Currency reform and the Dawes Plan

Stresemann became German Chancellor in August 1923, just

as the hyperinflation crisis continued to worsen.

Various options were considered and attempts made to end the crisis – including the

Notgeld – but all failed. Eventually a new, temporary currency was introduced: the

Rentenmark.

The Rentenmark (divided into 100 pfennigs) helped end the

hyperinflation crisis.

12 zeroes were taken off prices (000,000,000,000) and prices

soon began to stabilise.

One German weekly newspaper, which had cost 1 billion marks

in November, was only 20 pfennigs by December.

Eventually a permanent replacement for the Reichsbank

Mark was introduced – the Reichsmark. A one trillion Reichsbank Mark could be

exchanged for one Reichsmark.

Both Reichsmarks and the temporary Rentenmark currency continued to be used in Germany

until 1948.

Although the end of hyperinflation addressed one

economic problem that Germany faced, it was not the

only one.

Germany now turned its attention to the issue which many considered to be the

cause of hyperinflation: war reparations.

A 1921 agreement had set Germany’s reparations at 226

million gold marks, then reduced that same year to 121

million marks.

There was global recognition that Germany needed help if it

was to not fall back into economic strife, and also to continue to pay reparations.

In 1923, an Allied Reparations Commission tasked an American banker

(and later US vice-president), Charles Dawes, with identifying a solution.

Dawes led a committee of international experts who

eventually settled on various key decisions in 1924.

1. Allied troops were to leave the Ruhr

2. Reparation payments would be 1 billion marks in the first year, and eventually rise to 2.5 billion marks per year

3. All Allies – not just France, as in 1923 – would agree sanctions if Germany failed to pay reparations in future

4. The Allies would re-organise and supervise the Reichsbank

5. Reparation money would come from different sources, including excise and customs taxes

6. The USA would give Germany a loan of 800 million marks to help stabilise the economy and currency

Reparations were not paid in paper money. Instead they were in gold, or payments-in-kind

e.g. coal, products, etc.

The Allies used their reparation payments to pay off war costs, such as pensions, but also to

repay loans which the USA had given them during the war.

The Dawes Plan generally helped Germany as it reduced their payments and US loans help

stabilise their economy. In fact Germany only ever repaid around

an eighth of total reparations.

However it also made Germany over-reliant on US funding,

which became a huge problem during the Depression.

Historians’ views

• Detlev Peukert (1987): The Dawes Plan “granted Germany a reasonable scale of reparations payments” however forced Germany to rely too heavily on US funding.

• Ruth Henig (1998): The Dawes Plan was “beneficial” in attracting funding to Germany but was hated by the right-wing nationalists who condemned it as “enslavement to the allies”.

• Stephen Lee (1998): The Dawes Plan “made the German economy highly vulnerable to any major fluctuations on the American stock market”.