Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
How Stagflation Effects Stocks - 5th Dec 21
Bitcoin FLASH CRASH! Cryptos Blood Bath as Exchanges Run Stops, An Early Christmas Present for Some? - 5th Dec 21
TESCO Pre Omicron Panic Christmas Decorations Festive Shop 2021 - 5th Dec 21
Dow Stock Market Trend Forecast Into Mid 2022 - 4th Dec 21
INVESTING LESSON - Give your Portfolio Some Breathing Space - 4th Dec 21
Don’t Get Yourself Into a Bull Trap With Gold - 4th Dec 21
GOLD HAS LOTS OF POTENTIAL DOWNSIDE - 4th Dec 21
4 Tips To Help You Take Better Care Of Your Personal Finances- 4th Dec 21
What Is A Golden Cross Pattern In Trading? - 4th Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - Part 2 - 3rd Dec 21
Stock Market Major Turning Point Taking Place - 3rd Dec 21
The Masters of the Universe and Gold - 3rd Dec 21
This simple Stock Market mindset shift could help you make millions - 3rd Dec 21
Will the Glasgow Summit (COP26) Affect Energy Prices? - 3rd Dec 21
Peloton 35% CRASH a Lesson of What Happens When One Over Pays for a Loss Making Growth Stock - 1st Dec 21
Stock Market Sentiment Speaks: I Fear For Retirees For The Next 20 Years - 1st Dec 21 t
Will the Anointed Finanical Experts Get It Wrong Again? - 1st Dec 21
Main Differences Between the UK and Canadian Gaming Markets - 1st Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - 30th Nov 21
Omicron Covid Wave 4 Impact on Financial Markets - 30th Nov 21
Can You Hear It? That’s the Crowd Booing Gold’s Downturn - 30th Nov 21
Economic and Market Impacts of Omicron Strain Covid 4th Wave - 30th Nov 21
Stock Market Historical Trends Suggest A Strengthening Bullish Trend In December - 30th Nov 21
Crypto Market Analysis: What Trading Will Look Like in 2022 for Novice and Veteran Traders? - 30th Nov 21
Best Stocks for Investing to Profit form the Metaverse and Get Rich - 29th Nov 21
Should You Invest In Real Estate In 2021? - 29th Nov 21
Silver Long-term Trend Analysis - 28th Nov 21
Silver Mining Stocks Fundamentals - 28th Nov 21
Crude Oil Didn’t Like Thanksgiving Turkey This Year - 28th Nov 21
Sheffield First Snow Winter 2021 - Snowballs and Snowmen Fun - 28th Nov 21
Stock Market Investing LESSON - Buying Value - 27th Nov 21
Corsair MP600 NVME M.2 SSD 66% Performance Loss After 6 Months of Use - Benchmark Tests - 27th Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Financial Reforms Drove the Soviet Union Into the Grave

Politics / Russia Jul 21, 2013 - 09:11 AM GMT

By: Pravda

Politics

Who of the famous people in Russia's modern history said the phrase: "I wanted the best, but it turned out as always"? There is quite a list of names that comes up in this connection, although it is associated with only one man - the Minister of Finance of the USSR, Valentin Pavlov, who once upon a time intended to stabilize currency in the country.

Many details of that story have been forgotten, although one should always keep such events in mind not to step on a rake again.


The formal reason for the currency reform was the fight against counterfeit rubles, which were allegedly brought to the USSR from abroad to undermine the Soviet economy. As a matter of fact, the cause for the collapse of the economy of the world's first-ever country of workers and peasants was much more prosaic: a low level of labor productivity in the USSR. When the Reagan administration managed to agree with Saudi Arabia to derail global oil prices, the situation became very bad. The production of money was growing, but it was not backed with the industrial production of essential commodities. In short, guns and tanks were produced in excess, but ordinary butter was hard to find.

Under these conditions, Mr. Pavlov decided to stabilize the currency circulation in the Soviet Union by removing a part of money from workers to thus solve (partially) the problem of shortage of goods on the commodity market of the USSR. Moreover, on 14 January 1991, shortly before the start of the reform, Pavlov was promoted and became the Prime Minister of the Soviet Union.

Thus, the desire of the administration of the country to reform the financial and political system was officially enshrined at the highest level.

