THE BANKING AND CREDIT SYSTEM OF THE USSR

Tilburg studies in economics Vol. 18

The banking and credit system of the USSR

O. KUSCHPETA

Tilburg School of Economics, Social Science s and Law, the Netherlands

tlJartinustNijhoff Social Sciences Division GLeiden I~oston 1978

Translated by: A.H.N. Ryan

ISBN-13: 978-1-4613-4050-8 DOI:10.1007/978-1-4613-4048-5

Distributors for North America Kluwer Boston Ine. 160 Old Derby Street Hingham, MA 02043 USA

e-ISBN-13: 978-1-4613-4048-5

© 1978 by H. E. Stenfert Kroese B. V., Leiden, the Netherlands. No part of this book may be reprodueed in any form by print, photoprint, microfilm or any other means, without written permission from the publisher .

To my wife and

children. Genia and

Anatol

Preface

It is a pleasure to introduce Dr. Kusehpeta's study of the USSR banking and eredit system with some measure of enthusiasm, for the subjeet is one about which there is, as yet, not mueh literature available in the Western European languages and this study approaehes the subjeet from the view-point of sourees taken from within the Soviet Union itself.

No matter how revolutionary the ehange, some ties with the past still remain and it is for this reason that the author has paid initial attention to the banking system of the Tsars and proceeds to de al with the development of the banking system sine e the Revolution of 1917. While history has made the Communist Civil War, the New Eeonomie Poliey and the Khrushehev reforms to be familiar to us, the effeets of these events on the banking and monetary system have, thus far, never been fully researched.

Next, the author deals extensively with the existing banking- and eredit system. This subjeet is not easy to understand, beeause we are obliged to beeome familiar with totally different eoeepts than those governing the mixed eeonomic system of the Western World. I, personally , am struek by the sharp separation between the eurreney and the 'deposit' or 'transfer' mone y cireulation. * The 'transfer' money flow (Giro) still refleets the eonsequenees of the detailed planning of the enterprises by the organs ofthe State, while the money eireulation which serves for the payment of wages and consurner spending may be controlled in total, but not to the same degree in detail as the 'near' money.

* translator's note: 'deposit' money flow and 'transfer' mone y flow both refer to the payments made by means of corresponding debit and credit entries on the payer's and payee's bank, postal or Giro accounts (i.e. transfers). Another pos si ble term is non-cash flow. I have adopted the term 'transfer' money throughout the rest of this translation.

VIII PREFACE

Dr. Kuschpeta goes on to examine the relation of the banking and credit system to the whole economy. The relations of the banks with the organs of the State and especially with the Ministry of Finance are very different to those found in the West, where the power of decision in the private sector is still a dominating element, however restricted by all kinds of governmental regulations.

The significance of the banks for the planning system in the Soviet Union is examined separatelyand the author ends up with some, in my opinion, very valuable considerations concerning the interaction be­tween the actually existing mone y- and credit system and the theories of Marx and especially Lenin.

The author desired to study and evaluate the monetary and the banking systems of the USSR form the stand-point of the needs of the Soviet economy itself. Thus, he comes to the conclusion that the planned management with which the Soviet authorities control the economy severely restricts the function of money and differs considerably from Western style economies.

The significance of the reforms with drew the West's attention during several years appears to be quite mi nor as yet and especiaIly as concerns the monetary and the banking system.

It need hardly be stessed that knowledge of the Soviet Union and its economy are very important to the Western world, even though direct discussions are still very arduous.

Dr. Kuschpeta's book is a valuable and trustworthy guide for those who wish to find out the institutions and the current thought in the fie Id of monetary events within that enormous terri tory that desires develop­ment according to socialistic principles.

Dr. H.W.J. Bosman Professor of Money and Banking, University of Tilburg.

Contents

Preface / VII

l. Dermition of the problem and introductory remarks 1.1. Definition of the problem / l 1.2. Marxist doctrine and the October Revolution / 5 1.3. Three sources of basic doctrine underlying Soviet Socialist

society / 7 1.4. Basic characteristics of the So viet economic system / 9 1.5. Monetary function in the economic system 12

2. The development and rmal state of the banking system in Russia under the Tsars / IS

2.1. Introduction / 15 2.2. The reform of 1861 - the birth of the modem system / 16 2.3. The development of the private banks / 17 2.4. Agricultural banks and other credit institutions after the reform

of 1861 / 18 2.5. The banking system after the reform of 1895-1897 18 2.6. General characteristics of the banking system prior to the

October Revolution / 19

3. The birth of the banking and credit system of the USSR / 23 3.1. Introduction / 23 3.2. The merging of all banks into one large clearing centre 24 3.3. Muney and credit during the civil war period / 26 3.4. The influence of the New Economic Policy (N.E.P.) on the

revival of the banks / 28 3.5. The monetary reform of 1922-1924 / 30 3.6. The banking system during the first N.E.P. period / 33 3.7. The second N.E.P. period: Adaptation ofthe banking system to

the planned economy ! 37

X CONTENTS

3.8. The reform of the credit system and the completion of the organization of the banks under Stalin 1930-1932 / 39

3.9. The monetary reform of 1947 and other meas ures to stabilize the ruble / 43

3.10. The modifications of the banking system under Khrush­chev / 45

3. 11. Conclusion / 46

4. The current credit and banking system of the USSR and its functions / 49

4.1. Introduetion / 49 4.2. The effect of the economic reforms of Kosygin on the banking

and credit system / 49 4.3. The credit institutions / 54 4.3.1. The Gosbank / 54 4.3.2. The savings banks / 58 4.3.3. The Vneshtorgbank / 61 4.3.4. The Stroibank / 62 4.3.5. The banks abroad / 66 4.3.6. The other institutions / 71 4.4. The Gosbank, payments and clearing / 72 4.4.1. The is sue of rubles / 74 4.4.2. The management of the cash f..vw / 75 4.4.3. The management of the 'deposit' or 'transfer' money circulation

