1922: Hyperinflation

Due to the high cost of war, Austria-Hungary covered spending by printing additional banknotes early on during the First World War. At the same time, the gold holdings of the National Bank were reduced by the withdrawal of gold to pay for deliveries of goods from abroad. The ever-increasing amount of paper money was therefore collateralised to an ever lesser degree with precious metal. This circumstance proved itself problematic for Austria as of the autumn of 1918, since following resumption of payments, the crown currency lost massive value abroad compared to its pre-war value.

This unfavourable situation was worsened by the fact that the government had to continue to print money in order to settle its debts domestically. This, coupled with the problems resulting from the war as well as the critical economic situation, led to an increasing, ever faster devaluation of money (peak was in August 1922 with an inflation rate of 129%). Although this so-called hyperinflation initially boosted the economy (so-called “flight to tangible assets”), it simultaneously devalued all savings and other money-denominated assets. Only with the Geneva Protocol (Genfer Anleihe) in 1922, the radical reorganisation of state finances as well as the introduction of the new Schilling currency (Schillingwährung) in 1924 (exchange rate to the crown 1: 10,000), could inflation finally be stopped.