Latest / The History of Germany: Kingdoms, War, and Rebuilding Europe — Fexingo History / The Reichsbank: How Germany's Central Bank Fueled Hyperinflation
Transcript
- Lucas: If you've been stepping into history with us episode by episode, you'll remember we talked about the Weimar hyperinflation a while back — when money became literally wallpaper. But we didn't dig into the institution at the center of it all: the Reichsbank. Luna: The Reichsbank — that's Germany's central bank, right? Founded in the 1870s? Lucas: Exactly. The Reichsbank was created in 1875, just after unification, by the Banking Act — Bankgesetz von 1875. It replaced a messy patchwork of regional currencies with a single national note-issuing bank. But its design had a critical flaw: it was legally required to discount government treasury bills — to lend the state money by printing more notes — if the government asked. Lucas: That clause was supposed to be a safety valve for short-term emergencies. But after World War I, the government kept tapping it to pay for war reparations and social programs. By 1922, the Reichsbank was printing money practically on demand, with no gold backing. Luna: So it wasn't just the war reparations — the bank itself was structurally set up to enable inflation. Lucas: Exactly. And its president, Rudolf Havenstein, was a conservative banker who believed the mark would recover on its own if the government just balanced its budget. He didn't see the printing press as the problem — he saw it as a temporary necessity. In 1923, as the mark went from 4.2 to the dollar to 4.2 trillion, Havenstein kept authorizing new notes. Lucas: There's a famous story: in October 1923, the Reichsbank printed a 100-trillion mark note. It wasn't even worth the paper it was printed on. Luna, you've probably seen photos of people burning marks for heat. Luna: Yeah, or using them as wallpaper. But what finally stopped it? Havenstein died in November 1923, right? Lucas: He did — he died of a heart attack in November 1923, just as the crisis peaked. But even before that, the government had created a new institution: the Rentenbank, which issued a new currency called the Rentenmark. It was backed by land and industrial assets, not gold. And a new currency commissioner, Hjalmar Schacht, was appointed to manage it. Lucas: Schacht later became Reichsbank president himself, and he basically did the opposite of Havenstein. He restricted credit, stopped discounting government debt, and stabilized the currency almost overnight. The Rentenmark was introduced at a rate of one Rentenmark to one trillion old marks. Luna: That's a staggering devaluation. But it worked — people trusted the Rentenmark because it was tied to something real. Lucas: It did work, though at a terrible human cost. Savings were wiped out, the middle class was destroyed, and that resentment fueled extremist movements. But the Reichsbank's role in all this is key — it wasn't just a passive victim of politics; its legal structure and leadership choices actively made the crisis worse. Luna: And it's a reminder that central banks have immense power — for good or ill. Lucas: Absolutely. And speaking of that power — we deliberately don't run ads on these episodes. No sponsors, no commercials. If you want to support that choice, the link is buy me a coffee dot com slash fexingo. It's a simple way to keep this history ad-free. Luna: Yeah, it's nice to just talk about the past without interruptions. So — back to the Reichsbank. What happened to it after the Rentenmark? Lucas: Well, the Reichsbank continued to exist, but its role changed. In 1924, under the Dawes Plan, it was reformed to be more independent — it could no longer discount government debt without limit. But then the Great Depression hit, and in 1932, Chancellor Hitler's government pressured the bank to fund rearmament. Hjalmar Schacht, who had returned as president, went along with it at first, but later resigned in 1937. Lucas: The Reichsbank was effectively nationalized in 1939, and after the war, it was dissolved by the Allies. Modern Germany's central bank, the Bundesbank, was created in 1957 with a strict anti-inflation mandate — a direct lesson from the Reichsbank's failure. Luna: So the hyperinflation shaped not just German memory, but the actual design of its banking system. Lucas: Exactly. The Bundesbank's independence and its focus on price stability were a reaction to the Reichsbank's subservience to the government. And that legacy lives on in the European Central Bank today. So when you look at the Reichsbank, you're seeing the origin of both Germany's biggest economic trauma and its most lasting monetary reforms.