(Giro) / 76 4.5. Short-term banking credit / 80 4.6. Long-term banking credit / 84 4.7. State loans / 87 4.8. The other forms of credit / 89 4.9. The Soviet banks and the Comecon banks / 91 4.10. Conclusion / 93

5. The banking and credit system and the general economic system / 95

5.1. Introduetion / 95 5.2. The economy and State organization of the USSR / 95 5.2.1. The administrative territorial divisions of the USSR and the

economy / 96 5.2.2. The unit y of power / 96

CONTENTS XI

5.2.3. 5.2.4. 5.3.

5.3.1. 5.3.2. 5.3.3. 5.3.4. 5.3.5. 5.3.6. 5.4.

5.5.

5.5.1. 5.5.2.

5.5.3. 5.5.4. 5.5.5. 5.6. 5.7. 5.7.1. 5.7.2. 5.7.3. 5.7.4. 5.8.

5.9. 5.9.1. 5.9.2. 5.9.3. 5.10.

6.

6.1. 6.2.

The principle of democratic centralization / 97 Edinonachalie / 99 A short sketch of the institutional structure of the Soviet economy and the position of the banks therein / 99 The Council of Ministers of the USSR / 101 The Council of Ministers of a Soviet Republic / 104 All-Union models of economic management / 104 Republic models of economic management / 105 The position of the banks in the institutional structure / 106 Recapitulation / 106 The position of the USSR enterprises in the current economic system / 107 The organization of Soviet industrial management after 1975 / 110 The new organization chart / 111 Union (Re public) / industry / associations (promyshlennoe obedinenie) / 112 Production societies (proizvodstvennoe obedinenie) / 114 The consequences of the re-organization for the banks / 115 Evaluation / 115 General characteristics of Soviet State finances 116 The financing of enterprises / 120 Capital goods and the financing thereof / 120 Operational results / 121 The balance sheet / 123 Final remarks / 126 The organizational structure of the So viet finances and the inter-relationships of their components / 127 The banking and credit system in the Soviet finances / 130 The re-distribution of the national revenue / 132 The investments / 135 The financing of the liquid assets of enterprises / 136 Recapitulation and conclusions / 138

The role of the banks in the planned management of the Soviet economy / 141 Introduction / 141 Centralized planning and the role of the banks / 143

XII CONTENTS

6.3. The relationships between credit plans, cash plan and the financial plan / 146

6.4. The credit plans / 150 6.4.1. The short-term credit plan of the Gosbank / 152 6.4.2. The short-term credit plan of the Stroibank / 155 6.4.3. The long-term credit plan of the Gosbank / 156 6.4.4. The long-term credit plan of the Stroibank / 158 6.5. The planning of the monetary circulation (cash flow) / 160 6.5.1. The planning principles / 161 6.5.2. Calculation of the money supply / 164 6.5.3. The balance of the population' s income and expenditures

/ 166 6.5.4. The Gosbank's cash plan / 168 6.5.5. Conclusions / 172 6.6. The supervisory tasks of the Soviet banks / 176 6.6.1. Gosbank supervision over expenditures for wages / 177 6.6.2. Control exerted via the ruble / 180 6.6.3. Sanctions / 182 6.7. The bank interest / 184 6.8. Soviet currency and the international economic relations of the

USSR / 189 6.8.1. The State monopoly on currency / 190 6.8.2. The Foreign Currency Treasury / 191 6.8.3. The ruble and the 'socialist worldmarket' / 192 6.8.4. The ruble and the 'capitalist worldmarket' / 194 6.8.5. The currency plan / 195 6.8.6. Conclusions / 197 6.9. Recapitulation / 199

7. Critical closing considerations / 203 7.1. Introduction / 203 7.2. The genesis of the Soviet banking and credit system / 204 7.3. Money and the socialist economy of the Soviet type / 208 7.3.1. The views of Marx and Engels / 208 7.3.2. The views of Lenin / 211 7.3.3. The need for money in a planned economy of the Soviet

type / 213 7.3.4. The nature and functions of Soviet money / 218 7.3.5. Conclusions / 222

CONTENTS XIII

7.4. The economic orde r of the USSR and the banking and credit system / 222

7.4.1. The economic order of the USSR / 223 7.4.2. Two methods of mobiJizing and distributing monetary

means / 229 7.4.3. The State Budget / 230 7.4.4. Credit / 232 7.4.5. The function of the credit institution and the economlC

order / 236 7.4.6. Conclusions / 237 7.5. Theory and practice / 239 7.5.1. General principles / 239 7.5.2. The principles of the monetary and the banking policy I 242 7.5.3. Practice / 243 7.5.4. Closing remarks / 245 7.6. Concluding paragraph / 246 7.6.1. Conclusions / 247 7.6.2. General appraisal / 248 7.6.3. Suggestions / 251

Summary / 256

Bibliography / 257

Index I 275