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Hyperinflation in the Weimar Republic

Hyperinflation in the Weimar Republic was a three-year period of hyperinflation in the Weimar Republic of Germany between June 1921 and January 1924. It caused considerable internal political instability in the country, the occupation of the Ruhr by foreign troops as well as misery for the general populace.

To pay for the large costs of the ongoing First World War, Germany suspended the gold standard (the convertibility of its currency to gold) when the war broke out. Unlike the French Third Republic, which imposed its first income tax to pay for the war, German Emperor Wilhelm II and the German parliament decided unanimously to fund the war entirely by 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 it would be able to annex resource-rich industrial territory in the west and east. Also, it would be able to impose massive reparations on the defeated Allies. The exchange rate of the mark against the US dollar thus steadily devalued from 4.2 to 7.9 marks per dollar. (It was only after the war that the extreme hyperinflation occurred.)

The strategy backfired when Germany lost the war. The new Weimar Republic was now saddled with a massive war debt that it could not afford. That was made even worse by the fact that it was printing money without the economic resources to back it up. The Treaty of Versailles further accelerated the decline in the value of the mark so 48 paper marks were required to buy a US dollar by late 1919.

German currency was relatively stable at about 90 marks per dollar during the first half of 1921. Because the Western Front was mostly in France and Belgium, Germany came out of the war with most of its industrial infrastructure intact. It was, in fact, in a better position to become the dominant economic force on the European continent.