What Was the Deutschmark?
The deutschemark (or "D-mark") was the official currency of the Federal Republic of Germany until 2002. First issued in 1948, it was legal tender in West Germany, and later, the unified German state until the final adoption of the euro (EUR) in 2002. The official currency code was DEM on forex markets.
- The Federal Republic of Germany, known commonly as West Germany, adopted the deutschemark (DEM) formally in 1948 as its national currency.
- The D-mark was later used in reunified Germany until it was replaced in 2002 by the common euro currency.
- While it was in use, the German deutschemark was a major currency traded on forex markets and seen as a stable, reliable currency throughout much of the 20th century.
Understanding the Deutschmark
Deutschmark coins and banknotes were left in circulation from 1999 until 2002, at which time they were taken out of circulation and ceased to be legal tender. The German central bank, the Deutsche Bundesbank, continues to allow the conversion of the deutschmark into euros. The deutschmark was long-considered one of the most stable currencies, especially compared to the currencies of other European countries.
The introduction of the deutschmark came at the end of World War II in 1948. The currency was a viable alternative currency to the Metallurgische Forschungsgesellschaft (MEFO) bills and the Reichsmark used in the Western Occupation Zone. MEFO bills were a promissory note issued to finance German rearmament in 1934. To hide its illegal rearming, Germany sold the MEFO bills as funding for imaginary businesses. The MEFO bills were themselves, technically promissory notes from such non-existence businesses.
By the end of the First World War, the Reichsmark was unbacked as the Greater German Reich collapsed as the Weimar republic experienced rampant hyperinflation. Simultaneously, the German economy and industrial backbone had collapsed. During the immediate post-war period, most transactions occurred through barter.
The Federal Republic of Germany, known commonly as West Germany, adopted the D-Mark formally in 1949. As a result of this adoption at an exchange rate of 1 D-Mark to 10 R-Marks, caused the acquittal of nearly 90% of both public and private debt. This action helped the economy rebound and avoided the pre-war hyperinflation and wartime and post-war black market which strangled the country during the war years. The Soviet Union, in control of the eastern portion of the territory, saw the introduction of the D-Mark as a threat. This threat caused the closing of all road, waterway, and rail links between the Allied zones and led to the Berlin Blockade.
D-Mark Stability and Its East German Counterpart
The Deutschmark earned a reputation as a reliable, stable currency during the latter half of the 20th century. This stability was due to several factors, including the prudence of the Bundesbank, the national bank of Germany, and the intelligent political interference with the currency.
Compared to the French franc (F) and the Italian lire, German currency retained its value even in times of economic upheaval. In fact, the policies which led to the stability of the deutschmark, form the basis of the current European Central Bank’s policies towards the euro.
Meanwhile, in the communist German Democratic Republic, commonly referred to as East Germany, the Ostmark circulated. This currency was carefully controlled and regulated by the communist government. It was never widely accepted and quickly sidelined.
With the 1990 reunification of the two Germanys, the stronger Deutschmark became the common currency. The unified country began conversion to the euro (EUR) in 1999 and became legal tender in 2002. Unlike other eurozone nations, Germany did not use the Deutschmark and the euro concurrently.