What replaces money during war and hyperinflation?

On New Year's Day in 1919, Anna Eisenmenger opened a desk drawer in postwar Vienna and stared at her remaining paper kronen, stacked beside unused food coupons. In her diary, she looked at the bills with deep suspicion, asking whether the cash would suffer the same end as the ration slips if the state failed to back its printed promise. People defending practical goods point right to what happened next: a private tradesman refused paper money outright and demanded something of genuine value. To see her family through the winter, she parted with her husband's gold watch in exchange for four sacks of potatoes.

When conflict or systemic collapse destroys a currency, knowing what holds value becomes an urgent matter of survival. In ordinary times, cash works simply as an abstract legal claim from a government. When that trust breaks, people have to rethink what wealth really means. Across modern crises, the goods that preserve purchasing power fall into 4 groups: portable vice items with steady demand, like cigarettes and liquor; non-perishable food staples, like tinned meat, cooking oil, and flour; vital energy goods, including firewood, petrol, and batteries; and lasting stores of wealth, like physical gold, steady foreign cash, and productive farmland.

When official currencies fail, communities spontaneously create commodity money—everyday physical goods that take over the role of cash because of their immediate, practical usefulness, rather than any government decree. That was the story in postwar Germany. With store shelves bare under coupon rationing and fixed prices, cigarettes turned into the main street currency. A single smoke usually traded for 5 to 10 Reichsmarks. During peak shortages, that price climbed to 20.

The sheer speed of a currency collapse can be dizzying. During the runaway inflation in Weimar Germany, Dr. Hjalmar Schacht, who directed currency policy, calculated that the cash needed for one egg in late 1923 could have bought 500 billion eggs at the end of the First World War. We saw that same extreme dynamic return in Venezuela, where in July 2018 an International Monetary Fund forecast warned that price inflation might reach 1 million percent before the year ended.

Supporters of precious metals argue that physical gold and silver remain the safest long-term refuge during an economic crash. They note that sovereign bonds regularly become worthless in a crisis, which pushes the public to stockpile metals that survive regime changes. But defenders of practical survival goods offer a blunt counter: you cannot eat gold, and during acute famine, precious heirlooms face brutal discounts when a family simply needs dinner. How a community moves from abandoning paper bills to adopting an everyday substitute, like packs of cigarettes, starts when the state itself begins to crack.

The breakdown starts because war usually shatters official currencies from within. As finance professor Efraim Benmelech points out, “Wars have been financed mostly through money printing and inflation.” When governments run the presses to fund fighting while civilian production craters, they create a money overhang. That is simply a massive flood of paper chasing scarce goods behind government price caps. Looking at postwar Germany, historian Siegfried Prokop showed how arms funding left behind a huge cash glut that paralyzed commerce across all 4 occupation zones. Because government decrees froze prices at artificial lows, legitimate store shelves were wiped clean, the Reichsmark lost its buying power, and trade moved entirely into illicit channels.

Even when legal money disappears, trade never stops; people invent their own exchange. While imprisoned during the Second World War, an economist from Britain named R. A. Radford documented this phenomenon at Moosburg, a Bavarian camp holding up to 50,000 captured troops. Trading began with basic swaps, like nonsmokers handing over their Red Cross tobacco ration in exchange for chocolate. In under 2 weeks, as relief parcels were distributed, rough exchange values formed across the barracks without any central committee or administrator. Radford noted that a “market came into existence without labour or production.”

Tobacco functioned so well as currency because it checked every box of functional money. As Radford pointed out, cigarettes were uniform, fairly durable, and convenient in size, while historians noted they were not bound to national borders. Crucially, they solved the problem of divisibility—working as loose change single stick by single stick for modest swaps, or bundled into cartons for major deals. On top of their physical traits, they commanded constant, desperate demand. Gerald Tebben once reflected on his own heavy smoking habit, describing running out of cigarettes as an outright disaster that left him ready to do whatever it took for the next smoke. That sheer physical craving turned tobacco into smokable money, an asset trusted simply because there was always someone willing to accept it.

