With the end of the First World War, the countries involved in the conflict faced considerable problems. They were all indebted (outside the US) and did not have the funds to repay their obligations. The Entente’s countries were owed to the United States, and the Central (Germany, Austria-Hungary) to their own citizens. What adds spice to the post-war battlefield (and also gave verbal ammunition to nascent extremism) is the fact that the central states in the last period of the war were in a better financial condition than their opponents.
According to the logic of the old saying, however, there are losers, not winners. The Entente decided to give their enemies post-war reparations. In the Versailles Treaty, which was to regulate the peace conditions after the war, a division of damages was agreed. The most – as much as 52% – were granted to France, 22% to Great Britain, 10% to Italy, 8% Belgium, 5% to the Kingdom of SHS (later Yugoslavia), and modest 3% to other countries. The incurred losses were estimated at 125 billion dollars, but the allies reasonably decided that this amount is impossible to collect. Finally, it was not until 1921 that the amount of German reparations was set at 31.5 billion dollars. Of course, the Germans were not able to repay this amount, which was also the cause of numerous further conflicts and economic conferences, but this is not our cycle. Let’s get back to the problem of money.
Stablecoin needed immediately!
The need to have stable currencies is not just a problem of the current crypto market. In 1920, an international conference was organized in Brussels. For political reasons, it deprived Germany, Bolshevik Russia and the USA. The theme of the meeting was the idea of returning to the gold standard and stabilizing the currencies. Among the postulates were also issues of monetary deflation and the introduction of balanced budgets. First of all, they wanted to reduce the circulation of money and return to its convertibility to gold according to the rules that were in force before the outbreak of the war. The idea was lofty but unrealistic to implement. Gold resources were too small to cover the demand for money that was needed on the markets at that time. If something is not enough, you can always produce something in greater quantity or extract (as in the case of ore) – someone smart will now answer. Unfortunately, it was not that easy. The gold mining fell from 700 tonnes a year before 1914 to 480 tonnes in 1922.
The conference ended with a fiasco. Of course, many interesting ideas were presented to stabilize currencies, but there were no ideas that could come into force in practice.
If nothing could be invented in Brussels, it was necessary to organize … a second conference. In 1922, politicians and economists met in Genoa. This time representatives of Germany and Russia have already appeared, but there are still no US experts. During the debates, it was again recognized that the gold currency is the optimal solution for the economy. Once again, however, it failed to implement practical solutions that would solve the problem. It was only recognized that cooperation between central bank governors of individual countries is desirable. So nothing revealing …
Overall, in the 1920s, countries were coping with the problems of volatile currencies individually. Countries such as Germany or Poland, in which hyperinflation prevailed, introduced entirely new currencies. The United Kingdom and the Scandinavian countries, in which they managed to restore their pre-war exchange rate and return to the gold parity, were in opposition to them.
We wrote about hyperinflation over Poland. In Germany, the economy put Hjalmar Schacht, the currency commissioner of the Reich, on his feet. On November 15, 1923, a rentmark was issued based on a mortgage of public property. Interestingly, it was an internal currency, unchangeable for other currencies. Its existence, unfortunately, did not stop inflation. Therefore, in October 1924, the Reichsmark was issued, which was already a normal, fully convertible currency. Schacht’s reforms coincided with negotiating foreign loans for Germany.
The struggle to re-stabilize the currencies in the victorious countries was also dramatic. In 1926, this was the case with the Belgian franc, but the rate was 14% of the pre-war value. France itself stabilized its currency for a long time, but it managed to do so in the first half of the 1920s. Unfortunately, in 1924, Left Cartel came to power, whose governments re-accelerated inflation. It was only in 1928 that the currency was stabilized there, but at the level of 20% of the pre-war exchange rate.
In 1920, the United Kingdom initiated a deflation policy in order to restore the convertibility of the pound to gold, thereby regaining the prestige and position of the world’s economic leader. Ultimately, this was done five years later. Unfortunately, this decision made the UK an “expensive” country. The pound has become over-valued, strikes and protests have begun to break out in the country.
In December 1927, the course of the Italian lyric managed to calm down, a year later the situation in Greece and Bulgaria, in Romania in 1929, and in Yugoslavia only in 1933! In the fall of Austro-Hungary, Czechoslovakia issued a crown and successfully implemented deflation policy.
As can be seen from the examples above, World War I devastated the economies of individual countries so much that the recovery of the strength of their currencies lasted several – and sometimes a dozen – years after its completion. However, the worst was just before Europe …