– Alexander Samsonov –
May 26, 2014
Created: May 26, 2014
Updated: May 26, 2014
Views: 24,323
The Soviet monetary system endured the hardships of war. During the war years, Germany’s money supply increased sixfold (despite their appropriation of goods from all over Europe and a significant part of the USSR); Italy’s grew ten-fold; Japan’s eleven-fold. In the USSR, however, the money supply only increased by 3.8 times.
Yet the Great Patriotic War generated several negative phenomena that needed to be addressed. Firstly, there was an imbalance between the amount of money in circulation and the needs of commodity turnover, leading to a surplus of money. Secondly, there arose various price types—rationed, commercial and market prices—which undermined the significance of cash wages and the monetary earnings of collective farmers based on workdays. Thirdly, large sums of money accumulated among speculators, who were able to profit from price differences at the expense of the population. This undermined social justice in the country.
Immediately after the war, the state took a number of measures aimed at strengthening the monetary system and improving the population’s welfare. Consumer demand grew through wage fund increases and reductions in payments to the financial system. For example, from August 1945, the wartime tax on workers and employees was repealed, and fully abolished in early 1946. Cash-and-goods lotteries were stopped, and the subscription size for the new state loan was reduced. In spring 1946, savings banks began to pay compensation to workers for unused wartime vacations. Postwar industrial reconstruction had begun. There was some growth in the goods fund due to industrial restructuring and the reduced consumption by the armed forces, along with the sale of trophy items. Commercial trade continued to expand to withdraw money from circulation. In 1946, commercial trade gained considerable scope: a large network of stores and restaurants was created, the range of goods was expanded and prices were reduced. The end of the war led to a decrease in prices in collective farm markets (by more than one-third).
However, by the end of 1946, these negative phenomena had not been fully resolved. Therefore, the course toward monetary reform was maintained. In addition, issuing new money and exchanging old money for new became necessary to eliminate currency that had ended up abroad and to improve the quality of banknotes.
According to the USSR’s People’s Commissar of Finance, Arseny Zverev (who managed Soviet finances from 1938), Stalin first showed interest in the possibility of monetary reform in late December 1942 and requested initial calculations by early 1943. Initially, the reform was planned for 1946, but due to a famine caused by drought and poor harvests in several Soviet regions, the reform had to be postponed. Only on December 3, 1947, did the Politburo of the Central Committee of the Communist Party of the Soviet Union (Bolsheviks) make the decision to abolish the ration card system and launch the monetary reform.
The monetary reform terms were defined in a decree by the Council of Ministers of the USSR and the Central Committee of the Communist Party of the Soviet Union (Bolsheviks) on December 14, 1947. Money exchange took place across the USSR from December 16 to December 22, 1947, concluding on December 29 in remote areas. When recalculating wages, money was exchanged so that salaries remained unchanged. Coins were not subject to exchange and remained in circulation at face value. For savings accounts in the State Bank, amounts up to 3,000 rubles were exchanged one-for-one; for deposits between 3,000 and 10,000 rubles, deposits were reduced by one-third; for deposits over 10,000 rubles, two-thirds were confiscated. Those who kept large sums of money at home could exchange them at a rate of 1 new ruble to 10 old rubles. Relatively favourable exchange terms were established for holders of government loan bonds: bonds of the 1947 loan were not revalued; bonds of mass loans were exchanged for bonds of the new loan at a ratio of 3:1, and bonds of the 1938 free-floating loan were exchanged at a ratio of 5:1. Funds on settlement and current accounts of cooperative organizations and collective farms were revalued at a rate of 5 old rubles to 4 new ones.
Simultaneously, the government abolished the ration card system (ahead of other victorious nations), cancelled high commercial trade prices, and introduced unified reduced state retail prices for food and industrial goods. For example, bread and flour prices were reduced by an average of 12% compared to ration prices; cereals and pasta by 10%, and so on.
