The Dawes Plan was prepared in
1924 by a
committee of the Allied Reparations Commission as a way of
stabilizing the
German economy and systemizing the repayment of Germany's
World War I reparations to the Allied countries. In
1921, the
Reparations Commission had agreed that Germany must pay billions of dollars to the
Allies. Germany
defaulted in less than a year and was granted a twelve month
moratorium. Before the moratorium had expired though,
France and
Belgium instituted their own method of collecting reparations by seizing Germany's principle industrial center, the
Ruhr. Inflation in Germany skyrocketed, by September of
1924, the German mark had become almost worthless. The deterioration of the German economy caused some concern in the
United States both because of the general impact and because Americans were intent on recovering nearly 10 billion dollars loaned to Allied countries during and immediately after World War I. These nations in turn needed reparations to fund their debt payments to the United States.
The Dawes Committee was created to resolve the problem. It consisted of two representatives each from Belgium, France, Italy, and Great Britain as well as two from America. The proposal that was determined in April laid out a new more manageable schedule for German reparation payments, linked to an elaborate system of new taxes in Germany, stabilization of the German currency on the gold standard, the reorganization of the Reichsbank under Allied supervision, and, most important, massive American loans. The loans made it possible for Germany to make payments to the Allies, who in turn repaid their debts to the United States. The plan went into effect and Germany was able to resume paying reparations. In 1929, a new plan was negotiated that led to a lower reparations bill, based on a reduction in Allied war debts to the United States. When President Herbert Hoover declared a moratorium on all intergovernmental debts in 1931, reparations and war debt payments virtually ended.