The Mystery of the 1961 Monetary Reform

2024 Author: Seth Attwood | [email protected]. Last modified: 2023-12-16 15:55

Monetary reform of 1961 is often tried to be presented as an ordinary denomination, like the one that was carried out in 1998. In the eyes of the uninitiated, everything looked extremely simple: the old Stalinist "footcloths" were replaced with new Khrushchev "candy wrappers", smaller in size, but more expensive at face value.

The banknotes in circulation in 1947 were exchanged without restrictions for newly issued ones at a ratio of 10: 1 and the prices of all goods, tariff rates of wages, pensions, scholarships and benefits, payment obligations and agreements were changed in the same ratio. This was supposedly done only "… in order to facilitate monetary circulation and make money more useful."

However, then, in the sixty-first, few people paid attention to one oddity: before the reform, the dollar was worth four rubles, and after its implementation, the rate was set at 90 kopecks. Many were naively happy that the ruble had become more expensive than the dollar, but if you change the old money for new one to ten, then the dollar should have cost not 90, but only 40 kopecks. The same thing happened with the gold content: instead of getting a gold content equal to 2.22168 grams, the ruble received only 0.987412 grams of gold. Thus, the ruble was underestimated by 2, 25 times, and the purchasing power of the ruble in relation to imported goods, respectively, decreased by the same amount.

It is not for nothing that the head of the People's Commissariat of Finance, and then the Minister of Finance, who has been permanent since 1938, and then the Minister of Finance, Arseny Grigorievich Zverev, disagreeing with the reform plan, resigned on May 16, 1960 from the post of head of the Ministry of Finance. He left immediately after the decree No. 470 of the Council of Ministers of the USSR "On changing the scale of prices and replacing current money with new money" was signed in the Kremlin on May 4, 1960. This native of the village of Negodyaeva (now Tikhomirovo) of the Klin district of the Moscow province could not help but understand what such a reform would lead to, and did not want to participate in this matter.

The consequences of this reform were disastrous: imports rose in price sharply, and foreign items, which the Soviet buyer had not been particularly pampered with before, passed into the category of luxury goods.

But Soviet citizens suffered not only from this. Despite all the assurances of the party and the government that there was only an exchange of old money for new, the same as in the previous year in France, when de Gaulle introduced new francs into circulation, the private market reacted to this reform in a special way: if in In the state trade prices have changed exactly tenfold, in the market they have changed on average only 4.5 times. The market cannot be fooled. So, if in December 1960 potatoes cost one ruble in the state trade, and on the market from 75 kopecks to 1 ruble. 30 kopecks, then in January, as prescribed by the reform, shop potatoes were sold at 10 kopecks per kilogram. However, potatoes on the market have already cost 33 kopecks. The same thing happened with other products and, especially, with meat - for the first time since 1950, market prices again far exceeded store prices.

What did it lead to? And besides, store vegetables have dramatically lost in quality. It turned out to be more profitable for supervisors to float high-quality goods to market speculators, put the proceeds received in the cashier and report on the implementation of the plan. The difference in price between the speculator's purchase price and the state price was put into their pockets by the store managers. In the shops, however, there was only that which the speculators themselves refused to do, that is, that which was impossible to sell on the market. As a result, people stopped taking almost all store products and started going to the market. Everyone was happy: the store manager, the speculator, and the trade bosses, who had everything okay in their reports, and with whom the store managers naturally shared. The only dissatisfied was the people, whose interests were thought of in the last place.

The abundance of shops in the 50s …

… changed overnight to empty shelves.

The departure of groceries from the store to the more expensive market hit hard on the welfare of the people. If in 1960, with an average salary of 783 rubles, a person could buy 1,044 kilograms of potatoes, then in 1961, with an average salary of 81.3 rubles, only 246 kilograms. It was possible, of course, after standing in a two-hour queue, to buy cheap store potatoes, which could buy 813 kg for a salary, but as a result, they brought home one rot, and after cleaning they remained at a loss.

