what germany printed too much notes and what was its effect
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Hyperinflation affected the German Papiermark, the currency of the Weimar Republic, between 1921 and 1923. It caused considerable internal political instability in the country, the occupation of the Ruhr by France and Belgium 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 France, which imposed its first income tax to pay for the war, German Emperor Wilhelm II and the Reichstag decided unanimously to fund the war entirely by borrowing,[1] a decision criticized by financial experts such as Hjalmar Schacht as a dangerous risk for currency devaluation.[2]
The government believed that it would be able to pay off the debt by winning the war, when 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.[3] The exchange rate of the mark against the US dollar thus steadily devalued from 4.2 to 7.9 marks per dollar, a preliminary to the extreme postwar inflation.[4]
The strategy failed when Germany lost the war. The new Weimar Republic was saddled with a massive war debt that it could not afford. That was worsened by the fact that it was printing money without economic resources to back it.[3] The Treaty of Versailles, with its demand for reparations, further accelerated the decline in the value of the mark, so that 48 paper marks were required to buy a US dollar by late 1919.[5]
German currency was relatively stable at about 90 marks per dollar during the first half of 1921.[6] Because the WWI Western Front had been mostly in France and Belgium, Germany came out of the war with most of its industrial infrastructure intact. It was in a better position to become the dominant economic force on the European continent.[7]
In April 1921, the Reparations Commission announced the "London payment plan", under which Germany would pay reparations in gold or foreign currency in annual installments of 2 billion gold marks, plus 26% of the value of Germany's exports; this was accepted by Germany after an Allied ultimatum the following month.[8]
The first payment was made when it came due in June 1921.[9] It marked the beginning of an increasingly rapid devaluation of the mark, which fell in value to approximately 330 marks per dollar.[5] The total reparations demanded were 132 billion gold marks, but Germany had to pay only 50 billion marks.[10]
Since reparations were required to be repaid in hard currency, not the rapidly depreciating paper mark, one strategy that Germany used was the mass printing of bank notes to buy foreign currency, which was then used to pay reparations, greatly exacerbating the inflation of the paper mark.[11][12]
Late in 1922, Germany failed to pay France an installment of reparations on time, and France responded in January 1923 by sending troops to occupy the Ruhr, Germany's main industrial region. The German government ordered a policy of passive resistance in the Ruhr. Workers were told to do nothing which helped the invaders in any way. What this meant in practice was a general strike. But all the workers on strike had to be given financial support. The government paid its way by printing more and more banknotes. Germany was soon awash with paper money. The result was a hyperinflation.[13] A loaf of bread that in Berlin cost around 160 Marks at the end of 1922 cost 200,000,000,000 Marks less than a year later.[14]
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