This substitute currency is hardly unique to modern conflict. In colonial Virginia, early settlers relied on tobacco leaves as standard money, eventually using paper warehouse receipts as money when fragile leaves crumbled. That same dynamic returned to occupied Berlin, where an American soldier could pick up a carton of Lucky Strikes at a post exchange—the military retail store known as a PX—for 1 dollar and sell those cigarettes on the street for more than 1,000 marks. Still, barbed-wire barracks and occupied zones at least kept basic roofs and parcel deliveries intact. When kinetic warfare engulfs a modern city and severs public utilities, the test of what holds value enters a far harsher reality.

When fighting engulfs a city, normal economic life fractures fast. Across modern wars, researchers find combat cuts local output by nearly 10 percent, while overall GDP falls around 13 percent on average, with no recovery even a decade out. In Ukraine, economists pegged capital losses at over 950 billion dollars by 2026. That physical destruction tears through public utilities. Skeptics of paper currency point to Sarajevo, where blackouts left families without electricity or running water for months. A United Nations panel reported that severe fuel deficits closed the central bakery and water pumps, forcing residents onto hazardous treks across town to find working taps.

Once municipal networks fail, paper money cannot make tap water flow or heaters run. Trade turns straight to utility goods—everyday items whose worth in an emergency comes entirely from what they can do on the spot. Covering Sarajevo under siege, journalist Carol J. Williams watched foreign correspondents swap creature comforts to cope with shelling and cold. In an exchange that surprised newcomers, she gave up a bottle of contact lens solution simply to borrow a colleague's heater. Jamie Graff of Time magazine offered a small immersion water heater in return for a hot bath and an omelet. At the damaged Holiday Inn, securing an unheated room cost 90 dollars in cash, but the room also cost 2 bottles of spirits and 4 packs of batteries to secure it from a colleague.

Bringing those practical goods into the siege zone meant clearing severe physical hurdles. Relief flights operated by the United Nations refugee agency restricted each passenger's baggage to 20 kilograms, or about 44 pounds. That limit had to include body armor, laptop computers and emergency rations, leaving almost no weight for breakable luxuries like alcohol. And with pipes dry, hotel guests hauled buckets from an outdoor tanker up dark stairwells just to boil water for washing and drinking.

Inside the city, personal labor was priced in vice and energy. When Williams forgot to bring a container, it took two packs of cigarettes to carry water up the stairs with help from a hotel maid. Diverted rations from peacekeeper warehouses—including gasoline, coffee, and cartons of smokes—appeared in informal street stalls at many times what they originally cost. A local resident, Misa Cuk, noted that trading coffee was the only way many families could afford food to stay alive. Fuel trafficking brought even faster windfalls: a trader named Celo observed that moving a single load of petrol overnight brought in thousands of German marks.

Even when fuel could be bought, the price was punishing. Paulo Gonçalves, serving as a United Nations peacekeeper, tracked diesel in Sarajevo selling at 5 euros a liter, or about 6 dollars. When ordinary supplies vanished, residents relied on makeshift substitutes. Drivers re-engineered diesel engines to run on vegetable oil, cooks roasted lentils and acorns when coffee beans disappeared, and families burned household books and scrap furniture to keep warm.

Keeping that trickle of life-saving goods moving relied on an underground lifeline. Beginning in March 1993, crews excavated a passage under the airport runway known as the Sarajevo Tunnel. It went into service on July 1, funneling food, fuel, and medical aid into the city while shuttling thousands of soldiers and civilians. Roughly 30 tonnes of assorted supplies passed through that narrow trench each day. Laborers who carved out that underground lifeline received their wages in 1 packet of cigarettes a day. Practical survival items kept a besieged population alive when municipal systems failed. But what happens when someone tries to spend concentrated wealth like gold in a starving city?

When food supplies fail, people holding gold run into a blunt reality: bullion cannot be eaten. Even so, champions of precious metals argue that gold and silver offer a concentrated store of wealth that outlasts any government. An International Monetary Fund exhibit shows why: after the Second World War, shattered nations urgently needed bullion or American dollars for imports and debt, having spent down reserves to finance the fighting. By 1947, American vaults held 70 percent of global gold reserves. That reliance resurfaces whenever paper money founders. When Zimbabwe's currency tumbled in 2022, central bank governor John Mangudya introduced the Mosi-oa-Tunya coin, minted with 1 troy ounce of 22-carat gold to circulate both at home and overseas.

