Germany's 1923 Hyperinflation Crisis: An Unbacked Currency Nightmare - Essay Sample

Introduction

Germany suffered from a disastrous inflation period after the end of World War I. The Germany government's technique of financing the war by printing massive amounts of unbacked currency and borrowing led to the inflationary spiral. The Weimar government's primary crisis happened in 1923 after the Germans failed to make a reparations payment leading to hyperinflation (Sennholz, 2006). Hyperinflation is an extremely high and hastening inflation as it erodes the local currency value, often resulting from the increase in prices of all goods. Inflation for economic and political reasons deviates from bearable levels to the level that it has a severe negative impact on the living standards of many people. Thus, during the hyperinflation, many Germans, especially those on fixed pensions and income, underwent great adversities and lived in decreased situations. The hyper-inflation paralyzed Germany, and only the issuing of a wholly new currency and foreign loans reinstated confidence and terminated crisis.

Is your time best spent reading someone else’s essay? Get a 100% original essay FROM A CERTIFIED WRITER!

Save 25%

Factors that Led to Hyperinflation

Germany was experiencing high inflation levels due to the augmenting government debts and impacts of the war. The Imperial German government had a massive deficit as a result of funding its war. The government started a strategy of excessive printing of currency, resulting in much money in circulation. At the end of the war, Weimer, the new German government, continued with the extreme printing policy to aid the struggling economy. They believed that devaluing their exchange would assist the industrial sector of Germany in reestablishing as the export prices would be more appealing to foreign investors (Sennholz, 2006). The devaluing of cash led to the ruin of taxable profit in the form of pensions, annuities, bonds, and mortgages, which minimized government income.

The rise in prices of goods did not match with an increase in wages, making the consumer spend less on products. As wages increased more progressively, it was more challenging to maintain high prices. Employees during the payday could reach the stores when the exchange rate was lower. According to daily history (2019), prices increased to irrational sums, and at the end of the hyperinflation period, a loaf of bread could cost a lot of billions. The central bank stopped investing in the bill design and their published aspects as it was not valuable to generate counterfeit bills.

Germany, during World War I, was forced to pay enormous reparations for the damage caused to Belgium and France. The payments of the reparations led to the adverse balance of payment. Hence, the Weimar government faced challenges receiving credit in foreign countries to support industries that could inject cash into the economy required to create payments. The domestic debts experienced during the war led to economic maneuvering.

Arresting the Hyperinflation

Germany's experience with hyperinflation was a steady procedure and took some time to peak. After several failed efforts to improve the progress, the Weimar government in 1923 developed a new currency referred to Rentenmark, which was issued after the Papermark. The German's central bank Reichsbank, stopped financing government debt. These actions thrived in arresting hyperinflation.

Economic and Social Consequences

Foreign exchange was almost impossible during the hyperinflation crisis. As a result, German conglomerates found it challenging to make a trade with foreign countries (Llewellyn &Thompson, 2019). Unable to obtain foreign currency or gold, the Weimar government was incapable of meeting the installments of the reparations. Some individuals claimed the government had purposely damaged the economy of German as a remonstration against Allied reparations.

Public servants also suffered daily hardships because upsurges in their incomes failed to match with the private sector. The rise of food shortage and extreme poverty meant that many individuals became ill and malnourished as they lacked sufficient funds for maintenance, especially for the pensioners, students, or the sick. Many of these individuals accused the government of their troubles (Trueman, 2015). It led to the loss of confidence in the government of Weimar, which was exposed as ineffective and weak after suffering the economic depression.

However, those who progressed better were business owners, farmers, or producers who manufactured and traded vital goods. The value of money varied, while the real value of these commodities did not fluctuate. Also, people who had debts, for instance, paid off their loans quickly, and the people on fixed investors could acquire cheap credit and intensify their holdings. The German exporters of goods and the stock market speculators also benefited after the hyperinflation

Conclusion

In Germany, the hyperinflationary cycle in 1923 occurred at the end of World War I. Also, the Weimar government during that period led to the devaluation of the currency and an upsurge in prices. The factors that led to the devastating cycle include excessive currency printing, reparations, and a rise in prices. These challenges, in turn, led to political violence. The Germany government tried to arrest hyperinflation through introducing Rentenmark currency; hence the central bank ceased monetizing the debts. The Germany people lost confidence with the regime after the government of Weimar was finally able to suppress the cycle of hyperinflationary. Hardships established during the hyperinflation period resulted in numerous rebellions as groups determined to take control of the government.

References

Daily History, (2019). What Were the Causes of Germany's Hyperinflation of 1921-1923? Available at: https://dailyhistory.org/What_Were_the_Causes_of_Germany%27s_Hyperinflation_of_1921-1923%3F. [Accessed 03 June, 2020].

Llewellyn. J &Thompson. S. (2019). The hyperinflation of 1923. Available at: https://alphahistory.com/weimarrepublic/1923-hyperinflation/. [Accessed 03 June, 2020].

Polleit. T. (2013). 90 Years Ago: The End of German Hyperinflation. Available at: https://mises.org/library/90-years-ago-end-german-hyperinflation. [Accessed 03 June, 2020].

Sennholz. F. (2006). Hyperinflation in Germany, 1914-1923. Available at: https://mises.org/library/hyperinflation-germany-1914-1923. [Accessed 03 June, 2020].

Trueman. C.N (2015). Hyperinflation and Weimar, Germany. Available at: https://www.historylearningsite.co.uk/modern-world-history-1918-to-1980/weimar-germany/hyperinflation-and-weimar-germany/. [Accessed 03 June 2020].