to be of use to the enemy in the event of occupation, had been completed in the manner arranged.
Meanwhile the lack of English notes was continuing to cause problems for the Islands. In a letter from the States Supervisor of Guernsey to the chief cashier of the Bank of England on 21 June, it was stated that the stock of English notes was completely exhausted. As a result, people leaving the Island for the mainland had to be provided with States of Guernsey notes, and he enquired whether the necessary arrangements could be made for these notes to be honoured when the evacuees arrived in the United Kingdom. He concluded his letter by saying "in the present circumstances, it is impossible to say whether communications with this Island will continue and if they do for how long but every endeavour will be made by the States of Guernsey to meet their obligations with respect to these notes. If not immediately, at the termination of hostilities".
A note from the British Bankers Association on 22 June referred to the fact that banks in England were being inundated cashing Jersey currency and, as a result, they were staying open on the Saturday afternoon, and a request was made that they should open on the Sunday for that particular purpose. The response was that, provided the banks did not do banking as such, this was thought to be a reasonable and co-operative thing to do.
On 24 June further communication from the British Bankers Association to the Chief Cashier of the Bank of England referred to the fact that all the big five Banks had instructed their branches to cash Guernsey notes. Two of them were prepared to cash these notes for anyone who might present them. In one case there was no restriction on the amount and the other had imposed a limit of £100. Another of the big five had imposed a limit of £20 in respect of any holder, while two other banks instructed their branches that they must not cash notes for customers of other banks and in both cases they imposed a limit of £20.
On 25 June the Home Office was considering making Guernsey notes legal tender in Jersey to save the transport of further Bank of England notes to the Islands. On 27 June, however, a file note indicated that the Jersey authorities were opposed to Guernsey notes being made legal tender in their Island and that the Home Office was considering the alternatives of a special issue for Jersey or the over-printing of Guernsey notes.
Contact between the branches of the clearing banks and their respective head offices ceased on 28 June, 1940.
Preparations for Liberation
On 29 January 1944, the Trading with the Enemy Department in the United Kingdom produced a memorandum on the action to be taken on the reoccupation of the Channel Islands. It was pointed out that under the provisions of the Trading with the Enemy Act, 1939, the Islands, since the occupation, had been 'Enemy Territory' within the meaning of the Act and persons resident or carrying on business there were 'enemies' within the meaning of the Act. The memorandum pointed out that on the effective reoccupation of the Island the position of individuals and firms would not be rectified completely and automatically but would require action to be taken.
For the purpose of the note the following assumptions were made:
- There would be a period (probably short) during which the Islands would be administered under the Military Authorities
- The Military Authorities would then hand over the administration to the States Governments
- During the early part of the reoccupation trade would not be permitted on ordinary commercial lines but through official channels
- It would be the intention (1) to reopen the mail service and (2) to allow the resumption of control by persons in the Channel Islands of their property in the United Kingdom and vice versa and (3) to restore trade to its normal channels, all as quickly as possible, whether by the Military or Civil Authorities.
Before current trade resumed its normal course it was expected that persons in the United Kingdom and in the Channel Islands would want to know what happened in the interval to their property, and to resume control over it. So far as the property of Channel Islanders in the United Kingdom was concerned it was estimated that this included securities to the value of £11 million (or around £240 million in 1994 values).
The note also referred to the extent to which it might be expected that companies in the Island were in the control of the enemy. It stated: "There are numerous companies incorporated in the Island which are merely holding companies. Some have more or less an organisation, some merely a brass plate on a lawyer's office. To determine who controls these companies often involves lengthy and involved enquiries, which include tracing ownership back through a series of banks, holding companies and individual nominees from Luxembourg to Vaduz and Prince Edward Island to Panama, but some of them have valuable assets and it must be done. When the investigation is complete the ultimate interest may be found to be that of an individual non-enemy with a talent for avoiding exchange control or revenue law (with whom we are not concerned) or a belligerent enemy company or individual with whom we are; or it may be some concern in which there is an enemy interest. In the latter cases, the Channel Islands company is or may be an 'enemy' and its assets will not be released from Custodian control. Some special attention may have to be given to bearer securities in the Islands, particularly to prevent their movement and to identify their origins.
