PART ONE
THE WORLD'S MOST FAMOUS
CASE OF
HYPERINFLATION
Presented By
THE GREAT WAR
The Great War ended on the
11th hour of November 11th,
1918, when the signed
armistice came into effect.
Though this peace would signal
the end of the war, it would
also help lead to a series of
further destruction: this time,
the destruction of wealth
and savings.
The world's most famous
hyperinflation event, which
took place in Germany
between 1921 and 1924,
was a financial calamity that
led millions of people to have
their savings erased.
THE TREATY OF
VERSAILLES
Five years after the war began with the assassination
of Archduke Franz Ferdinand, the Treaty of Versailles
was signed, officially ending aggressions between
Germany and the Allies.
THE TERMS OF THE AGREEMENT
FORCED GERMANY TO:
Accept blame
for the war
1
Agree to pay £6.6
billion in reparations
(equal to $442 billion
in USD today)
2
Forfeit territory in
Europe as well as
its colonies
3
Suspend their airforce
and submarine fleet,
as well as limit their
army and navy
4
Demilitarize the
Rhineland, a strategic
area bordering France
and other countries
5
I believe that the campaign for securing out of Germany
the general costs of the war was one of the most serious
acts of political unwisdom for which our statesmen have
ever been responsible.
John Maynard Keynes
Representative of The British Treasury
Keynes believed the sums being asked of Germany
in reparations were many times more than it was
possible for Germany to pay.
He thought that this could create great
instability within the global financial system.
THE CATALYSTS
1
CONVERTIBILITY SUSPENSION
Germany had suspended the Mark's convertibility into
gold at the beginning of war. This created two separate
versions of the same currency:
GOLDMARK
The Goldmark refers to
the version on the gold
standard, with 2,790 Marks
equal to 1 kg of pure gold.
1 USD
4 GOLDMARKS
1 POUND
20.43 GOLDMARKS
PAPIERMARK
The Papiermark refers
to the version printed on
paper. These were used
to finance the war.
Fearing that Germany would run the
printing presses, the Allies specified that
reparations must be paid in Goldmarks
and raw materials of equivalent value.
HEAVY DEBT
2
Even before reparations, Germany was
already in significant debt. The country
had borrowed heavily during the war
expecting to win, and leaving the
defeated to repay the loans.
Adding together previous debts
with war reparations, debt exceeded
Germany's GDP.
3
INABILITY TO PAY
The burden of payments was high.
The country’s economy had been damaged
by the war, and the loss of Germany’s richest
farmland in West Prussia and the Saar
coalfields did not help either.
Foreign speculators began to lose confidence
in Germany's ability to pay, and started betting
against the Mark. Foreign banks and businesses
expected increasingly large amounts of German
money in exchange for their own currency. It
became very expensive for Germany to buy
food and raw materials from other countries.
Germany began mass printing
bank notes to buy foreign
currency, which was in turn
used to pay reparations.
4
INVASION OF THE RUHR
After multiple defaults on payments of coal and
timber, the Reparation Commission voted to
occupy Germany’s most important industrial lands,
The Ruhr, to enforce the payment of reparations.
DE NM A R K
French and Belgian troops invaded in January
1923 and began The Occupation of The Ruhr.
W ES T
P RUS S I A
GERMAN
TERRITORY
POLAND
BE LGIUM
UP P ER
S I L ES I A
LUXE M BOURG
CZ ECH O S LOVA KI A
F RA N CE
H UN GA RY
AUS TR I A
SWITZE RLA N D
German authorities promoted the spirit of
passive resistance, and told workers to “do
nothing” to help the invaders.
In other words, The Ruhr was on a general
strike, and income from one of Germany’s
most important industrial areas was gone.
On top of that, more and more banknotes
had to be printed to pay striking workers.
HYPERINFLATION
PA P I E R M A R K S
1,000,000,000,000
By the end of 1923, it
took 1 trillion Papiermarks
to buy a single Goldmark.
Just two calendar years after the end
of the war, the Papiermark was worth
10% of its original value.
100,000,000,000
10,000,000,000
1,000,000,000
All cash savings had lost their value,
and the prudent German middleclass
savers were inexplicably punished.
100,000,000
10,000,000
1,000,000
100,000
VALUE
10,000
O F O NE GO L D MA RK
IN PA PIERMA RKS
1,000
100
10
1
1918
1919
1920
1921
1922
1923
LEARN ABOUT THE EFFECTS OF GERMAN
HYPERINFLATION, HOW IT WAS CURTAILED, AND
ABOUT OTHER FAMOUS HYPERINFLATIONS IN
PART 2.
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