Thus, the USSR eliminated the negative war-related impacts on the monetary system. This enabled the transition to trading at unified prices and reduced the money supply by more than threefold (from 43.6 to 14 billion rubles). Overall, the reform was successful.
The reform also had a social aspect. Speculators were curtailed, restoring social justice damaged during the war years. On the surface, it seemed like everyone lost, as everyone had some cash on hand as of December 15. However, an ordinary worker or employee living on a salary, who had few funds left by mid-month, was only nominally affected. They were not left without money since, on December 16, salaries for the first half of the month were issued in new money, something usually not done, as salaries were typically paid monthly. Through this payment, workers and employees were provided with new money at the start of the reform. The 1:1 exchange for savings of up to 3,000 rubles met the needs of most of the population, who did not have significant funds. On average, the typical adult had savings of no more than 200 rubles in their bank account. It is understandable that alongside speculators, groups like “Stakhanovites,” inventors and others with above-average earnings suffered some financial loss. However, with the general reduction in prices, these groups, while not gaining, did not lose significantly. Those who kept large sums of cash at home—mostly speculators and some residents of the South Caucasus and Central Asia who had not experienced the war and could therefore trade—might have been dissatisfied.
It is worth noting the uniqueness of Stalin’s system, which managed to withdraw most money from circulation without harming the majority of ordinary people. The world was struck by the fact that, only two years after the war’s end and the 1946 crop failure, most food prices were kept at ration card levels or even reduced, making almost all food available to every Soviet citizen.
For the Western world, this was an unexpected and unwelcome surprise. The capitalist system was, figuratively speaking, dragged through the mud. For instance, Britain, which had not been a battleground and had suffered far less than the USSR, could not eliminate the ration card system until the early 1950s. Meanwhile, in the former “workshop of the world,” British miners were striking for Soviet miner-level living standards.
How Stalin Freed the Ruble from the Dollar
Since 1937, the Soviet ruble had been pegged to the U.S. dollar. The ruble’s exchange rate against foreign currencies was determined based on the U.S. dollar. In February 1950, on Stalin’s urgent directive, the USSR’s Central Statistical Administration recalculated the exchange rate of the new ruble. Soviet specialists, considering the purchasing power of the ruble and the dollar (comparing prices of goods), calculated a rate of 14 rubles to 1 dollar. However, Stalin crossed out this figure and wrote, “At most—4 rubles.”
On February 28, 1950, a decree by the Council of Ministers of the USSR transferred the ruble to a stable gold basis, ending the dollar peg. The ruble’s gold content was set at 0.222168 grams of pure gold. From March 1, 1950, the State Bank of the USSR established a purchase price of 4 rubles 45 kopecks per gram of pure gold. According to Stalin, this protected the USSR from the dollar, as the U.S. was sitting on dollar surpluses it wanted to offload onto other countries, transferring its financial problems. Stalin offered Yugoslavia as an example of perpetual financial—and thus political—dependence on the Western world. He predicted that “sooner or later, the West will bring Yugoslavia to economic ruin and political fragmentation.” His prophetic words came true in the 1990s.
For the first time, a national currency was freed from the U.S. dollar. According to the UN Economic and Social Council and the UN’s European and Far Eastern Commissions (1952–54), Stalin’s decision almost doubled the efficiency of Soviet exports, particularly industrial and high-tech exports. Freed from dollar-based pricing by importer countries, which undervalued Soviet exports, this led to growth in many Soviet industries and allowed the USSR to minimize its reliance on technology imports from the U.S. and other dollar-oriented countries, accelerating its own technological advancement.
Stalin’s Plan for a Unified “Non-Dollar” Market
Switching much of the USSR’s trade with the Council for Mutual Economic Assistance (COMECON) countries, as well as China, Mongolia, North Korea, Vietnam and some developing countries, to the “Stalin gold ruble” led to the formation of a financial-economic bloc. This was an emerging unified market free from the dollar and U.S. political influence.