On January 22, 1991, Soviet President Mikhail Gorbachev signed the decree about the withdrawal of 50- and 100-ruble notes issued in 1961." The exchange of those notes was to be accompanied by a number of strong restrictions.

The period of exchange was a very short one - only three days, from 23 to 25 January, that is, from Wednesday to Friday. Secondly, not more than 1,000 rubles per person could be exchanged, whereas the exchange of other bills was considered in special commissions before the end of March 1991.

All in all, 51.5 billion rubles from 133 billion cash paper money was subject to the exchange, or about 39 percent of cash assets. The amount of cash available for withdrawal at the Savings Bank of the USSR (Sberbank) was restricted as well - people could debit not more than 500 rubles from their accounts.

To conduct the reform, new 50 and 100 ruble notes were issued in 1991. The notes from 1991 in denominations of 1, 3, 5, 10, 200, 500 and 1000 rubles were issued soon afterwards. Old notes of 1, 3, 5, 10 and 25 rubles from 1961, and all Soviet coins continued to circulate along with the new ones, issued in 1991.

However, "it was smooth on paper, but they forgot about the ravines that they had to cross." As a result, the government's plans were realized only in part. The confiscatory procedure allowed to withdraw 14 billion rubles in cash from circulation (approximately 10.5 percent of the total mass, or slightly less than 17.1 percent of the planned withdrawal of 81.5 billion). The surprise effect of the reform was supposed to help in the struggle against speculation, unearned income, counterfeiting, smuggling and corruption. In practice, though, the main consequence of the reform was the loss of people's confidence in their government.

The international image of the USSR suffered too, a lot. For example, there were hundreds of thousands of shuttle traders, who were conducting trade with China at that time, and the Chinese were always happy to accept Soviet 50-100-ruble notes as payment. It is clear that the Chinese could not exchange their capitals in this way in three days just. They lost a lot of money because of the reform. The buses, on which shuttle traders would come, would be papered from top to bottom with paper money. Needless to say that all prices on Chinese goods immediately rose for Soviet buyers. The attitude to Soviet shuttle traders in Poland and other countries was similar.

Having realized the grand failure of his reform, Pavlov pronounced his famous phrase. However unpopular "shock" reforms in the Soviet Union continued under his leadership. On April 2 (just as unexpectedly), new prices were set in the country; they were about three times higher than the old prices. The inflation rate made up 12-35 percent a month.

Afterwards, there was a coup in August 1991. Pavlov took part in it - he was one of its organizers. Here is what General Valentin Varennikov wrote on this subject: "On August 18 overnight, the country's leadership, given Gorbachev's position, was forced to create the National Emergency Committee. This type of government agencies could be created by two figures: either the President of the USSR or the chairman of the Cabinet of Ministers of the USSR. The head of the Cabinet of Ministers, Pavlov, claimed responsibility, set up a committee and became one of its members."

He became a member of the committee, but he never became an active member of it.

According to the certificate from the Central Clinical Hospital of the Cabinet of Ministers of the USSR, No.200703/218 from August 19, 1991, Mr. Pavlov was diagnosed with alcohol poisoning in the morning of August 19. The next day, on August 20, he was hospitalized in the Central Clinical Hospital with "hypertensive crisis".

On August 29, the former prime minister was transferred to Sailor's Silence Prison (Matrosskaya Tishina), where all other members of the Emergency Committee were already staying. Pavlov was subsequently released from prison and pardoned in February 1994 by the State Duma of the first convocation. Afterwards, he served as the president of Chasprombanka for one year. He left the post on August 31, 1995. Interestingly, the bank's license was revoked on 13 February 1996.

In 1996 - 1997 years, he worked as an advisor at Promstroibank, then worked as a member of a number of economic institutions. Afterwards, he suffered a heart attack, then a stroke, and on March 30, 2003, Valentin Pavlov died. He was buried at the Pyatnitskoye cemetery in Moscow, next to his late relatives.

As for Pavlov's reforms, many politicians and historians agree that they completely undermined people's confidence in the Soviet government. Those notorious reforms showed a significant influence on the course of subsequent events in the country. Pavlov's reforms are considered to be one of the main reasons for the growth of political separatism in 1991 among the leaders of the Soviet republics. They led to the strengthening of centrifugal feelings between them, which ultimately led to the collapse of the Soviet Union.

Vyacheslav Shpakovsky

Pravda.ru

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Pravda Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in