During the Great War
the devaluation of the Mark had started already.
The government financed the war increasingly by using debt. When Germany finally had lost
the war, it faced huge claims for reparations from the victorious countries.
These were agreed in the Versaille treaty.
The German economy was also weakened by the change from war to peace
production. Together with the debts from the war the interest payments for the new
obligations became higher than the whole GDP.
A bad economy gets worse
The government decided to start
printing more money. The Gold and Dollar reserves dwindled. Although
initially some aluminium coins were minted (200 and 500 Mark) they were
worthless when delivered. Soon only paper money was issued. The Papier Mark (Paper Mark) was created.
In 1922 the government could not agree on a new economic policy that would meet the reparation
claims. The value of the Mark against the Dollar was decreasing continuously. On 1. January 1923
the exchange rate for 1 Dollar was 9000 Mark.
When Germany could not pay the reparation in 1923, troops from France and Belgium occupied the main
industrial area in the West of
Germany - the Ruhrgebiet. Without its main source of economic contribution the
inflation in Germany
was unstoppable. 1 Dollar cost about 100,000 Mark on 1. June 1923. Only
two months later in August 1923 the exchange rate was 4.62 Million Mark for 1 Dollar.
The monetary system out of control
And it got worse: Workers now received their wages each morning in baskets. They needed to go shopping
immediately. In the evening their salaries were worthless already. The physical supply of money became
a problem. Due to the sheer volume of notes needed, a central money supply was impossible. The
Hyperinflation was in full swing.
At this time the central bank (Reichsbank)
employed about 30,000 workers and used 1783 printing presses
in 133 different printing houses. Still they could not produce the amount of money needed. Cities,
regional authorities, banks and even firms were allowed to produce their own money - the
Inflation Notgeld.
In some cases these notes were not made from paper. Cloth, wood or leather was used to produce
money. In November 1923 the cost for 1 Dollar was 4.2 Trillion Mark. A bread cost 580
Billion Mark. Savings from people disappeared. The German economy was about to burst.
Stopping the devaluation of the money
A newly appointed government managed to turn around the economy in end of 1923 to early 1924. A new
currency was introduced - the Rentenmark. The rate against the Dollar was fixed at 4.20
Rentenmark for 1 Dollar. The new currency was backed by industrial and agricultural property,
because there were no sufficient gold reserves anymore. At the same time the fiscal policy
was changed to reduce government spending. The period of Inflation was over.
Please have a look at some sample banknotes from the Pre-Inflation,
Early Inflation or Hyper Inflation periods.
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