Why did World War I victors let Germany pay reparations in German Marks and gave it the option to default via inflation?
score:23
This isn't quite accurate.
After WWI Germany was saddled with two kinds of war debts. The first kind, reparations, were payable to the aggrieved parties. The value of this was set via the Treaty of Versailles in Gold Marks, which are gold backed, and thus cannot inflate or deflate relative to gold.
The second kind was in loans the German government took out from various parties to pay for the war itself. These debt were mostly in papier marks ("floating" paper - not gold backed). The intention was originally to pay back these loans with similar reparations on the allies when they (Germany) won the war. Since that didn't happen, the German government had a serious problem on its hands. The only choices really were either default on the internal debt, or to inflate away the value of those debts. They (probably unwisely) chose the latter.
Upvote:4
Most of the reparations came from cash loans to Germany from New York bankers - whose own promissory notes were backed by a fractional reserve only (i.e. not much gold); especially prior to the 1929 stock market crash when the US money supply grew by 62%.
Most of the remainder came from barter goods (coal, petrochemicals, equipment).
Addendum: The bankers had good reason to believe that Germany would eventually pay its debts, regardless of piffling things like "war" and "suffering", because of the underlying strength of the German economic model. Indeed, even though Nazi Germany reneged on the reparations in the 1930s; Germany resumed payment in the 1950s and finalised all obligations in 2010. That's Lannister-level consistency right there.
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