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Bitcoin, Weimar Germany and the value of a fixed monetary supply

Jens Parsson documents hyperinflation in the German Weimar Republic in his book The Dying of Money. At that time, the German government:

  1. had a lot of debt (from the Versailles treaty that followed World War I), although it wasn’t paying off much, and

  2. was spending heavily to rebuild the country by running a big budget deficit.

The result was:

  1. The foreign exchange rates of the Deutschmark fell.

  2. Inflation started picking up inside Germany (while it was stabilising in other countries by the early 1920s).

  3. Inflation made it hard for the German government to raise debt, so they had to print money to keep funding rebuilding – thus entering an inflationary spiral.

Ultimately, inflation only ended when the German government i) started balancing its budget and ii) decreed that the new Deutschmark would have a fixed supply (it eventually was fixed at an exchange rate of 1 trillion to 1 against the old Deutschmark).

Weimar Germany therefore provides an example of a fixed monetary supply as a tool to engender trust in monetary supply.

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