The law about the foundation of the Darlehnskassen was enacted on 4 August 1914 after a long time of preparation. The new institutions were to give out loans (Darlehen) against deposits of goods and securities. The loans were given out in form of banknote-like paper bills – the Darlehenskassenscheine.
Theses standardised certificates had a fixed rate to Gold and were accepted by all state owned institutions. This in fact gave them the necessary trust for people to use these bills like real money. Thus, although the bills were not legal tender, they circulated widely and were freely used instead of banknotes, because of their smaller denominations.
Especially the 1, 2 and 5 Mark Darlehnskassenscheine soon became very heavily used. They replaced the
coins that were taken out of circulation by the Reichsbank or hoarded by institutions and people.
Municipalities and state institutions took out ever more loans from the Darlehnskassen. As deposit they submitted bonds that they had issued beforehand. In effect the new money became a promise of the state to be able to exchange it at some point in the future.
Initially the amount of the loans that could be given out by the Darlehnskassen was limited to 1.5 billion Mark. But this limit was reached already in 1916. By the end of 1918 the amount of bills in circulation amounted to 10.1 billion Mark.
While the amount of money in circulation grow steadily during and after World War 1 the goods available for consumption reduced at the same time due to the requirements of the war economy and following economic crisis. So the value of the money sank rapidly. In May 1923 all denominations of the Darlehenskassenscheine were practically valueless. Officially the notes became invalid on 30 April 1924.
See Darlehenskassenscheine:
Paper money from World War 1
Money 1919-1921
Early Inflation notes
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