In early April 1952, an international economic conference took place in Moscow, where the Soviet delegation, led by Deputy Chairman of the Council of Ministers of the USSR Shepilov, proposed creating a unified market of goods, services and investments free from the U.S. dollar and as a counterbalance to the U.S.-led General Agreement on Tariffs and Trade (GATT) and U.S. expansion. At that time, the Marshall Plan was already in full effect, with most European economies dependent on the United States.
COMECON members and China had already declared their commitment to close cooperation in resisting the U.S. dollar in 1951. Afghanistan, Iran, India, Indonesia, Yemen, Syria, Ethiopia, Yugoslavia and Uruguay co-sponsored the Moscow forum. Interestingly, some Western countries, like Sweden, Finland, Ireland, Iceland and Austria also supported this proposal. A total of 49 countries participated in the Moscow conference, resulting in the signing of more than 60 trade, investment, and scientific and technical agreements. The main principles of these agreements included the exclusion of dollar settlements, barter possibilities (including for debt payments), coordination of policies in international economic organizations and on the world market, mutual preferential treatment in credits, investments, and scientific and technical cooperation, as well as customs and pricing benefits for developing states (or their specific goods).
The Soviet delegation proposed starting with bilateral or multilateral agreements on customs, pricing, credit and trade issues, eventually moving toward the gradual unification of foreign economic policy principles and the creation of a “common bloc” trade zone. At the final stage, the plan was to create an interstate settlement currency with mandatory gold backing (the ruble was already prepared for this), leading to the completion of a unified market. Understandably, financial-economic integration would also lead to political integration, with the USSR as the centre of a union of socialist, national-democratic and former colonial—developing—states.
Unfortunately, after Stalin’s death, the USSR authorities and most other COMECON countries moved away from the great leader’s proposals, gradually succumbing to the dollar’s influence (and their elites to the influence of the “golden calf”). Stalin’s grand project was allowed to fade into obscurity. Furthermore, due to Khrushchev’s social, economic and political misadventures (the so-called “Khrushchev Thaw” as the first perestroika), the “Stalin gold ruble” was significantly devalued (by ten-fold), and its gold content reduced. By the late 1970s, the gold backing of the Soviet ruble was effectively eliminated. From Khrushchev’s time onwards, most of the Soviet Union’s foreign trade began to be conducted in U.S. dollars, with the USSR turning into a “donor” for developing countries, supplying the Western world with cheap energy and industrial raw materials. The gold reserves accumulated during Stalin’s era were quickly depleted.
Today, Stalin’s vision of “Soviet globalization” on a financial-economic level, free from U.S. dollar dependency and the control of the U.S. Federal Reserve, is more relevant than ever. There’s no need to invent anything new; Stalin already provided everything for Russia. It only takes political will to bring his ideas to their logical conclusion. Then, Russia will be entirely financially and economically independent, undermining the power of the Federal Reserve, Western TNCs, and TNCs and gaining a powerful tool for “Russian globalization.” Russia will have a robust instrument for developing the national economy and the prosperity of its people.
Sources
- “The Forgotten Idea with No Expiration Date,” http://www.rg.ru/business/markets/482.shtm.
- A. Zverev, “Minister’s Notes,” Moscow 1973.
- How the Ruble was “Freed” from the Dollar, http://www.stoletie.ru/territoriya_istorii/kak_rubl_osvobodili_ot_dollara_2010-03-01.htm.
- A.B. Martirosyan, Myths about Stalin: Stalin After the War 1945–1953, Moscow 2007.
- Y. Mukhin, Why Was Stalin Killed?, Moscow 2004.
- Y. Mukhin, Stalin—The Master of the USSR, Moscow 2008.
- “Against the Dollar Dictate,” http://www.stoletie.ru/territoriya_istorii/protiv_diktata_dollara_2010-06-04.htm.