Money of Terror: Russian Revolution

Russian Hyperinflation of 1918 is overshadowed by following years of Bolshevism and communism which undermined Russian society and economy in many ways. In May of 1919, the Bolsheviks gave the People's Bank permission to print as much money as it deemed necessary for the economy and the pace of money printing increased significantly resulting in exponential trend. However, the trend was started by Tzarist regime: in the end, the cost of the war for Russia through the summer of 1917 has been estimated at between 38 and 50 billion rubles (that number does not include the value of destroyed property, capital goods, or lives). To cover its expenses it relied on a combination of foreign and domestic loans (62 percent), unused funds from the pre-war budget (7 percent), and currency emissions (31 percent). The budget was in deficit during the war to about the same degree as Germany and the UK.

Steven M. Efremov in his Master's work "The Role of Inflation in Soviet History: Prices, Living Standards, and Political Change" gives an estimation of the money supply with reference to Katzenellenbaum. The only problem of such and similar tables is in actual situation of civil war and split power structures. We assume though, that until 1919 Bolsheviks might be using old bills for their purpose where it was possible. Remember that capturing banks was one of the first things to do to come to power in Bolsheviks doctrine. Later, they also began issuing their own paper currencies, which they called sovznaki, or Soviet tokens, in a semantic attempt to deny that they could not dispense with the use of money.

In fact, they virtually did destroy the ruble, as all of the revolutionary currencies became worthless and Imperial rubles were hoarded out of circulation. Peasants had to resort to bartering or using bread and salt as currency, while the government had to pay workers in kind by rationing out supplies. Although the Bolsheviks realized by 1921 that they could not effectively dispense with money and needed to establish a stable currency, hyperinflation did not reach its apex until 1923.

Tzarist regime had plenty of gold in reserves. Actually Russian Empire was the largest holder by that time. Imperial Ruble devaluation has been slowly advancing through the war years and kicked off in full force by the Revolution, and in following year of 1918. The Soviet government faced huge expenses arising from the Civil War and the costs of nationalized industry, vast quantities of currency were printed and the ruble began to fall precipitously.

By January, 1920, it took more than 2,400 rubles to buy what a single ruble had bought in 1913; by January, 1921, it took almost 17,000; and by January, 1922, almost 290,000. Another Katzenellenbaum's table illustrates the problem perfectly.

With the virtual collapse of money economy in favor of requisition, rationing, and barter, came a virtual abolition of banking in Soviet Russia. With productive industry almost completely state-owned, the People's Bank (successor to the pre-revolutionary State Bank) had no credit function; rather, it acted as a clearinghouse for transmission of assets to industry, with funds primarily obtained through currency emission (Wiki).

The interesting difference of socialist Soviet government to socialist Weimar's is that soviets decided to return to gold-pegged currency earlier and it allowed national economy to recover. A decree of the RSFSR All-Russian Central Executive Committee dated October 11, 1922, expressed the Soviet currency’s parity in gold and set the ruble exchange rate to the dollar and other foreign currencies on the basis of their gold backing. The monetary reform of 1922–1924 set the gold backing of the ruble at the amount which was in effect before WWI, 0.774234 grams of gold (Grebenyuk P. S. The Gold Factor and Soviet Gold Industry during the Stalin Epoch). In 1922, while Berlin was partying hard, it was yet to be seen how destructive money printing could be in Germany.

500 RUB note from 1918 on Numista.