Hyperinflation in Germany

Hyperinflation in Germany

The hyperinflation in Germany after the WWI was not the most severe one in the history. The Hungarian and the Zimbabwean currency crisis were worse than this but this was most talked about and better documented. Also Germany was and is an important country in Europe. The hyperinflation in the Weimar Republic was for three years between June 1921 and January 1924. It caused misery to the people of Germany and there was political instability. Also all the economists agreed that the economy of Germany was very crucial for the economy of Europe and a hyperinflation situation could not go on for many years.

Reasons for hyperinflation

  • The First World War was one of the factors for the value of Mark to go down.
  • The Treaty of Versailles which put all the war reparations on Germany was the major reason for the hyperinflation.
  • The German Parliament did want to tax the people for the repayment; instead they decided to borrow funds to meet the payments.
  • This decision was criticized and the financial experts saw a currency devaluation looming large before them.
  • The government thought it would pay off its debts by winning the war but the reverse happened and Germany had to take on more.

The Devaluation of Mark

  • The first devaluation was from 4.2 to 7.9 for one dollar.
  • By first half 1921 it went down to 90 Marks and stabilised.
  • As reparations were to be paid in valued currency and no the depreciating paper Mark, Germany began to print more notes to buy foreign currency. This worsened the inflation.
  • The value of Mark sank in the international market and more currencies were needed to buy small products. Thousands of Marks were needed to buy even a cup of tea.
  • Towards the end of the first half of 1922, it was almost impossible to buy foreign currencies or gold with Mark paper currency.
  • To counter this more currencies were printed and it became a vicious cycle.

Aftermath and Recovery

Stopping the inflation would mean bankruptcies, hunger, violence, strikes, revolution and many other problems.  Not stopping it meant that the foreign debts would rise. The reparations could not be paid off. France did not want to bring any changes to the amount payable but Britain was willing for moratorium and changes in the financial resolution. People of Germany found it very difficult to buy their basic needs. There were pictures of the currency being used as wall paper. There were many currencies in the US as well. It is said that US had more Mark than Germany Something had to be done to change the situation. Gustav Stresemann devalued the Mark fully and introduced a new currency called Rentenmark on 15th October, 1923.  He also started a new bank called Reichsbank which controlled the printing and distribution of the currencies. This had some effect and by January there was some control over the hyperinflation. The main cause for this hyperinflation was the repayments of World War I and the amount was completely paid off on October 3rd 2010.

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