Banking in the Soviet Union History and Reform

The Soviet Union's banking history was marked by a series of reforms aimed at modernizing the financial system. The first significant reform was introduced in 1921, with the establishment of the State Bank of the RSFSR, which would later become the State Bank of the USSR.

The State Bank was responsible for managing the government's finances, regulating the banking system, and providing credit to the economy. This marked a significant shift away from the pre-revolutionary banking system, which was characterized by a lack of regulation and widespread corruption.

One of the key challenges facing the Soviet banking system was its reliance on bartering and commodity-based transactions. This was largely due to the country's lack of a standardized currency, which made it difficult to conduct financial transactions.

The Soviet government attempted to address this issue by introducing a new currency, the ruble, in 1924.

The history of banking in the Soviet Union is a fascinating story. Banking in the Soviet Union began with the establishment of the State Bank of the Russian Republic in 1860, which was the precursor to the Soviet Union's central bank, Gosbank.

The Russian Revolution in 1917 led to a radical change in the banking system, with the nationalization of banks and the establishment of the People's Bank in 1918. This marked the beginning of a state-controlled banking system.

Gosbank was formed in 1921, and it played a crucial role in the Soviet Union's economic development. Gosbank was responsible for regulating the banking system, managing the government's finances, and providing credit to state-owned enterprises.

The Soviet Union's banking system was characterized by a high degree of centralization and control, with Gosbank holding a monopoly on banking activities. This led to a lack of competition and innovation in the banking sector, which had negative consequences for the economy.

The Soviet banking system was also plagued by corruption and mismanagement, which further exacerbated the economic problems.

The Soviet banking system was a unique entity that played a crucial role in the country's economy. It was a monobank, meaning it combined the roles of a central bank and a commercial bank, and was closely controlled by the planners.

Gosbank, the state bank, was the backbone of the Soviet banking system. It managed the currency reserves of the country and created narrow money by authorizing companies to pay wages in accordance with accepted wage bills.

Household savings were a vital source of finance for the state, and were kept by the Savings Bank, which was later incorporated into Gosbank in 1963.

The banking system was primarily a control agency, tasked with controlling plan fulfillment. All legal inter-enterprise payments had to go through Gosbank, which only authorized payments that were supported by a relevant plan document.

This meant that money was not a binding constraint on enterprises, and the availability of finance did not constrain production or investment. The banking system facilitated a soft budget constraint to enterprises, allowing them to operate without worrying about financial constraints.

Gosbank also issued short-term credit to enterprises for working capital, and controlled several specialized banks, including Stroibank and Vneshekonombank.

In 1988, the Soviet Union initiated a transition towards a two-tiered system under Perestroika.

The first new cooperative bank licensed was Soyuz-Bank in Shymkent, which is now in Kazakhstan, starting from August 1988.

Perestroika led to the reorganization of the Stroybank in 1988, transforming it into the State Commercial Industrial and Construction Bank of the USSR, also known as Promstroybank.

Some of Stroybank's operations were spun off as Agro-Industrial Bank, or Agroprombank, and Bank of Housing, Communal Services and Social Development, or Zhilsotsbank.

After the collapse of the Soviet Union, these daughter banks were absorbed into the VTB network and closely associated with the Bank of Russia, which was the successor to Gosbank.

The leadership of the State Bank of the Soviet Union was appointed by the Premier of the Soviet Union. Vladimir Lenin was the one who appointed Aron Sheinman as the first chairman of the Board of the State Bank in 1921.

The chairman of the Board of the State Bank served a term that could last from a few years to over a decade. For example, Nikolai Bulganin held the position for over 17 years, from 1938 to 1945, and then again from 1940 to 1958.

Here's a list of the chairmen of the Board of the State Bank, along with their term of office:

The Soviet Union's financial system was built on a foundation of a monopolistic state financial system, which had its roots in the Russian Empire. This system was established in the 18th century with the creation of dominant public banks.

The idea of a single, all-powerful bank was a concept that resonated with key figures in the Soviet Union's history. Vladimir Lenin, the leader of the Russian Communist Revolution, believed that without big banks, socialism would be impossible.

Lenin's vision for a single State Bank, with branches in every rural district and factory, was meant to be a key component of a socialist society. This bank would handle country-wide bookkeeping and accounting, essentially serving as the backbone of the socialist system.

The concept of a universal bank, which would allow the state to control the economy without adhering to the gold standard, was also a topic of discussion in the late 19th century. Slavophile journalist S. F. Sharapov advocated for the creation of such a bank, which would give the state more control over the economy.

The Soviet Union's financial system was a far cry from the free-market economy that existed in the West. Instead, it was a highly controlled system that was designed to meet the needs of the state and its citizens.

The leadership of the State Bank underwent significant changes over the years. Aron Sheinman was the first chairman, appointed by Vladimir Lenin in 1921.

One notable aspect of the leadership was the frequent changes in chairmen. Nikolai Bulganin held the position three times, from 1938 to 1945, from 1940 to 1945, and again from 1958 to 1958.

The chairmen were appointed by various Soviet leaders, including Vladimir Lenin, Alexei Rykov, Vyacheslav Molotov, and Joseph Stalin. Joseph Stalin appointed Nikolai Bulganin in 1940.

Here's a list of the chairmen of the State Bank, along with their term of office and the leader who appointed them:

The leadership of the State Bank played a crucial role in shaping the bank's policies and decisions.

The Soviet banking system was heavily influenced by societal and economic factors. The Soviet government controlled the entire economy, which led to a lack of competition and innovation in the banking sector.

The Soviet government's emphasis on central planning resulted in a system where the state controlled the allocation of resources, including credit. This led to a lack of credit availability for private businesses.

The Soviet people had limited access to banking services, with only a few major banks operating in the country. These banks were primarily focused on serving the government and state-owned enterprises.

The Soviet government's emphasis on equality led to a lack of differentiation in banking services, with all citizens having access to the same basic services. This led to a lack of personalized banking services and products.

The Soviet economy was heavily dependent on heavy industry, which led to a focus on large-scale infrastructure projects and state-owned enterprises. This led to a lack of focus on consumer banking and small business lending.

The Soviet government's control over the economy and banking system led to a lack of transparency and accountability in the banking sector. This led to a lack of trust in the banking system among the Soviet people.