The note refers to the issue of action by Channel Island residents during enemy occupation. There seemed to be no purpose, it stated, in raising the academic point whether, in view of the way in which the Act was applied to the Channel Islands, persons in the Channel Islands who, in the ordinary way of trade sold produce to German soldiers or officials during the period of occupation, were or were not guilty of 'trading with the enemy'. It indicated also, that the Department had no information about the extent to which looting by the enemy had taken place in the Islands, nor the form which it had taken; but it continued that "it would be rash to assume that the Germans have shown a restraint there which has been noticeably lacking in other territory".
On 13 April 1944, the five clearing banks operating in the Channel Islands produced a memorandum respecting "points for reference to HM Treasury upon questions which may arise respecting banking and currency in the Channel Islands upon the reoccupation of the Islands". It commences by stating that liberation of the Channel Islands may or may not be long delayed but in any event may be sudden. The five interested London clearing banks must prepare in advance for the day of liberation when they will be anxious to take their part in the economic rehabilitation of the Islands, as well as to clarify the position which will have arisen after four years of enemy occupation.
It said also that the interested banks have well in mind that the States of Jersey and Guernsey have separate and independent legal existence, neither State being bound by Acts or Regulations of the Imperial Parliament, but both being possessions of the British Crown. Nevertheless, it was of course the decision of HM Government that, for strategical reasons, it was necessary to demilitarise the Channel Islands and it was the decision of HM Government not to effect total evacuation, the Bailiffs of Jersey and Guernsey being left to continue to carry on, in the Islands, a Civil Administration for which they were responsible.
The memorandum stated that sufficient staff had remained at the branches to form a nucleus for carrying on during the Occupation and it was known that at least 12 had been removed to concentration camps or forced labour in enemy territory and that some of the staff were now in the employ of the States of Jersey and Guernsey. The position in regard to the managerial staff in Jersey was stated, when last known, to be as follows:
- Barclays: Mr Benest
- Lloyds: Mr Vaudin
- Midland: Mr Desreaux
- National Provincial: Mr Mauger
- Westminster: Mr Hankinson
As far as possible the branch records had been reconstructed on the mainland but the accounts, as reconstructed, could not be claimed exactly to have reproduced the accounts as then in the books in the Islands owing to the hastiness of the departure of officers who returned to the mainland and the overwhelming volume of work prior to their departure, when so many of the Islands' inhabitants were evacuated. There was no need, it was thought, to give in detail the policy followed by the interested banks on the mainland in regard to claims by refugees but "the decisions taken were based - not on a narrowly legalistic - but on a broad and humane interpretation of their duties; evidence of a great appreciation of refugees in this regard has not been lacking".
Reference was made to the fact that the branches had been placed under control of the Reichsbank Directorate in Paris, and that they had continued to maintain book entries in sterling, although cash payments in and out were in Reichsmark notes. It was understood that war damage was not yet extensive, but this might not be the case by the time that liberation had been effected, especially if the enemy carried out a 'scorched earth' policy. It was also noted that the contents of security boxes left in the branches had apparently been examined by the occupying authorities, but there was no evidence as to whether they had interfered with the contents.
The accounts of the States of Jersey and Guernsey with the branches of the interested banks had shown a net creditor position prior to the enemy occupation but "there is reason to believe that the position has since been reversed, due to heavy borrowings from each of the banks, and the total of such borrowings for both States might be already well in excess of £4 million". Sterling and States notes had apparently disappeared "any which remain in the hands of the inhabitants being hoarded" although both States were understood to have issued 'silver' notes in denominations of 2/- and 6d. The banks indicated that, on liberation, they would look primarily to the States of Jersey and Guernsey for repayment of the sterling debts of the respective States, but noted that it was presumably "the intention of His Majesty's Government to assist the States in the repayment of such sterling advances, in effect incurred as a result of the policy decision of HM Government to demilitarise the Islands (and in fact temporarily to abandon them to the enemy)".
The banks assumed that the States and HM Treasury would replace Reichsmark notes in the hands of the banks with sterling. The banks asked also for an indication of the arrangement which HM Treasury had in mind in regard to sterling payment to applicants in respect of Reichsmark notes which may be presented to banks by inhabitants upon and after the liberation and the time limit, if any, which it was intended to fix beyond which sterling payment against Reichsmark notes would no longer be permissible. They also sought an indication of the arrangements which HM Treasury, in conjunction with the States, had in mind in regard to the reported issue of 'silver notes' and which it was presumed would be called in.