Occupying armies know how tightly families protect physical wealth, using scarce vices to draw it out. As Vladimir Petrov recounted, “The remarkable value attained by the cigarette provided the Soviet authorities with a new means of extracting from the German population formerly hidden assets.” Gerald Tebben described how Soviet authorities in occupied Germany converted captured tobacco into bullion. They swapped 60 cigarettes for every gram of gold until private holdings dried up, and only then dumped their tobacco onto the black market.

When food runs short, defenders of practical supplies point to a brutal snag: durable wealth collides with what is known as a survival discount. It represents the steep penalty an asset suffers when an owner must trade lasting treasures for a few days of food. In Vienna after the First World War, Anna Eisenmenger watched shopkeepers refuse paper currency entirely. A doctor's wife traded an elegant piano for a single bag of flour. When a farmer heard Eisenmenger's blinded son at their piano, he promised to feed the household for 3 months if they surrendered it. That markdown explains why Eisenmenger traded that gold watch for those four sacks of potatoes mentioned earlier.

Under siege, basic provisions do far more than hold value; their prices go vertical. A price list from besieged Sarajevo showed cooking oil surging to 80 German marks per liter, while tins of chicken luncheon meat and packs of Marlboro cigarettes circulated as regular currency. The same squeeze played out in Venezuela in 2018. Nurse Maigualida Oronoz found that a minimum wage could scarcely purchase a kilogram of meat. As she put it, “We are millionaires, but we are poor.” She warned that while her family could just about eat, “if some health emergency happens we’ll die because the prices of medicines are sky-high and rise every day.”

That desperation created morning queues across post-war Germany. Historian Loren Gatch described how Frankfurt residents queued before dawn outside the Allied exchange center from 1946 onward. They carried heirlooms to second-floor evaluators to earn store credit, trading family treasures for food and tobacco brought in by American personnel. A pound of butter was marked at 16 points, while coffee cost 18. A prized Leica camera fetched enough scrip to equal 23 cigarette cartons. Gold and keepsakes cannot bake bread when kitchens are empty, and parting with them for groceries carries an agonizing toll. Still, once the acute panic of famine eases, how do fixed property and stable foreign banknotes hold up through years of crisis?

Looking across decades, permanent property behaves very differently if a breakdown is just a paper money wipeout rather than a battlefield. If the buildings stay standing while money self-destructs, physical holdings shield wealth remarkably well. In Weimar Germany, a British treasury official named Sir Basil Blackett saw factory owners rescue their fortunes by dumping marks for acreage and heavy equipment. Historian Siegfried Prokop found the exact same split after the second world war: savings-account holders were hit hardest, but people who held warehouses, land, and workshops came through protected.

Under actual bombardment, that fixed wealth suddenly becomes a massive liability. Researchers at the Kiel Institute found that fighting routinely demolishes structures, machines, and basic utilities, dragging down economic recovery for years. In Bosnia, residents like Tarik Kupusovic described having their houses and belongings thoroughly looted and wrecked. When the shelling starts, nobody can fold an apartment block or an assembly line into a bag and run.

That physical exposure is why advocates of foreign paper argue that stable outside cash is the safest portable store of value. When local money fails, societies turn to dollarization, setting aside their own valueless cash to price daily life in a trusted foreign currency instead. In 1995, as United Nations observer Paulo Gonçalves recorded, the German mark became the benchmark people across Bosnia preferred to use. Proponents point out that in besieged Sarajevo, 3 packs of Drina cigarettes traded for around 20 marks.

Supporters of hard currency note that running toward stable foreign paper happens again and again. In 1921, British diplomat Joseph Addison saw German families systematically stocking up on foreign banknotes to protect their wealth. A few years earlier in Vienna, Anna Eisenmenger was urged by her bank manager to switch her savings into Swiss francs. Within a year, the Austrian krone plummeted from 25 Swiss centimes, about 30 cents, down to almost nothing. And when Zimbabwe leaned on the American dollar, or when Venezuelan refugees wove useless bolívar notes into handbags to sell for Colombian pesos, the same instinct was at work.

