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During
the German Inflation period in 1923 the value of the money fell rapidly day by
day. The following article provides some historical and economical background
for the Hyperinflation period.
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 Versailles 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.
The
government decided to start printing more money. The Gold and Dollar
reserves dwindled. Although initially some aluminum
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.
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