The banks asked also whether it was envisaged that owners of property in the Channel Islands would be allowed to benefit under the terms of the War Damage Act in view of the fact that the abandonment of the Islands was an act of policy on the part of HM Government; alternatively whether it was envisaged that compensation would be paid to sufferers. They indicated that they were interested in the question generally because prompt payment of compensation to individuals, whose property had suffered war damage, would enable them to restart their activities and so qualify for bank assistance, thereby contributing to the speedy restoration of the productivity and prosperity of the Islands.
They presumed also that HM Government would facilitate speedy transport back to the Islands at the appropriate moment of adequate staff and of the relevant accountancy records. They concluded that they were anxious to stress that it was not their object to lay claim to or secure preferential treatment of any kind whatever and, while they fully realised that the States of Jersey and Guernsey would naturally be anxious to avoid, in any degree, abrogating the ancient rights and privileges which they had now enjoyed for nearly one thousand years, that the points raised in the memorandum might fairly be said to include matters in regard to which HM Government no doubt would not wish to divest itself of all responsibility.
A meeting took place at the Treasury on 8 June 1944, and a note of that meeting referred to the clearing banks' memorandum of 13 April which formed the basis for discussion which, the note stated, consisted largely of a monologue by Sir Charles Lidbury of Westminster Bank. He pressed the chairman, from HM Treasury, for a Government assurance that the banks would not be made to suffer banking losses as a result of the operation of their branches during the period of enemy occupation. The chairman was neither able nor willing to give such an assurance at this stage and stressed that any action taken by HM Government in the matter could be only in co-operation with the States of Jersey and Guernsey.
At this meeting the chief finance and accounts officer designate for the Channel Islands, a Mr Bickmore, informed the banks' representatives in strict confidence that the amount of currency which he proposed to take with him was £1 million, but he did not say that approximately one tenth of it would be in silver coin. There was discussion as to the rates of exchange to be allowed between the Reichsmark and sterling, and the banks agreed to have adequate staff available to go to the Islands as soon as practicable.
The note concluded that the highlight of the afternoon was when, as the meeting was about to close, Bickmore insisted upon telling Sir Charles Lidbury the story of his career in Ceylon and how he had reorganised the local Treasury on the Whitehall pattern. Sir Charles Lidbury, who had listened patiently for several minutes, blandly asked "Why?"
On 17 June 1944 the five clearing banks produced a further memorandum this time for the information and assistance of the Controller of Finance and Accounts, Mr Bickmore, who was on the staff of the Chief Civil Affairs Officer for the Channel Islands. This was accompanied by letters in common form addressed to the managers or other officers-in-charge of the branch banks located in the Channel Islands and the memorandum was clearly written with the expectation that the Islands would be reoccupied soon. It notes that the branch banks had been asked to provide the Controller of Finance with details of the staff position and that the clearing banks desired to send out to the Islands at the earliest possible moment the relief which would be urgently needed. "The bank staff were depleted and over tired and while some were transported to Germany almost two years ago, it may be that further staff will be found to have been removed prior to the reoccupation". They would wish to arrange for the early transport of approximately 30 officers to each Island. HM Treasury and the Controller of Finance and Accounts indicated that the initial relief could consist only of one man per bank per Island (ten men in all); such relief staff would need to be accompanied by records involving a minimum of 25 cwt, occupying approximately 120 cubic feet, plus personal luggage.
On 7 July a Civil Affairs Directive for the Channel Islands was issued concerned with general and political as well as financial and economic matters. This directive refers to the population of the Islands (normally about 51,000 in Jersey, 43,000 in Guernsey, 1,500 in Alderney and 550 in Sark) which it describes as exceptionally law abiding and goes on to say that "the normal police forces are much smaller in scale than those in the United Kingdom - Guernsey has a centralised force but Jersey still adheres to a parochial system". It suggests that the population is similar in make-up to that in the United Kingdom and that the Islands had "the same standards of living as any other agricultural community on the mainland". Further that "while in general a newcomer might think the local institutions are archaic, the good sense of the Islanders has ensured that their institutions have, in fact,worked satisfactorily, and the inhabitants are as proud of them as they are proud of their record of allegiance to the Crown over a period of nearly ten centuries".
