German Hyperinflation 1922

Hyperinflation 2 of 2 German hyperinflation

Within a span of two years, the cost to buy a German stamp increased from 20 pfennigs to over 500 billion marks. As a result of this uncertainty, lenders charged sky high interest rates to compensate the seemingly unending downward spiral of their currency. A US 1 cent in 1923 could buy a box full of German Marks that would cost as much as 760 billion marks. There are accounts stating that a box of German marks can be left out in the open and nobody would claim the cash but instead, take the box that houses it which is worth a lot more and a lot lighter for trade. What caused this hyperinflation is subject to debate. Among the notable facts contributing to the hyperinflation were, the extremely fast issuance of new German marks by the government to keep up with the rising zeros, workers were paid daily and would rush to the market to exchange it right away for food, before the price would go up again. Zeros became the new symbol of the collapse of the German capital markets.

The inflation took a very big toll, the death rate in Germany rose and the birthrate collapsed. This was quoted as an “economic massacre” for the middle class and other people who depended mainly on fixed income. The inflation ended in November 1923 and by 1924, the United States loaned $200 million to Germany to aid its return to the gold standard. The mark was replaced with a new currency, the Rentenmark. The new mark was based on real estate and it successfully traded for 4.2 to the US dollar. This new currency however, is just an adjusted, government controlled attempt to mask the inflation that occurred in their country. A single Rentenmark has a value of 1 trillion old marks. This resulted to a 4.2 Rentenmark exchange rate to the dollar as the old Mark trades for 4.2 trillion marks to buy one US dollar.
This economic depression paved the way for political extremism in Germany that probably set up Adolf Hitler’s rise to power.

The hyperinflation did not occur exclusively in Germany, the Great worldwide depression was also underway. Germany was among the countries that got hit the hardest along with France, Belgium, Italy and Spain. These countries saw a drop in their purchasing power to as much as 20%. Some countries such as Great Britain curbed their inflation by returning temporarily to the gold standard. Economists’ point of view about the cause of hyperinflation varies capital markets have yet to learn from the lessons of yester years. Latin America also suffered from hyperinflation in the 1980’s. The most recent one, the Zimbabwe hyperinflation in 2008, has almost the same structure and stages from that of other inflation scenarios. Today, inflation is kept in check by reducing the supply of money. This is done through carefully planned fiscal and monetary policies by limiting the supply of money at a considerable level.

Hyperinflation 2 of 2 German hyperinflation

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