Modern Economic Nonsense — The era of currency debasement

xuanling11
Coinmonks
Published in
6 min readJun 27, 2022

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In the early 1900s, many countries struggled to pay for the Great War. Germany was no exception. By November 1918, reparations payments had pushed the country’s debt to about $25 billion — nearly half its Gross Domestic Product (GDP). Faced with growing national debt and a shrinking GDP, policymakers in Germany turned to another resource abundant in their country: its central bank, the Bank Deutscher Länder (the “Banking League of Cities”). As a result, between 1910 and 1923, German monetary authorities debased their currency at an unprecedented pace. In 1912 alone, they reduced the amount of gold in their coins by 20%. Understanding why this happened helps to understand how central banks operate. A central bank is essentially a commercial bank with one primary objective: keeping inflation low. Commercial banks lend money to businesses and consumers on-demand; if they don’t have enough cash on hand to make those loans, they get a loan from a lender like a securities broker or insurance company that has more cash than they need. The commercial bank expects to be paid back with interest within six months to a year — not so for a central bank lending money through its own operations. The result? A scarcity of cash for everyday transactions — and thus higher prices for goods and services — as people spend more of their money paying off existing debts instead of buying things…

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