Hyperinflation of the German Mark
In 1914, Germany found themselves at the beginning of World War 1. They financed the war, in part, by selling off the gold that was backing their currency. During the war, they suspended convertibility of the German Mark into gold. At this point in time (1914), a loaf of bread could be purchased for a fraction of a Mark.
By the time WW1 ended in 1918, Germany's productivity was severely damaged. Many of their goods had been seized such as coal, zinc, timber, cattle, and grain, and forcibly shipped out of country. The railroad grid and marine merchant ships had also been seized. Germany was also being held responsible to repay damages they caused during the war, which amounted to 132 billion gold marks worth of post war debt! The agreement to repay the debt was outlines in the Treaty of Versailles (pronounced ‘Vers eye’), which called for an annual payment of 2 billion marks to the allied nations of Britain and France. This quickly became unserviceable.
As a solution, the government began to print more money, which actually had a short term positive effect. Germany temporarily reached full employment and many of the effects of the physical collapse were masked. But before long, the extreme surplus of money drove the value of the Mark down, and people stopped holding onto it. More and more money kept being printed.
- In 1920, a loaf of bread cost 1 Mark.
- In 1922, a loaf of bread cost 163 Marks
- In 1923, a loaf of bread cost 1,500,000 Marks (at the peak of hyperinflation)
In November of 1923, a new form of currency was introduced, called the Rentemark.
It was backed by 3.2 billion worth of government land, and returned stability to the economy.
Conversion Rate (in November, 1923)
1 US Dollar = 4.2 Rentemarks
1 Rentemark = 1 Trillion Marks (1,000,000,000,000)