The document estimated that the British population in the Islands at that time was approximately 65,000, distributed as follows:
- Jersey: 42,000
- Guernsey: 23,000
- Alderney: nil
- Sark: 355
The precise strength of the German garrison was not known, nor was the number of prisoners of war and imported foreign labour.
Referring to relations between the Military administration and the local Governments and population the Directive stated:
- The population of the Channel Islands is similar to that in the United Kingdom, and should be treated with the utmost sympathy and consideration
- It can be assumed that the States, the Royal Courts and the population will co-operate to the full with the Military Government
- Subject to the overriding needs of the Military the lightest possible control will be exercised. You will allow the local administration to perform a real function in this sphere where it can properly operate.
- In the control of civil affairs your object should be to make full use of all such administrative machinery as is available.
- During the period of the Military occupation it is not proposed that Channel Islanders who are now in the United Kingdom shall be permitted to return to the Islands.
In an appendix entitled "Directive on Economic and Supply Matters" it states that "in normal times Jersey economic life is centred mainly on agriculture". It was pointed out that "both Islands enjoyed a substantial tourist traffic; and in addition to income derived from exports of agricultural and horticultural produce and from tourists, there was a substantial income from the overseas investments and pensions of residents; but in general it could be said that about one half of the external purchasing power of each Island was derived from agricultural exports. The public revenue in each Island before the war was about £500,000, derived from direct and indirect taxation imposed by the local Governments".
The immediate aim was to ensure that relief supplies were given equitable distribution, and it was thought that those supplies which would be available would be sufficient to bring the general standard of living in the Channel Islands up to that of the United Kingdom. No increase in prevailing prices was to be permitted without the approval of the Military authorities. The Directive noted that initially the labour situation would probably be a limiting factor in restoration, but pointed out that a census had been made of Channel Island refugees in the United Kingdom classified by their trade or profession in order that, if differentiation was thought justifiable on economic grounds in deciding priority of return to the Island, appropriate selections could be made. Pending a review of the wages structure, which should be made at the earliest moment in consultation with the insular authorities and with organised labour, it was stated that the military authorities should forbid any changes without specific approval.
An appendix entitled "Directive on Special Relief Measures" referred to the quantities of relief supplies being sent to the Islands - see appendix 1. A financial directive also was attached as an appendix, and this sought to ensure the reinstatement of the normal financial and commercial activities of the Islands as soon as the Military situation permitted. The directive provided for the temporary measure, during the period of transition, for the military authorities to close any or all of the banks so long as they deemed it necessary but that they should not take these steps unless it was essential for the protection of the financial economy of the Islands or was required on military grounds.
On the Bank of England files there appears a letter dated 28 August 1944, marked secret from a Mr Lithiby to a Mr Key which says very tersely "many thanks for the loan of the enclosed 6d note from Jersey. It has been looked upon here with interest and sadness - for it is a very horrid little thing".
In the event these preparations were not required for almost another year. The Times on 8 May 1945, in an editorial on finance in the Channel Islands, stated that "it is clear from statements by 'escaped' residents and other evidence that the British authorities will be confronted with a difficult and peculiar financial situation when the Channel Islands are reoccupied". In the first instance, it was stated the Island Governments had incurred a sterling debt out of all proportion to their normal finances and that with France cut off, the German authorities had simply borrowed from the States Governments, who had in turn borrowed from the banks. Secondly it was pointed out that bank deposits had risen by a considerably greater proportion than in the United Kingdom. The assets in the hands of the banks' branches corresponding to this increase in deposits consisted largely of advances to the States and, to a lesser but still considerable extent, of occupation Reichsmark currency.
Several problems which would require treatment by the British authorities were identified. Firstly it was not entirely certain whether inflation had or had not gone so far that the local currency could not be compared with sterling. Secondly, States debts were bound to be much more than they could really support in the long run. Then there was the question of the position of the banks and of the Reichsmark currency which was held both by them and by the public. Finally, there was the question whether the interval before full communications with the outside world were established would be long enough to earmark any suspicious or collaborationist acquisitions of money by individuals without any formal moritorium or blocking order. The Times continued to say that, on the face of it, it seems that the Treasury will have to make itself responsible for exchanging the Reichsmark currency for sterling at the rate of exchange at which it was in fact converted. The treatment of the accumulated States debt would doubtless have to await fuller enquiry after the reoccupation. But, it was stated, "the British Government could hardly disown a substantial measure of responsibility".
