Monetary reform in the Soviet Union, 1947

The reform was a combination of redenomination and confiscation, the latter depending on the amount exchanged and whether the monies were kept at the State Labor Savings Banks System of the USSR or not.

The confiscative character was attributed to large amounts of counterfeit money produced by Nazi Germany, as well as to the desire to devalue the savings of the profiteers and enrich the government.

The majority of the population, receiving an insufficient amount of food and industrial goods of mass demand on cards, was forced to turn to the services of the “free”, or, as it was called in official documents, the collective farm market, the rise in prices on which reflected the fall in the purchasing power of the ruble.

Molotov, Deputy Chairman of the USSR State Planning Committee G. Kosyachenko noted the accumulation of large free funds by “certain layers of the urban population, including persons providing all kinds of services to the population, often illegally, persons engaged in resale and speculative transactions.”[3] During the period of maximum increase, prices on the collective farm market were 17 times higher than the average price level of the peaceful 1940 year.

Vodka production fell fivefold during the war, and most of the alcohol was received by the Red Army in the form of a daily “People's Commissar” portion of 100 grams.

Ordinary workers went to commercial stores exclusively on excursions: “How long can we live when there are thousands of businessmen and all sorts of newly-minted bosses around us, shouting about abstinence, fighting at three throats and having no idea what need is?”.

At the end of the war, objective prerequisites for improving monetary circulation appeared: the budget deficit was eliminated, and the turnover of state and cooperative trade increased.

Dyachenko addressed to Zverev notes that, starting from 1943, the USSR People's Commissariat of Finance began to receive letters from various citizens, in which “the accumulation of large sums of money was noted in the hands of speculative elements.” People of various professions living in different regions of the country demanded that speculators be deprived of the opportunity to use their money savings after the war, when prices would fall significantly.

The method of carrying out monetary reform was determined by the task set by the country's leadership of shifting the inevitable losses of the population during the exchange of money to the greatest extent to holders of capital acquired through speculative means.

A high exchange rate (1:15), calculated from the ratio of market (commercial) prices and prices of normalized supply, as well as the one-time issue of a new Soviet currency and its exchange for banknotes of previous issues in a short time, planned as the main method of carrying out monetary reform, served the purpose not so much of improving monetary circulation as of undermining the economic power of the “dealers” of the “illegal” market.

November 8, 1945 addressed to Zverev was sent a letter with a draft monetary reform prepared by professor of the Financial and Economic Institute A.G. Goykhbarg, which justified the exchange rate of 1:4.2.

Already during the preparatory measures, a contradiction was revealed between solving the problems of improving monetary circulation and limiting the economic influence of the “dealers” of the “black” market.

The first positive results in reducing the total amount of cash paper money not backed by commodity coverage were achieved on the basis of economic cooperation between the state and the wealthy sections of the population of the USSR, including holders of “shadow” capital.

In the shops and supermarkets of Osobtorg, the population of the country, who had sufficient cash, could purchase food products that were in short supply at that time at commercial prices on free sale and industrial consumer goods.

[9] Along with the state, the “illegal” market, primarily represented by its most organized part - the “dealers,” began preparations for monetary reform long before December 14, 1947.

As the time for exchanging money approached, the excitement intensified among groups of the population that had significant amounts of cash, which, as can be seen from the documents (at least in large cities), had information about the upcoming monetary reform.

For example, in the report of the USSR Ministry of Internal Affairs dated November 30, 1947, it was reported that “in recent days, rumors have spread in the city of Moscow that existing banknotes will be exchanged in the near future at the rate of 10-12 kopecks per ruble, and that at the same time prices for industrial goods sold at planned prices will be significantly increased.”[10] Having sufficient information about the procedure for carrying out the upcoming monetary reform, the owners of “shadow” capital in the months immediately preceding this took vigorous measures to insure their capital against depreciation.

In November 1947, large cities reported mass purchases of material assets, primarily expensive items, including precious metals and antiques, by representatives of the wealthy segments of the population.

This logical proposal from the point of view of the officially announced position of limiting exchange opportunities for speculators did not find support from the country's leadership.

[12] The “dealers” of the “illegal” market managed not only to retain most of their capital during the reform, but also to significantly increase it, taking advantage of the pre-reform excitement among the population.

The reform itself was used by representatives of “shadow” capital to quickly get rich as a result of playing on the difference in prices for goods that were in short supply at that time before and after the abolition of the card system.

According to the report of the Ministry of Internal Affairs of the USSR dated March 2, 1948, for the period from December 16, 1947 to February 15, 1948, the theft of inventory items worth more than 50 million rubles by criminals was revealed.

A favorable moment for the “dealers” of the “illegal” market was the temporary lack of cash for the majority of the population to purchase scarce goods, which, after the abolition of the card system, were freely sold in stores.