Historical Sketch

In 1871, the North German Federation united with the four southern states of Bavaria, Baden, Hesse, and Württemberg. and the German Empire was proclaimed, in which the constituent states retained formal autonomy under the sovereignty of the emperor. The German defeat in World War I brought the end to the monarchy, and the so-called "Weimar" Republic took over. In 1933, the National Socialists took power and ruled until the German defeat in World War II. For the next four years, Germany remained occupied by the Allied victors and divided into four occupation zones.

Post-war occupation of Germany ended in 1949. In the west, the Federal Republic (FRG) was formed from the US, British and French zones, while in the east, the Democratic Republic (GDR) was proclaimed in the Soviet zone. The partition came to an end in 1990, when the parliament of the GDR decided to dissolve the state and to join the Federal Republic.

Monetary History Overview

In December 1871, a currency law was passed for the Empire that created the 1st German Mark in gold. The Imperial Bank (Reichsbank) began operations in 1876 and issued paper money. Already in 1872, the issuance of gold and silver coins began. They were issued in the name of the constituent states, using standard designs and circulating everywhere. For the first time in German monetary history, the subsidiary coinage was uniform. The gold standard was suspended at the outbreak of the First World War, and the Mark depreciated during wartime. The military defeat and the political instability after the overthrow of the monarchy caused the German economy to collapse. The devaluation of the Mark accelerated in the early 1920s and turned into hyperinflation in early 1923. To stop the development, the 2nd German Mark (Rentenmark = mortgage mark) was created in mid-October as a stable parallel currency. Money issuance was capped by pegging it to a mortgage on commercially used assets, and the exchange rate was pegged to the US Dollar. The Reichsmark continued depreciating for another month until its value stabilized during November. After that, the two currencies had a de facto fixed ratio. The monetary stabilization succeeded, and a year later, in October 1924, the second phase of the currency reform could be carried out. The 3rd German Mark (Reichsmark) got introduced as a gold currency in the standard of 1871, replacing the Mark with twelve zeros removed. The transitional Rentenmark remained in circulation at par with the Reichsmark and got gradually withdrawn. In the economic crisis of the 1930s, the gold standard was abandoned and the Reichsmark got pegged to the US Dollar. Germany did not follow the 1934 devaluation of the US Dollar such that the Reichsmark nominally appreciated against the US currency. The parity remained unchanged after the accession to power of the National Socialists and throughout the Second World War. However, the Reichsmark had become inconvertible in the mid-1930s.

After the defeat in the Second World War, Germany got divided into four Allied Occupation Zones. The operation of the Imperial Bank was suspended by the Allied authorities, and all deposits were frozen. The Reichsmark currency, however, remained in circulation until it got replaced by the currencies of Western and Eastern Germany in 1948.

In June 1948, the Allied Military Authorities of the three Western occupation zones of Germany carried out a currency reform. The Bank of the German States began operations, later renamed into Federal Bank (Bundesbank). The 4th German Mark got introduced as new national currency. The Reichsmark banknotes were exchanged at par up to a threshold, any excess amounts became worthless. Deposits were devalued to 10% and partly confiscated. With a three-days delay, the reform was also adopted in the three Western occupation zones of Berlin. The Mark was pegged to the US Dollar. It was devalued by 20% in September 1949, parallel with the devaluation of the Pound Sterling. Due to the rapid economic recovery in Germany the currency remained stable and even appreciated against the US Dollar during the 1960s. In 1971, the Mark got floated, and Germany joined the European currency system. It is a founding member of the European Monetary Union and has introduced the European Euro in 1999. The German banknotes and coins were withdrawn in 2002.

In October 1990, the German Democratic Republic united with the Federal Republic. Already in July, the two currency systems had been unified. The German Mark replaced the German (GDR) Mark at par, deposits above a threshold were cut by 50%. The former banknotes and coins were demonetized within a week.

Germany joined the International Monetary Fund (IMF) on 14.08.1952.

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