On 16 May Colonel Sir Arthur Evans, MP, asked the Chancellor of the Exchequer what arrangements had been made to compensate British subjects resident in the Channel Islands for the German currency which they were compelled to accept during the Occupation; and whether he had any general statement to make concerning the financial affairs in those Islands. In reply Sir John Anderson said that the commander of the Liberating Troops had authority to fix an exchange rate at which the Islanders would receive full value in sterling for German notes in their possession. He went on to say that he awaited information as to the exact rate promulgated. No general financial statement about conditions in the Islands would be made, he said, "without fuller information than is at present available and prior consultations with the authorities there".
On 12 June the clearing banks produced a memorandum "respecting certain points on banking and currency matters arising from the occupation of the Channel Islands and their subsequent Liberation" for the guidance of the managers of their branches in the Islands and for submission to the States authorities, the Controller of Finance (on the staff of Chief Civil Affairs Officer - Channel Islands) and the British Treasury. It noted that the "second lift" comprising nominated bank head office officials arrived in the Islands on 1 June and that the "third lift" leaving Southampton on 14 June at midday would arrive at the Island destinations on the night of 14/15 June.
The memorandum refers to continuing controls over the movement of currency and securities in and out of the Island. It notes that the total of the obligations of the States of Guernsey and Jersey to the five banks, after calling in the Reichsmark currency and local notes, while not accurately known, was considered to have reached £10 million (or around £210 million in 1994 values). It proposed that on the arrival of the "third lift" of staff the banks would be closed on 18 and 19 June, whereupon they would merge the mainland and Island accounts, and clearings directly between the Islands and branches in the mainland would be resumed on 20 June.
It was noted that the clearance of cheques upon the mainland from the Channel Islands branches was likely to consist largely of held-over cheques which remained in the Channel Islands for the two days prior to the German Occupation in June 1940. As and when these cheques reached the drawee banks through the central clearing-house in out of date condition they should not be returned as 'out of date'.
An article in the journal of the Institute of Bankers in October 1946 on banking in Jersey under the German Occupation refers to the arrival of British Treasury representatives at the Liberation who, after consultation with the local Government, ordered that for one week the bank should accept Reichsmarks from the population at the then ruling rate of 9.36 Reichsmarks to the Pound. Those persons who maintained banking accounts were credited with the sterling equivalent, but others deposited their marks against the banks receipt, a small proportion in Sterling being paid to them per week until the total sum was exchanged. This method had to be employed to conserve the sterling cash which the British officials had brought with them. Scenes which dwarfed even those of the 1940 evacuation occurred. The banks were open from 10 until 5 but early in the morning queues formed outside the branches and the local police were employed to marshal the crowds. The St John Ambulance Brigade also was kept busy and the side entrance of, at any rate, one of the banks resembled a first aid post - stretcher cases included.
Clearing the occupation debts
A letter dated 20 October 1945, from HM Treasury, states that Jersey and Guernsey between them owed the big five banks about £10,250,000 of which Jersey accounted for £5,750,000 and that, apart from these bank debts, the Islands would have to raise some £3 to £4 million for reconstruction and rehabilitation. It said also:
- These actual and prospective debts are far more than the Islands can hope to afford, and it is pretty clear that we shall have to give them some substantial assistance. It is suggested that we should provide (partly by free grants, and partly on terms which provide for a review of the possibility of repayment in a few years time) the bulk of what is necessary to repay the banks. The Islands would themselves provide for the balance of such repayment. They would also look after the sums necessary for reconstruction, etc, though they will probably have to do this in the first instance by borrowing temporarily from the banks for a year or two, until their finances are sufficiently straight for them to issue a long-term loan to repay these new borrowings to the banks.
However, it said also that this scheme had not yet received any ministerial approval and should not therefore be communicated to the banks.
