A word on currency destruction

Emile Woolf – 2021

When contemplating the elusive art of currency destruction the word “Weimar” is bound to come to mind. The Weimar Republic is an historical designation for the German federal state, its capital in Berlin, that existed from 1918 to 1933. The state was officially the “German Reich”, and was also referred to as the “German Republic.” The term “Weimar Republic” refers to the city of Weimar, where the Republic’s constituent assembly first took place, and its central bank was the Reichsbank.

Its currency from 1919 to 1923 was the “Papiermark”, literally “papermark” (abbreviation“M”), and the expression “not worth the paper it’s written on” is an apt metaphor for how it finished up.

Regarding causal circumstances, we can begin by citing allegations that Germany had failed to meet its WW1 reparation commitments leading to the early 1923 occupation of the Ruhr, Germany’s industrial heartland, by Belgian and French troops planning to seize factories as compensation. War-worn German resistance to that occupation was weak and amounted to a policy of passive resistance that brought production to a virtual standstill, forcing thousands to seek relief from their suffering by applying for public income support.

Tax revenues having dried up, the German government was compelled to meet the exponential rise in its welfare costs by the age-old device of money-printing. Unsurprisingly, inflation spiked, the Papiermark went into freefall on currency markets, and foreign currency reserves at the Reichsbank fell dramatically.

The collapse of the Papiermark demanded the introduction of a credible currency. The economic crisis left Germany without enough gold to back a new currency, but knowing that some tangible backing was required if the currency was to be trusted, the German government resorted to their only other possession in fixed supply: the agricultural and business land of Germany. The plan was that this would be mortgaged (rente) to the government to the value of 3.2 billion Goldmarks, now labelled Rentenmarks, giving the state twice-yearly payments by property owners, payable for five years.

The mathematics of the transition from old marks to Rentenmarks may be represented thus: one Rentenmark decreed to be equal to 1012  old marks or, putting it more simply, the removal of twelve zeroes! The exchange rate? One US dollar was to be the equivalent of 4.2 Rentenmarks.

Although the 3.2 billion Rentenmark banknotes were not initially declared legal tender, what always matters in such circumstances is that they were accepted by the German people, and its purchasing power remained relatively stable. In 1924 the Rentenmark was renamed the Reichsmark. The German hyperinflation was terminated at a stroke.


Emile Woolf 2021