Cash Bank Deposits

Soviet banking, 1922-1987: an analysis of Gosbank balance sheets.


Gosbank (Gosudarustvennyi Bank SSSR: the State bank of the Soviet
Union), which combined the roles of a central bank and a commercial
bank, dominated the Soviet monetary economy. However, the activities of
Gosbank are little known, mainly because the Soviet authorities
published scant financial and monetary data. Gosbank published its
annual balance sheets until 1937, after which it withheld them (Powell,
1972). Gosbank did not publish its balance sheet again until 1991, which
was also the last time the balance sheet was published (Narkhoz SSSR,
1991, p. 28). After the collapse of the Soviet system, the state
archives became open to the public, including to foreigners. This change
greatly enhanced access to official economic documents from the Soviet
period. Nevertheless, it is still difficult for researchers outside of
Moscow to find the materials that they need among the enormous quantity
of archive materials. Kashin and Mikov (2010) made a significant
contribution by publishing a collection of Gosbank’s balance sheets
from i922 to 1990 that included detailed comments. This publication
enabled us to take a first significant step toward a quantitative
analysis of Soviet banking.

Using the newly available Gosbank balance sheets, this study
investigates Gosbank’s activities by focusing on the relation
between cash and non-cash money and the financial sources of
Gosbank’s loans. (1) Soviet and non-Soviet economists have long
discussed this issue in qualitative terms but not in a quantitative
manner. This study aims to quantitatively analyze the issue and deduce
new inferences on the performance of the Soviet management of monetary
and financial flows.

The relation between cash and non-cash money concerns a basic
institutional premise of Soviet money management: the separation of cash
and non-cash money (see Ericson, 2006, pp. 58-64). According to the
Soviet standard, cash and non-cash money were separated as follows: cash
was used only to settle household transactions, while non-household
transactions were settled with non-cash money in the form of either bank
transfers or netting. The Soviet authorities permitted enterprises to
convert their non-cash funds into cash money only to pay wages,
including various monetary benefits to households, and to defray small
expenses. Enterprises were neither required nor permitted to have cash
money except for wage payments. (2) Therefore, wage payments were the
sole source of the cash money supply. The planned total amount of wages
was supposed to impose a ceiling on the cash money supply; the cash
money supplied to the households should have flowed back to the banking
system through the households’ consumption and deposits.

Most non-Soviet economists doubted the effectiveness of the
separation between cash and non-cash money (Gregory, 2004, pp. 220-221;
Kim, 2002). It was, however, difficult to empirically assess the
effectiveness of this separation because of the lack of data. Nakamura
(2011) analyzed the relation between cash and non-cash money by using
the household monetary income and outlay balance, which has recently
become available. Nakamura (2011) found that the correlation between
cash and non-cash money was weak and negative, if it existed at all, and
concluded that the division between cash and non-cash money was largely
effective. This study analyzes the relation between the cash and
non-cash money supplies by using the traditional balance sheet analysis

[DELTA][CAS.sub.t] = [DELTA][NFA.sub.t] + [DELTA][NCE.sub.t] +
[DELTA][NCG.sub.t] + [DELTA][NOA.sub.t] (1)

where CAS denotes the cash money in circulation, NFA is net foreign
assets, NCE is the net credits to the economy, NCG is the net credits to
the government, and NOA is the net other assets. See the explanation of
the indicators in Table 1 and the data in the Appendix. In equation 1, t
denotes the year t, and [DELTA] indicates the difference in the stock
amounts at the end of years t-1 and t. That is, [DELTA][X.sub.t] =
[X.sub.t] – [X.sub.t-1].

If the result of the analysis does not differ from that of Nakamura
(2011), then cash issuance was likely an unimportant source of
Gosbank’s loans. If this implication is true, then what was the
main source of Gosbank’s funds? The structure of the sources of the
loanable funds is expressed as follows:

