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What happens to currency when a country seizes to exist?

Categories : Cash connects people, Cash is a symbol of national sovereignty
August 28, 2018
Tags : Currency, Germany, Inflation
There are many cases in history where a country ceases to exist literally overnight, but what happens to its currency? Read the case of the DDR, or the reunification of Germany.

We use cash every day regardless of its form and assume that its value is infallible, yet there have been situations in history that show how monetary policy can radically change a currency’s value.

Honouring the 28th anniversary of the monetary union between East and West Germany, the news site Deutsche Welle published an article as a reminder of the difficulty of unifying two radically different economies – and currencies – practically overnight.

The losers of this historical fairy-tale were the East Germans who saw their currency, the Mark Der DDR, become worthless in less than 6 days – the time West German Chancellor Helmut Kohl allowed for his eastern neighbours to convert their saving into to the West Mark. East Germans had no exchange bureaux available and were therefore required to carry out the timed exchange via a bank account. This inevitably resulted in hundreds of thousands of individuals and businesses seeing their savings evaporate into thin air, not having made it to the exchange counter on time or being unbanked.

The question is: where did all those Marks Der DDR go once they were exchanged for the generous rate of 1:1? According to Deutsche Welle, “620 million notes with a value of 17.8 billion marks were deposited for exchange. In total, 431 billion East German marks were exchanged for the West mark, 62 billion of those at a 1:1 exchange rate, the rest at the higher 2:1 ratio. Suddenly banks were inundated with worthless currency and had to find a solution. Coins weighing 450,000 tons and nominally worth 640 million marks were simply melted down right away for their metal — mostly aluminium.”

The Deutsche Bundesbank hid the paper banknotes in a tunnel near Halber Stadt hoping that over time they would simply decompose and disappear. That never happened and, following a number of thefts, in 2002 the government decided to act quickly. Costing an estimated €500,000, the destruction process took 298 truckloads carrying 3,000 tonnes of cash to incinerators to finally close this chapter of German history.

To read the entire article on the subject, please click here.

This post is also available in: Spanish