Skeptics push back that any kind of paper or digital balance breaks down the second public utilities collapse. If the electrical grid and cellular towers go dark, digital tokens cannot move at all, and historical records from modern sieges show zero evidence of digital assets working as everyday money. When the taps run dry and lights go out, commerce shrinks straight to physical survival. That is why in Sarajevo, piles of foreign cash could not beat the sheer utility of two packs of cigarettes to carry water up a dark hotel stairway.

Those pressure points are not just history. In 2026, the International Monetary Fund warned that an era of recurring conflicts is settling in. Managing Director Kristalina Georgieva pointed to a sweeping supply shock after global oil supplies dropped 13 percent and natural gas fell 20 percent. Whenever war disrupts global trade, people reach for concrete, usable goods. But what happens to all that emergency barter money once a credible currency is finally restored?

Emergency money disappears the second reliable currency steps back in. When an economic system falls apart, useful goods look like the only things with any worth. Yet holding onto them comes at a steep price. Physical commodities don't generate any investment yield, they take up room, they cost real money to keep safe, and they spoil. Sharon Ann Murphy, looking back at early American commodity currencies, pointed out that tobacco supplies swung wildly, leaving them totally inadequate as long-term stores of wealth. R. A. Radford watched that exact fragility inside the prisoner of war camps. As soon as parcel deliveries paused, cigarette supplies dried up, prices slumped, and commerce collapsed back into rough barter swaps. That extra purchasing power people attach to a practical commodity vanishes completely once honest money is back on the table.

You could see that collapse happen in real time across Western Germany. In 1948, the Western Allies rolled out the Deutsche Mark, declaring the previous Reichsmark invalid the very next morning. Bank accounts and lifetime savings were reduced to just 6.5 percent of what was on paper. Almost immediately, the country experienced what became known as the shop-window effect—where introducing trusted money brings stashed goods pouring back onto store shelves overnight. That makeshift world where a 'market came into existence without labour or production' melted away. The days of 'smokable money' ended, and the black market dried up almost instantly.

Practical barter goods work like lifeboats, not stores of wealth. In postwar Vienna, Anna Eisenmenger held onto her husband’s cigars, trading them away for meat to keep her family alive through the blockade. But giving up a family heirloom for those four sacks of potatoes was about surviving another week, not building a future. Loren Gatch noted that this kind of cigarette currency collapsed the second legitimate commerce and reliable money returned. After the acute crisis passes, a carton of tobacco is simply a smoke again, not money.

That contrast cuts straight through our natural intuitions. It is tempting to bet that gold is always king in a crisis. But when a city is cut off and starving, precious metal runs into a brutal survival discount, because an ounce of bullion cannot feed a family tonight. On the other hand, betting that only immediate consumables carry value misses what happens next, since barter goods lose their trading power the moment order is restored. Just days ahead of the 1948 reform, Ludwig Erhard cautioned that overhauling a currency is merely a technical step that lays the groundwork for recovery. Rebuilding requires assets that last, mirroring the economist Joseph Schumpeter’s thought that a nation's money mirrors everything its citizens desire, endure, achieve, and are.

In the end, holding onto value when systems collapse comes down to two separate timelines. To stay alive through the daily grind, real value sits in compact, high-demand essentials—fuel, medicines, and vice goods, like the single pack of cigarettes handed to workers digging the Sarajevo tunnel each day. But as monetary reforms take root and makeshift barter loses its original role, long-term stability depends on durable wealth: physical gold, dependable foreign cash, and productive acreage that no government printing press can inflate away. Efraim Benmelech concluded that “the overall effect of war on the economy is negative.” Knowing which goods will secure tonight's dinner and which assets will safeguard tomorrow’s independence is how people actually make it through the storm.

To look deeper into what money becomes during collapse, explore cigarette currency. And follow the economy; we have more stories there so you will be ready when markets face their next test. That's it for today. Thanks for listening, and we'll catch you next time on Angle.