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German Mark Note from 1923

By September 23, 2020 No Comments

This is an example of a 5 million German Mark note from 1923 when Germany was going through hyperinflation after the First World War when trying to pay off their repatriation debts. The hyperinflation was caused by the German Government printing too much money to try and pay off their debts this caused the money to be worthless which then caused the hyper inflation.

 

To pay for the Large costs of the ongoing First World War, Germany suspended the gold standard (the convertability of its currency into gold) when the war broke out. Unlike France, who imposed its first income tax to pay for the War, German Empoer Wilhelm II and the Riechstag decided unamimously to fund the war by entirely borrowing, a decision criticized by financial experts such as Hjalmar Schacht as a dangerous risk for currency devaluation.

The government believed that it would be able to pay off the debt by winning the war and plundering the defeated allies. This was to be done by annexing resource-rich industrial territory in the west and east and imposing cash payments to Germany, similar to the cash idemnity that followed German victory over France in 1870. Thus, the exchange rate of the mark against the US Dollar steadily devalued from 4.2 to 7.9 marks per dollar, a preliminary warning to the extreme postwar inflation.

 

This strategy failed as Germany lost the war, which left the Weimar Republic saddled with massive war debts that it could not afford, a problem exacerbated by printing money without any economic resources to back it. The demand of the Treaty of Versailles for repatriations further accelerated the decline in the value of the mark, with 48 paper marks required to buy a US Dollar by late 1919.

In April 1921, the “London Payment Plan” ordered the German Government to pay repatriations in gold or foreign currency in annual installments of two billion gold marks plus 26% of the value of Germany’s imports. The first payment was made when it came due in June 1921, and marked the beginning of an increasingly rapid devaluation of the mark, which fell to approximately 330 marks per dollar.

 

By December 1922 the value of the mark fell to 7400 marks per US Dollar. The hyper inflation increased the prices of everyday items drastically, for example, a loaf of bread went from costing around 160 marks at the end of 1922 to costing 200,000,000,000 Marks by late 1923. By the end of November 1923, the US Dollar was worth 4,210,500,000,000 German Marks. This meant that very large notes had to be created which ranged from 50,000 to 50 trillion by 1923.

 

The German Government decided that the only way to solve this was to create a new currency called the Rentenmark which was backed by bonds indexed to the market price of gold. The gold bonds were indexed at the rate of 2790 gold marks per kilogram of gold, the same as pre-war gold marks. The plan was adopted in monetary reform decreaces on October 13-15, 1923. By 1924 one dollar was equivelant to 4.2 Rentenmarks.

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