Hyperinflation affected the German Papiermark, the currency of the Weimar Republic, between 1921 and 1923, primarily in 1923. It caused considerable internal political instability in the country, the occupation of the Ruhr by France and Belgium as well as misery for the general populace.
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 believed that it would be able to pay off the debt by winning the war and imposing war reparations on the defeated Allies. This was to be done by annexing resource-rich industrial territory in the west and east and imposing cash payments to Germany, similar to the French indemnity that followed German victory over France in 1870. Thus, the exchange rate of the mark against the US dollar steadily devalued from 4.2 to 7.9 marks per dollar, a preliminary warning to the extreme postwar inflation.
This strategy failed as Germany lost the war, which left the new Weimar Republic saddled with massive war debts that it could not afford, totaling 132 billion gold marks (US$33 billion ), later revised under the Young Plan to 112 billion marks (US$26.3 billion ). The debt problem was exacerbated by printing money without any economic resources to back it. The demand in the Treaty of Versailles for reparations further accelerated the decline in the value of the mark, with 48 paper marks required to buy a US dollar by late 1919.