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The nation that experienced extreme hyperinflation, or skyrocketing cost of goods, that contributed to the start of world war ii was GERMANY.
Germany and Hyperinflation: A Summary
- To pay for the large costs of the ongoing First World War, Germany suspended the gold standard (the convertibility of its currency to gold) when the war broke out. Unlike France, which imposed its first income tax to pay for the war, German Emperor Wilhelm II and the Reichstag decided unanimously to fund the war entirely by borrowing.
- The government hoped that by winning the war and levying war reparations on the victorious Allies, it would be able to pay off the debt. This was to be accomplished by forcing monetary payments to Germany, comparable to the French indemnity that followed the German triumph over France in 1870, and annexing resource-rich industrial regions in the west and east.
- As a result, the mark's value decreased gradually against the US dollar from 4.2 to 7.9 marks per dollar, serving as an early warning of the catastrophic postwar inflation.
- Due to the failure of this approach, Germany lost the war, leaving the new Weimar Republic with enormous war debts that it could not pay. These debts, which initially totaled 132 billion gold marks (US$33 billion), were eventually reduced under the Young Plan to 112 billion marks (US$26.3 billion)
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