The rise in prices was not limited to the January jump, but continued in subsequent years. Prices for potatoes in the markets of large cities of the country in 1962 amounted to 123% to the level of 1961, in 1963 - 122% to 1962, and in the first half of 1964 - 114% to the first half of 1963.

The situation was especially difficult in the regions. If in Moscow and Leningrad the situation in stores was somehow controlled, then in regional and regional centers many types of products completely disappeared from the state trade.

Collective farmers were also in no hurry to hand over their products to the state, because purchase prices also changed in a ratio of 1:10, and not 100: 444, which should have been changed based on the gold and currency parity. They also began to export most of the products to the market.

The answer to this was the enlargement of collective farms, and the massive transformation of collective farms into state farms. The latter, unlike collective farms, could not export products to the market, but were obliged to hand over everything to the state. However, instead of the expected improvement in food supply, such measures, on the contrary, led to the food crisis of 1963-64, as a result of which the country had to buy food abroad. One of the consequences of this crisis was the removal of Khrushchev, followed by the same Kosygin reforms.

In 1962, in order to somehow compensate for the outflow of products to the market, it was decided to increase retail prices in the state trade. The decision to increase prices for meat and dairy products was formalized by a decree of the Central Committee of the CPSU and the USSR Council of Ministers of May 31, 1962. However, this increase in prices further increased the prices in the bazaars. As a result, the then prices for the then salaries were prohibitive. All this caused popular unrest, and in Novocherkassk even led to a large-scale uprising, during the suppression of which 24 people were killed.

In total, 11 major popular performances took place in 1961-64. Firearms were used to suppress eight of them.

It was only in the course of the Kosygin reforms that bazaar and store prices were slightly leveled, and in the late Brezhnev times, in some places in the markets, it was not allowed to raise prices above the maximum determined by the administration. Violators were deprived of the right to trade.

This was the beginning of the decline in the economic power of the USSR, and 30 years after the Khrushchev reform, the Soviet Union ceased to exist.

Why did the party and the government agree to such a reform, in which the ruble actually became inflated?

The fact is that in the post-war period in the USSR there was a huge increase in oil production - from 19, 436 million tons in 1945 to 148 million tons in 1960. And it was then, in 1960, that the decision on large-scale oil exports was made public. “Our fraternal countries have long needed oil, and our country has an abundance of it. And who, how not to help our fraternal countries with oil?” Wrote Pionerskaya Pravda on December 13, 1960.

And oil flowed like a river from the country …

In the first post-war years, the export of oil products from the USSR was insignificant; and crude oil was not exported at all until 1948. In 1950, the share of oil products in foreign exchange earnings was 3, 9%. But in 1955 this share rose to 9.6% and further continued its growth. However, oil in those days was quite cheap - $ 2.88 per barrel (See: Oil prices from 1859 to the present day). At the rate of 1: 4, established in 1950, this amounted to 11 rubles 52 kopecks. The cost of production of one barrel and its transportation to the destination averaged 9 rubles 61 kopecks. In this state of affairs, exports were practically unprofitable. It could become profitable if more rubles are given for the dollar. After the reform, oil workers received almost the same amount per barrel in dollars - $ 2.89, but in rubles this amount was already 2 rubles 60 kopecks at the same 96-kopeck barrel cost.

Thus, the 1961 currency reform was not at all a simple denomination, such as in France. Unlike the French denomination, during which de Gaulle was preparing the ground for the return to France of gold stolen from the French by the Americans in 1942, the Khrushchev reform caused irreparable damage to the economy. The cunning denomination of 1961 brought the country two troubles - dependence on oil exports and chronic food shortages, leading to trade corruption. These two troubles later became one of the main factors that eventually destroyed the Soviet Union. The only pleasant aspect of the reform was that copper (bronze) coins of earlier issues were not exchanged, since the cost of minting a single-kopeck coin was 16 kopecks. However, soon after the announcement of the reform, the management of the State Labor Savings Bank and trade organizations received a directive prohibiting the exchange of old paper money for copper coins with denominations of 1, 2, and 3 kopecks, so that, contrary to legends, almost no one managed to get rich on the increase in the cost of copper money.