Wallpapering Rooms with Banknotes
In 1923, Germany experienced extreme hyperinflation. The government printed money rapidly to pay war reparations, causing the German Mark to lose almost all value. Prices doubled every few days. Workers were paid multiple times a day and carried cash in wheelbarrows. Because the paper currency was worth less than firewood, some families actually used banknotes as wallpaper to keep their homes warm.
The Wartime Gamble on Debt
The roots of Germany's hyperinflation began long before the 1920s, originating with the financial strategy used to fund World War I. When the war began in 1914, the German government made the consequential decision not to fund military operations through increased income taxes. Instead, imperial leadership suspended the convertibility of the mark to gold and chose to finance the war almost entirely by borrowing. The government issued massive volumes of war bonds, anticipating that victory would allow them to annex resource-rich territory and impose heavy financial penalties on their defeated enemies to settle the debt.
That calculation collapsed with Germany's military defeat in 1918. By the end of the conflict, the newly formed Weimar Republic inherited a staggering national debt alongside an economy stripped of crucial industrial output. The volume of currency in circulation had grown substantially during the war years, while the purchasing power of the mark had already fallen sharply before the postwar crises even began.
Reparations and Foreign Exchange
The Treaty of Versailles required Germany to pay substantial war reparations to the Allied powers, primarily France and Belgium. These obligations were not payable in domestic paper marks, because foreign creditors recognized the currency was depreciating. Instead, the reparations had to be remitted in gold, foreign hard currencies, and essential physical commodities like coal and timber.
To obtain the foreign exchange necessary to meet these international payments, the German government resorted to selling paper marks on open foreign exchange markets to buy stable currencies like the US dollar and British pound. Flooding international markets with marks caused the exchange value of German paper money to sink rapidly. As the mark plummeted on foreign exchanges, importing food, fuel, and raw materials became immensely more expensive, causing domestic prices inside Germany to accelerate upward.