Why Did The Economic Crisis In Germany In 1923 Occur Igcse History Essay

669 words - 3 pages

One of the most obvious reasons for the German hyperinflation of 1923 was the actual cost of the war reparations. The Treaty of Versaille set the reparation costs to be paid by Germany fixed at 6.6 billion pounds sterling. This was seen by Germany and many others as unreasonable, and caused two contributing situations to the hyperinflation. The first of which was that, due to the London ultimatum which demanded that World War I reparations in gold or foreign currency be paid in annual installments of 2 billion gold marks, plus 26% of the value of Germany's exports; it seemed very likely Germany would be unable to afford the annual repayment. This then resulted in major areas of industry being taken instead, such as the French occupation of the Ruhr, which meant in turn that Germany no longer possessed the capability to meet the next annual repayments due to even less means of production. Due to these and a mixture of other reasons, Germany’s export market had lost confidence in its ability to repay the sum, and as a result, foreign banks and businesses expected increasingly large amounts of German money in exchange for their own currency- as they felt the hyperinflation was becoming inevitable at that point. It consequently became very expensive for Germany to buy food and raw materials from other countries, which led to a further increase in prices in Germany, in turn causing even less confidence in the mark as a currency; creating a vicious circle of devaluation.
The German government itself made costly errors in its economic management both during and after wartime. The first example of this was in the removal of the gold standard from the mark in WW1 (Which was itself designed to prevent depreciation of currency as gold is a relatively stable commodity). This was done when war broke out in order to pay for the large costs of the war. This decision to fund the war entirely by borrowing instead of conventionally by tax was made...

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