The Great German Inflation

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From the Archives : Originally published May 29th, 2009
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Category : History of Gold

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

24hGold - The Great German Inf...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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