In a note of a meeting with the Treasury at the Bank of England on 30 November, chaired by Sir Wilfred Eady for the Treasury, the position at that date of the unsettled indebtedness of the Island was set out. It is stated that HMG was fully prepared to stand behind the Channel Islands authorities. However, the question that Sir Wilfred wished privately to explore with the banks was what he was to say to the Chancellor. Although there was no exactly parallel case, the position in other territories overrun by the enemy, such as Malaya and China, had to be borne in mind because what was done for the banks/Channel Islands authorities might, rightly or wrongly, be quoted as precedent against HMG.
Sir Wilfred reckoned that the total amount required to cover the liabilities of the Islands and put them in proper shape would be about £14 million, to which the Islands themselves could not bear a liability greater than about £5.5 million, leaving £8.5 million to be cared for by HMG. What Sir Wilfred wanted to know before seeing the Chancellor was whether the banks claimed payment in full, or whether they would be willing to accept a lesser amount. In either event, he asked also whether they were expecting immediate payment or whether they would be prepared to have a portion at least funded. The general feeling of the clearing banks' representatives was that, as they had already borne considerable normal trading losses in the Islands, at least they should receive payment in full, although the question of arrears of interest or possible funding of some portion of the debt was not completely dismissed.
On 24 January 1946, the five clearing banks wrote to Sir Wilfred Eady on the subject of the wartime indebtedness of the States of Guernsey and Jersey and the reconstruction finance requirements. The proposals of the banks was that HMG would provide the States with £7.5 million for application in reduction of the debts not later than 28 February, the five banks would remit all interest upon all the occupation indebtedness of the States of Guernsey and Jersey and would refund to the States of Jersey the interest already received upon Treasury Bills which had been held in increasing sums since 14 December 1940, the amount of interest being £ 108,500 net. In addition, the five banks agreed to accept, in discharge of the remaining balance of £2.5 million, bonds of the States (divided between the Islands as the Treasury may decide) bearing interest from 31 December 1946, of two per cent payable half yearly.
As regards the reconstruction capital requirements, it appeared to the five banks that the restoration of damage which occurred to property during the enemy occupation and the reconstruction estimated by the Treasury at a capital cost of £3.25 million for the two Islands could be undertaken only gradually, and that the outgo of money might accordingly be spread over a number of years. It appeared to the banks that finance for these purposes should come normally from the subscriptions of the inhabitants of the Islands to loans issued by the respective States, on such terms of interest and date and under such conditions as may from time to time attract the savings of the population. The banks recognised that the States authorities might find it impossible to proceed with such loan proposals and the letter to the Treasury indicates that the banks were prepared to undertake, in order that the States authorities may remain in tranquil situation with regard to their requirements, that they would at any time prior to 31 December 1950, subscribe for bonds of the States.
On 27 March 1946 the Secretary of State for the Home Department, Mr Chuter Ede, made a statement in the House of Commons about financial assistance for the Channel Islands. This statement was as follows:
- The Lieutenant-Governors of Jersey and Guernsey, together with the Bailiffs and representatives of the two Islands, attended a conference held at the Home Office this morning to discuss the arrangements for meeting the financial debtedness of the Islands arising out of the German occupation and for meeting the expenditure to be incurred on the economic reconstruction of the Islands on an austerity basis.
- For this purpose the Islands have to face expenditure of the order, in the case of Jersey, of somewhat more than £7.5 million and, in the case of Guernsey, of slightly under £6 million. His Majesty's Government have thought it right that any financial assistance to be offered by the Exchequer to the Islands should be calculated on a basis proportionate to the respective expenditure of the two Islands, and have accordingly offered to the States of Jersey a capital sum of £4,200,000 (or nearly £90 million in 1994 values) and to the States of Guernsey a capital sum of £3,300,000 to be used for the purpose of liquidating part of the indebtedness of the Islands. The balance of the expenditure required for the purpose of reconstruction will be borrowed by the States.
The Home Secretary was asked whether the settlement was acceptable to the representatives of Jersey and Guernsey and whether it had been proposed that the British Government would lend the balance of the money, and if so at what rate of interest. Mr Ede replied that he had seen the representatives of the Islands that morning and that he thought the arrangement was, generally speaking, acceptable to them. With regard to the possibility of lending money, he indicated that it was a matter for the Islands themselves how they dealt with the balance outside the sums that he had mentioned.
