PPT on Hyperinflation in Germany by Jayshree Kotak from Somaiya College

1. Presentation
by
Jayshree Kotak
K.J. Somaiya College of Arts and
Commerce
Department of Economics

3. Why Germany signed Treaty of Versailles?
Why Germany denied to pay reparations?
Why France took possession of factories
of Germany?
Why Germany Government started
printing currency notes in printing press
in day and night?
How Germany recovered from
hyperinflation?

4.  According to some Country like France, Britain,
and Belgium , Germany was responsible for first
World War WWI
 France Britain had to pay war debt and loan
interest to United States
 The Treaty of Versailles, signed in June 1919 at the
Palace of Versailles in Paris at the end of World War
I, codified peace terms between the victorious
Allies and Germany. The Treaty of Versailles held
Germany responsible for starting the war and
imposed harsh penalties in terms of loss of territory,
massive reparations payments and demilitarization.

5. The Treaty of Versailles held Germany
responsible for starting the war and imposed
harsh penalties in terms of loss of territory,
massive reparations payments and
demilitarization.It means Germany had to pay
loss suffered by British and France (massive
reparations payments ) also reduce its military
powers... :Germany had to pay 132 billion gold
marks (US$33 billion) in reparations to cover
civilian damage caused during the war. After
signing treaty of Peace (Treaty of Versailles) it
was difficult for Weimar government of
Germany to pay off amount for reparations

6. Economic crisis started in Germany( Because It was found
that throughout the war, the value of the German
currency, the Reichsmark, fell considerably, for example In
1914, one British pound was equal to twenty German
marks. In 1919, one British pound was equal to 250 marks.
To try and meet the requirements of government spending
and alleviate the post-war situation, the government had
little choice but to print more money. This in fact made
the inflationary situation worse and again reduced the
value of the Reichsmark . Meanwhile, in the midst of this
economic crisis, Germany continued to attempt to pay the
reparations as dictated by the Treaty of Versailles. The
reparations had to be paid in gold marks, which maintained
its value, whilst the German currency declined. This made
it more and more expensive to pay. )

7. In 1922, Germany requested
permission to suspend their
payments whilst their economy
recovered. This was refused by
the Allies. By 1923, Germany
reached breaking point as
inflation started to run out of
control. They were unable to
continue paying
reparations.When Germany

8. In response, France and Belgium
sent troops into Germany’s main
industrial area, the Ruhr Valley.
Their aim was to confiscate
industrial goods as reparations
payments as they didn’t believe
Germany was unable to pay the
second instalment. They occupied
coal mines, railways, steel works
and factories – all things that were
important to Germany’s economy.

9. The German government ordered workers to
follow a policy of ‘passive resistance’ –
refusing to work or co-operate with the
foreign troops and in return the government
continued to pay their wages. The more
money that the government printed, the more
the money became worthless. This meant
that, when other countries exchanged their
money to Reichsmarks, it wasn’t worth
anything. As a result, imports to Germany fell
and the shortages became worse. Germany
could not import the goods it needed for
survival.

10. Value of one gold mark in paper Marks

11. By July 1922, the German Mark fell to 300
marks for $1; in November it was at 9,000
to $1; by January 1923 it was at 49,000 to
$1; by July 1923, it was at 1,100,000 to $1.
It reached 2! 5 trillion marks to $1 in mid-
November 1923, varying from city to city.So
the printing presses ran, and once they
began to run, they were hard to stop. The
price increases began to be dizzying. Menus
in cafes could not be revised quickly
enough.

24. The Treaty of Versailles imposed a huge debt on Germany that could be paid
only in gold or foreign currency. With its gold depleted, the German government
attempted to buy foreign currency with German currency equivalent to selling
German currency in exchange for payment in foreign currency, but the resulting
increase in the supply of German marks on the market caused the German mark
to fall rapidly in value, which greatly increased the number of marks needed to
buy more foreign currency.
That caused German prices of goods to rise rapidly, increasing the cost of
operating the German government, which could not be financed by raising taxes
because those taxes would be payable in the ever-falling German currency. The
resulting deficit was financed by some combination of issuing bonds and simply
creating more money, both increasing the supply of German mark-denominated
financial assets on the market and so further reducing the currency's price.
When the German people realized that their money was rapidly losing value, they
tried to spend it quickly. That increased monetary velocity and caused an ever-
faster increase in prices, creating a vicious cycle.
The government and the banks had two unacceptable alternatives. If they
stopped inflation, there would be immediate bankruptcies, unemployment,
strikes, hunger, violence, collapse of civil order, insurrection and possibly even
revolution. If they continued the inflation, they would default on their foreign
debt.
However, attempting to avoid both unemployment and insolvency ultimately
failed when Germany had both.

25. Falling Value of the Reichsmark
Daily Hardship :
Savings
Debts and Loan
• Important stopped as value of domestic currency
was high . It was difficult to buy foreign exchange as
foreign countries lost faith in German currency.
• Production reduced, there by supply of goods <
supply of money.... Or supply of goods < Demand for
Goods

26.  Never over print money but follow the policy of
Deficit budget by taking internal as well External
Debt.
 This Debt can be paid once economy grows by
Revenues generated from imposition of taxes and
other sources of income.
 Encourage more production by public as well as
private sector. (Supply of Goods >Supply of Money)
 Increase supply of money ie speed of circulation of
money from one hand to another hand must
increase. Private spending/Consumption should be
encouraged.

27. On 15 November 1923 decisive steps were
taken to end the nightmare
of hyperinflation in the Weimar Republic:
The Reichsbank, the German central bank,
stopped monetizing government debt, and
a new means of exchange, the
Rentenmark, was issued next to the
Papermark (in German: Papiermark)

28. THANK YOU