Germany is currently the strongest economy in the European Union, and the fourth strongest in the world. In 2017, Germany’s Gross Domestic Product (GDP) amounted to €3.3 trillion.
The history of currency in Europe’s leading nation is incredibly fascinating. Germany’s currency has continually evolved as the country has progressed through times of division, war, recession and hyperinflation.
In this post, we explore the history of Germany and how its currency changed with the times.
The 19th Century
The German Confederation was established in 1815. However, the Confederation did not have a uniform currency. The Confederation was made up of approximately 35 principalities and cities, and they each issued their own coins.
In 1857, the Vienna Monetary Treaty was responsible for a further unification of Germany. It set a currency standard for use across German states – including Austria and Liechtenstein.
As a result, in nearly all parts of the German Federation, there was a uniform silver coin in circulation called the Vereinstaler.
The German Empire
The German Empire was established after the Franco-German War in 1871. As a result, the previous regional currencies were dissolved bit by bit.
The German Empire introduced the Goldmark to the kingdom, which could be divided into one hundred Pfennig. The gold-backed Mark was possible thanks to the French. France had to pay high reparation costs after the war. These payments to the German Empire were made in gold.
The central bank exchanged cash money into an equal amount of gold. This meant that if someone was in possession of a bank note, they had the right to get a certain amount of gold.
The Loss of World War I
There was a huge fall in value of the Mark, thanks to Germany’s high reparation costs after the lost war. On August 4th 1914, the Papiermark came into effect – the link between the Goldmark and gold was abandoned.
Due to its low value, vast amounts of Papiermark were printed to buy foreign currency and repay war reparation costs. As a result, the rate of inflation rose rapidly. Hyperinflation reached its highest point in October 1923. By then, the Papiermark was worth virtually nothing. The following month the Rentenmark was introduced to provide stability. When it replaced the Papiermark, 1 Rentenmark was worth 1 billion Papiermark!
As there was no gold to back the currency due to the economical crisis, it was backed by real goods. The new currency was backed by the land used for agriculture and business, and was subdivided into 100 Rentenpfennig.
But the Rentermark was only introduced as an interim currency, and was expanded by the Reichsmark in 1924. Until the Great Depression in 1929, the Reichsmark was very stable.
World War II
With the unification of Germany and Austria in 1938, the Reichsmark replaced the Schilling in Austria.
During the Second World War, Germany established fixed exchange rates between the Reichsmark and currencies of occupied and allied countries – these rates were often set to give the Germans economic benefits.
But, during the Nazi regime a lot of unbacked money was spent, which was used to finance war. There was renewed inflation, which the German citizens did not realize at first. When World War II ended, among the many consequences for Germany was another economic crisis.
Massive inflation dating back to the latter stages of the war had rendered the Reichsmark nearly worthless. The Reichsmark continued to circulate in Germany for a few years post war, but with a new look. The banknotes had allied occupation marks, and the coins were now without swastikas.
Germans had little voice in government until 1949, when two states emerged.
West Germany was a parliamentary democracy with a capitalist economic system, free churches and labour unions.
East Germany was the smaller socialist republic with its leadership dominated by the Soviet-aligned Socialist Unity Party of Germany.
As a result of the division, another currency reform was undertaken.
In West Germany, the Reichsmark was replaced by the Deutsche Mark. In East Germany, it was replaced by the East German Mark.After experiencing an “economic miracle” in 1955, West Germany became the most prosperous economy in Europe.
West Germany built strong relationships with France, the United States, and Israel. It also joined the North Atlantic Treaty Organization and the European Economic Community (now the European Union).
On the other hand, East Germany stagnated as its economy was largely organized to meet the needs of the Soviet Union.
The East German government started to falter in May 1989. This was triggered by the decay of the other communist regimes in eastern Europe and the Soviet Union. As a result, there was an exodus of thousands of East Germans fleeing to West Germany.
Eventually, in 1990, East and West Germany were reunified to form the united nation of Germany. There was no longer a need for the East German Mark, and the Deutsche Mark became the official currency of Germany.
The Deutsche Mark was the official currency of Germany up until 2002.
Modern Day Germany
In 1999 there was an important change in the German monetary system – the Euro became the new single currency of the European Monetary Union.
This meant that the Euro was now the official currency of Germany, and the Deutsche Mark only existed as ‘book money’. Euro banknotes and coins were then introduced in Germany on January 1st 2002, rendering the Deutsche Mark obsolete.
The exchange rate of Deutsche Mark to Euro was, and still is, 1.96:1. Anyone still in possession of Deutsche Mark can change it to Euro at central banks throughout Germany.
The Euro is now the sole currency in 19 of 28 EU member states. These countries are known as the countries belonging to the eurozone.
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