How Hyperinflation Overcome Central Europe During The 1920s?

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How was hyperinflation overcome in Central Europe during the 1920s?

Introduction

Hyperinflation is a rare economic phenomenon where inflation becomes out of control. The confidence in the country’s currency reduces significantly leading to a dramatic increase in the prices of goods and services, rising by 50 percent per month. Hyperinflation is often considered to be a manmade disaster. There are several theories explaining the causes of hyperinflation:-

1. Rational expectations theory, popularized by T.J. SARGENT, explains that based on their own rational thinking, past experiences and presently available information regarding government’s monetary and fiscal policies, the public starts expecting prices to rise in the future. This
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Post First World War, many of the European countries had not returned to gold standard like Germany, Austria, Hungary and Poland. The economies of these countries operated with fiat money which was not backed by any commodity like gold, silver etc. This led to governments printing new unbacked money to finance government deficits which ultimately led to hyperinflation. The leads to the question what were the various economic policies and actions taken by the governments to end hyperinflation in their respective countries.

Germany
Starting in June, 1921, the period of hyperinflation in Germany lasted till January, 1923. Germany had financed the war through borrowings rather than levy of taxes, a decision criticized by many economists (?). Germany’s strategy to pay off the debts after the war by winning it and imposing huge reparations on the losing countries (better word?) backfired when Germany lost the war. Germany’s already vast debts coupled with enormous war reparations forced Germany to print more unbacked money to pay off its debts. The “London Ultimatum” demanded an annual payment of 2 billion goldmarks plus 26% of value of Germany’s exports. After the payment of the first instalment, German currency devalued to 330 marks against US Dollar (Thomas J. Sargent;” The Ends of Four Big Inflations”). Total reparations being demanded was 132 billion goldmarks of which Germany had to pay only 50 billion (Marks (1978), p. 23). As
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