The foundations for the post-war recovery were now set.
Directive on Special Relief Measures (7 July 1944)
- The quantities of relief supplies being sent to the Channel Islands should enable the food ration to be brought up to the standard in the United Kingdom. The clothing imports provided between D and D + 90 are estimated to give the equivalent of 60 coupons worth per person.
- There is no reliable information as to the amount of currency in circulation and consequently as to the purchasing power of the population, but reports show that with inflated prices and pegged wages a large number of the population are at present unable to purchase up to their rations, although these rations are available. It is to be expected that a substantial proportion of the population will, in the early stages of liberation, have anxiety as to what they can afford to buy and it will probably be found that they do not buy up to the extent of their ration.
- Your first aim must be to ensure that supplies are quickly distributed throughout the Islands so that the population do not have to travel over long distances to get them; and for this purpose you will probably find it most convenient to use the existing distribution channel in the Islands. It is understood that this channel is direct from the local civil government to retailers.
- Subject to the primary aim of giving imported supplies an equitable distribution, as soon as possible you will, in consultation with the Insular Authorities, consider how the population can be enabled to get up to their full entitlement of commodities. It is important in dealing with this problem to ensure that His Majesty's subjects in the Islands are made aware of His Majesty's desire that the relief problems are handled in a generous spirit. You will bear in mind in your consultations with the Insular Authorities, that a scheme of financial relief on a wide scale may not be an effective method of ensuring an even distribution of goods, should there be a substantial proportion of the population without purchasing power. Recent information from Guernsey shows that a public fund raised by the Guernsey Star newspaper for cash payments to purchase food for their children has not been successful because large numbers of parents, although in need of cash, have been unwilling to apply for it. The relief of distress by issue in kind instead of cash, however, may present substantial administrative problems, which would fall on the local machinery, and while the methods to be adopted will have to be settled on the spot, the following suggestions are made for your guidance in discussions with the local authorities.
- Certain types of commodity which have been in short supply in the Islands and may therefore be highly appreciated might properly be made a free issue to the population generally. Such items are tea, chocolate, cigarettes and soap. The stocks of these items being brought in would enable you to authorise a free issue as follows for a short period. The details, especially in the case of cigarettes and tobacco, are tentative and should be settled after consultation with the Insular Authorities.
- Tea: all members of the population; 2 oz per week for 2 weeks
- Chocolate: all persons up to 17 years of age inclusive; 3 oz per week for 2 weeks
- Cigarettes or tobacco: all persons of 18 and over; 50 cigarettes or 2 oz of tobacco for 1 week and 1 box of matches
- Soap: All persons of 18 and over; 1 week's ration ie 8 oz hard soap or 6 oz powdered soap or 3 oz toilet soap
- It might also be appropriate for you to arrange, at the expense of His Majesty's Government, free distribution of milk in schools for a period. Any other measures for a limited free issue of this nature, such as the free distribution of vitamin supplements, may be taken at your discretion; but you should, wherever possible, act in consultation with the Insular Authorities. Any free issue of imported commodities which are also available from local production should only be made after consultation with the Insular Authorities.
- Your announcement as to the validity of the Reichmark currency will probably serve to remove the financial anxiety of persons holding Reichmarks. But there will no doubt be cases where emergency relief must be made available (eg to persons who have been unable to earn, or whose wage earners are abroad). It has generally been found more practicable in this country to meet such cases by cash payments; but should it be considered better, in the light of the Island's experiences with relief schemes during the German occupation, to make some provision for relief in kind instead of cash relief, and should the Insular Authorities be able to make the necessary administrative arrangements, including safeguards against abuse, you will give any necessary assistance to the civil authorities. Any such scheme of relief in kind must provide for the surrender of coupons.
- In connection with relief measures generally, you should inform the Insular Authorities that the manner in which the net amount received by the States from the sale of these imported commodities shall be applied, will be a matter for discussion in due course with His Majesty's Government and the States together with other matters affecting the economic life of the Islands. Should a scheme of relief in cash be instituted, the States will not be expected to account to His Majesty's Government for any reasonable sums disbursed for the purchase of these imported supplies, provided the necessary safeguards against abuse have been imposed.