The gold mark of Imperial Germany, the ancestor to the Deutsche Mark, burst upon the world in 1871 with the adoption of the gold standard in imperial Germany.
Before “iron and blood” (John Maynard Keynes in the Economic Consequences of Peace ) forged the German Reich in 1871 from 30 loosely confederated independent states, Germany was split into seven separate currency areas. Six of the areas were on a silver standard and one was on a gold standard. Soon after the Zollverein, the German customs union, first began to emerge in 1818 pressures arose for a unified German coinage and monetary system. In 1837 southern members of the Zollverein established the gulden or florin, equivalent to 1/24.5 Cologne mark of silver, as a common monetary unit. Northern members in 1838 responded with the adoption of the Prussian thaler, fixed in value at 1/14 Cologne mark of silver, as a common unit of currency. The Dresden convention fixed the exchange ratio at 4 thalers to 7 gulden. In 1857 the members of the Zollverein and Austria formed a coinage union that replaced the Cologne mark of silver with a Zollpfund (customs union pound) of 500 grams. The Zollpfund was equivalent to 30 thalers, 52 1/2 South German florins, or 45 Austrian florins, with each currency unit convertible to the other at the fixed ratio. Austria dropped out in 1866, leaving two rival monetary units, the thaler and the gulden, competing for the monetary hegemony of the members of the Zollverein. German commercial interests continued to push for a unified monetary system based upon one currency rather than multiple currencies trading at fixed exchange rates.
Following the formation of the Reich in 1871 the German government enacted monetary reform that put Germany on the road to the gold standard, and establishment of the mark as the money unit of account. The mark had been a money of account on the Hamburg exchange, equivalent to one-third a Prussian thaler. On 4 December 1871 the German Reichstag enacted monetary legislation, the first three sections of which read:
- There shall be coined an imperial gold coin, 139 1/2 pieces of which shall contain one pound of pure gold.
- The tenth of this gold coin shall be called a “mark” and shall be divided into one hundred “pfennige.”
- Besides the imperial gold coin of 10 marks (Sec. 10) there shall be coined imperial gold coins of 20 marks, of which 69 3/4 pieces shall contain one pound of pure gold.
- (Laughlin, 1968)
On 9 July 1873 the Reichstag took action that officially put Germany on a gold standard. The first section of the act read: “Sect. 1. In place of the various local standards now current in Germany, a national gold standard will be established. Its monetary unit is the ‘mark,’ as established in Sec. 2 of the law dated December 4, 1871” (Laughlin, 1968).
A war indemnity that Germany extracted from France after the Franco-Prussian War helped furnish the gold reserves that enabled Germany to adopt the gold standard. Germany also began selling silver to bolster its gold holdings. Either Germany correctly saw the coming of the gold standard, and was only acting in step with the times, or perhaps the commercial success of England had elevated the prestige of the gold standard in the eyes of Germany.
At the time of Germany’s monetary reform, England and Portugal were the only countries on a gold standard, which is why Germany’s action was of an extraordinary nature. The gold standard became virtually universal in Europe between 1875 and 1880. The United States went on a de facto gold standard in 1879, Austria-Hungary adopted the gold standard in 1892, and Russia and Japan in 1897. The era from 1875 until 1914 is regarded as the golden era of the gold standard.
The mark of imperial Germany lasted until the monetary reform that followed Germany’s episode of post–World War I hyperinflation. In 1923 the Rentenmark replaced the mark at a rate of 1 rentenmark to 1,000 million marks. In 1924 Germany enacted another monetary reform that replaced the rentenmark with the Reichmark, and after World War II the reichmark was abolished in favor of the Deutsche Mark. In the post–World War II era the deutsche mark of the Federal Republic of Germany became the strongest currency in Europe. The new European currency, the euro, launched 1 January 1999, will eventually replace the German mark, the French franc, and other major European currencies, if present plans are realized.