Germany Hyperinflation
In order to pay the large costs of the First World War, Germany suspended the convertibility of its currency into gold when that war broke out. Unlike France, which imposed its first income tax to pay for the war, the German Kaiser and Parliament decided without opposition to fund the war entirely by borrowing, a decision criticized by financial experts like Hjalmar Schacht even before hyperinflation broke out. The result was that the exchange rate of the Mark against the US dollar fell steadily throughout the war from 4.2 to 8.91 Marks per dollar. The Treaty of Versailles further accelerated the decline in the value of the Mark, so that by the end of 1919 more than 6.7 paper Marks were required to buy one US dollar.
German currency was relatively stable at about 60 Marks per US Dollar during the first half of 1921. Because the Western theatre warfare was mostly in France and Belgium, Germany had come out of the war with most of its industrial power intact, a healthy economy, and in a better position to become the dominant force on the European continent. However the "London ultimatum" in May 1921 demanded reparations in gold or foreign currency to be paid in annual installments of 2,000,000,000 (2 billion) goldmarks plus 26 percent of the value of Germany's exports.
A 50 million mark banknote from 1923.
The first payment was made when due in June 1921. That was the beginning of an increasingly rapiddevaluation of the Mark which fell to less than one third of a cent by November 1921 (approx. 330 Marks per US Dollar). The total reparations demanded was 132,000,000,000 (132 billion) gold marks, of which Germany only had to pay 50 billion marks (a sum less than what they had offered to pay).
Because reparations were required to be repaid in hard currency and not the rapidly depreciating Papiermark, one strategy Germany employed was the mass printing of bank notes to buy foreign currency which was in turn used to pay reparations. This greatly exacerbated the
German currency was relatively stable at about 60 Marks per US Dollar during the first half of 1921. Because the Western theatre warfare was mostly in France and Belgium, Germany had come out of the war with most of its industrial power intact, a healthy economy, and in a better position to become the dominant force on the European continent. However the "London ultimatum" in May 1921 demanded reparations in gold or foreign currency to be paid in annual installments of 2,000,000,000 (2 billion) goldmarks plus 26 percent of the value of Germany's exports.
A 50 million mark banknote from 1923.
The first payment was made when due in June 1921. That was the beginning of an increasingly rapiddevaluation of the Mark which fell to less than one third of a cent by November 1921 (approx. 330 Marks per US Dollar). The total reparations demanded was 132,000,000,000 (132 billion) gold marks, of which Germany only had to pay 50 billion marks (a sum less than what they had offered to pay).
Because reparations were required to be repaid in hard currency and not the rapidly depreciating Papiermark, one strategy Germany employed was the mass printing of bank notes to buy foreign currency which was in turn used to pay reparations. This greatly exacerbated the