Golden Rentenmark, 2010

Could Gold Bullion do now what the Rentenmark did for Germany in 1923...? WHAT
WAS a "Rentenmark"? asks Julian Phillips at the Gold Forecaster . Here you see a
one billion Mark note, among the last printed notes of the Weimar Republic which
saw the dreadful hyperinflation from WWI's end to August 1923. Further below,
you see the currency that replaced it and which helped terminate the
hyperinflation that infested Europe, but was at its worst in Germany. This was
at a time when gold was completely accepted as money internationally. Due to the
economic crises in Germany after the Great War, however, there was no Gold
Bullion available to back the currency. Therefore the Rentenbank in November
1923 issued the Rentenmark, a currency backed by mortgaged land and industrial
goods worth 3.2 billion Rentenmark. The Rentenmark was pegged to the US Dollar
at a rate of 4.20 RM. Five years earlier, at the end of the First World War, the
Deutschmark had been valued at 4.63 to the US Dollar. But the rate of the
Rentenmark to the Papiermark – Germany's intervening currency – was 1 to
1,000,000,000,000 (1 trillion Papiermark). The Rentenmark was only a temporary
currency and was not legal tender. It was, however, accepted by the population
and effectively stopped the inflation. The Reichsmark became the new legal
tender on 30 August 1924, equal in value to the Rentenmark. Together with the
responsible fiscal policy of Chancellor of Germany Gustav Stresemann and Finance
Minister Hans Luther, it brought the inflation in Germany to an end. The
Rentenbank continued to exist after 1924 and the notes and coins continued to
circulate. The last Rentenmark notes were valid until 1948. Why did it work? The
first question to ask is, how could the German people, so devastated by the
previous abuse of un-backed paper money, have accepted this new piece of paper?
For a start no-one ever has a choice when it comes to everyday cash needs. Even
when Zimbabwean notes were worthless, when they were printed with an expiry
date, the people in that country were forced to use it, by government order. The
Germans had developed all sorts of ways to bypass the use of this paper. And
then the system had flopped. Well before then, foreigners had refused to accept
German paper and the government had sold the German Gold Bullion off overseas.
So what made the German people accept this new paper currency? It was secured
against something the people believed was unprintable and valuable, industrial
goods and land. This appeared to strictly limit the volume of money that could
be printed against it. It inspired confidence again. But a closer look showed
why it was credible: It was national money issued by one bank against collateral
that could be handed over in the event of its failure; There was one
jurisdiction that imposed laws over the money and the assets involved; It was in
a region where the issuers could be held accountable and holders of the paper
were essentially government/ mortgage bank creditors. While it worked and
inspired confidence, however, it only did so inside Germany! A foreigner would
not have been welcome with such notes, to go to court against the government so
he could seize the assets. To go up against a government on its turf is never
wise. The national nature of the money limited it to within Germany's borders.
Anybody seizing assets of Germany outside the country would have a chance,
because the matter would have to be decided outside Germany's Jurisdiction,
where the country would simply be a debtor of the foreigner. At that time,
Germany did not have overseas assets anymore. Currency, or government issued
paper can only succeed when it is trusted and reliable. The moment it loses that
trust and reliability as the Weimar Republic money had, it is worthless! Today
such a scheme would not work because of the devastation or property values in so
many parts of the world and the dangers that such values would fluctuate too
much. Mr Robert Zoellick has now set the cat amongst the pigeons this week by
suggesting that Gold Bullion should be used as a reference point for currencies
at the current time, a time when confidence in currencies is declining fast. Why
did he choose gold, you may well ask? Yes, it has always been seen as money
except for the last 40 years when the world has trusted the behavior of
governments and their currencies. There is little chance that a Gold Standard
could work in its past form that would be too restrictive of money supply.
Beside the small quantity of gold available would make each piece of gold too
valuable to make it a practical money. But that does not mean to say that gold
could not do the job used in another way. The head of the World Bank suggested
it be used as a reference for currency values, not as money itself. This is
entirely different. What virtues could gold bring to the monetary table? Gold is
internationally accepted and held by central banks; The days when central banks
implied they were going to sell their holdings and assisted the gold price to
fall have passed. Central Banks are either holders or buyers of gold now; Gold
is not vulnerable to a printing press; When economic decay sets in gold is not
affected; Gold is not vulnerable to individual government action except within
the Jurisdiction of that country; With national interests overriding
international interests, international gold will remain respected money when
currencies fail. As such in the international arena, gold's value will reflect
the value of currencies, whether governments like it or not. As such a currency
can be devalued or revalued against gold when comparison to another currency is
inadequate (such as the Dollar being valued against the Euro – with both
suffering one form of monetary decay or another). Just as the Rentenmark
anchored Germany's economy in its post-hyperinflation phase, gold could bring
such an anchor to global money. It will be unpopular until it is sorely needed
because of one or more major nation's profligate behavior regarding their own
currencies. This has already started as we can see in the G-20 nation meeting of
this week. The cautionary note is that it worked because the nation was
desperate having exhausted all other alternatives. This desperation may be
needed before gold takes on that role internationally. Then gold will value each
currency at its internationally exchangeable value. In such a role, you can be
sure that each national government will want to control the gold in its own
Jurisdiction at some point in time! Buying Gold for your own private reserves
today...?