German inflation crisis (jan 5, 1918 – apr 19, 1924)
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As Germany was a key player in WWI, it had to keep adding on its need for money initially on the war itself and afterwards the reparation the Allies had imposed on Germany from the Treaty of Versailles. Since Germany believed they would win the war then pay back the debt, they continuously borrowed large amounts to support their supplies. Germany began to buy foreign currency with marks at any price, but that only increased the speed of breakdown in the value of the mark. As the mark sank in international markets, more and more marks were required to buy the foreign currency that was demanded by the Reparations Commission. This created a bubble like inflation on Germany’s currency. The cause of the immense acceleration of prices seemed unclear and unpredictable to those who lived through it, but in retrospect, it was relatively simple. 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,[13] 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. Hyperinflation affected Germany and the citizens in a massive way, as prices of food and basic supplies rose by the hour. Society itself became very unstable as to fear their money would turn less and less valuable by the second.
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