[DELTA][NCE.sub.t] = [DELTA][CAS.sub.t] + [DELTA][NFL.sub.t] +
[DELTA][NLG.sub.t] + [DELTA][HDP.sub.t] + [DELTA][NOL.sub.t] (2)

where NFL denotes the net foreign liabilities, NLG is the net
liabilities to the government, HDP is household deposits, and NOL is net
other liabilities. See Table 1 for the other notations and the Appendix
for the data. Birman (1980, pp. 97-98) wrote that Soviet economists were
mostly concerned with the sources of Gosbank’s funds, rather than
with the factors influencing cash issuance. One of the reasons for this
conclusion is that the Soviet researchers believed in the division
between cash and non-cash money. If the division was effective, the
total wage bill imposed a ceiling on the cash money supply. In this
case, there is not much point in analyzing the factors that influence
cash issuance. Another reason is the fact that Gosbank supplied almost
all of the bank loans to the economy (Table 2). The official financial
sources that Soviet enterprises were allowed to use were restricted to
the profits retained by the enterprises, the budget funds provided by
the government, the funds redistributed to the enterprises by their
supervising organizations, and bank loans. It is thus understandable
that Soviet economists were more interested in Gosbank as the provider
of funds than as the guardian of the money supply.

The structure of the remainder of this paper is as follows. The
next section provides a brief review of the historical and institutional
backgrounds of the Soviet banking system, a quantitative sketch of the
overall development of Gosbank, and a short explanation of the
methodological issues in the compilation of Gosbank’s balance
sheets. This piece is followed by two sections that analyze the relation
between cash and non-cash money and the financial sources of
Gosbank’s loans. Each of these two sections explains the data, the
methods applied, and the results. The final section discusses the
results and their implications for understanding the Soviet monetary


Historical development of Soviet banking

A vast Soviet and non-Soviet literature has explored the history
and institutions of money circulation and the banking system in the
Soviet Union (Ikonnikov, 1954; Dymshits, 1956; D’yachenko, 1958;
Poskonov, 1967; Melkov, 1969; Garry, 1977; Kuschpeta, 1978; Alkhimov,
1981; Sigg, 1981; Kravtsovaya, 1983; Zakharov, 2007). This sub-section
reviews the historical development of the Soviet banking system for the
subsequent analyses.

The predecessor of Gosbank, Narodny Bank RSFSR, was established in
1918 through a merger of the Russian Empire’s State Bank and other
banks nationalized after the Bolshevik revolution. The Narodny Bank
mostly completed the consolidation of the private banks in 1919; the
role of the Narodny Bank was, however, limited to the management of
treasury funds and settlements. The bank provided few funds to the
economy, as the state budget funds were primary source of funding for
the economy.

Concerning monetary management, the gold standard was abolished in
1914 to finance the war effort, and the Bolshevik government did not
reintroduce it. A monetary management system that replaced the Gold
Standard should have been established. In reality, the Bolshevik
government decided to remove all restrictions on cash issuance to supply
money to meet the demand. Financing became increasingly difficult for
the Bolshevik government as the civil war intensified. Eventually, the
Narodny Bank was abolished in January 1921, and the People’s
Commissar of Finance–the equivalent of the Ministry of Finance–took
over the functions of the Bank. It was a period of hyperinflation, and
the monetary economy did not function either with or without the bank.

After the civil war ended, the government changed its economic
strategy to the New Economic Policy, a market-oriented policy. Gosbank
RSFSR was established in 1921 to restore a sound money policy and to
provide short-term loans to the economy. A banking system was needed to
conduct the new market-oriented economic policy; it was more important
to make the economy function again than to maintain the socialist
ideology of the abolition of money (see Ericson, 2006, p. 70). Various
banks and financial institutions were also established to support market
activities from 1922 to 1932 (Table 3). A series of currency reforms was
implemented from 1922 to 1924. These measures included the introduction
of Chervonets–a gold-based currency that was used generally for
external transactions, the cessation and withdrawal of various money
surrogates issued by the Ministry of Finance and other state
organizations, the fixing of the ruble-to-Chervonets exchange ratio at
10 to 1, and finally, the discontinuation of the issuance of Chervonets.
(3) The hyperinflation ended because the currency reform was successful,
and both the state budget balance and the balance of payments moved into
surplus by 1925. Gosbank SSSR, to which Gosbank RSFSR was reorganized to
fit the union structure of the Soviet state in 1923, finally received
the exclusive right of banknote issuance in 1925.

In the late 1920s, the banks and financial institutions gradually
turned into institutions to control enterprises and to conduct the
operations of the state budget funds, as the basic strategy changed from
the market-oriented New Economic Policy to the Five-Year Plan, which
symbolized the construction of an administrative command economy. In
1927, Gosbank started strengthening its control over enterprises. The
principle that only one banking institution should serve each economic
agent was introduced, and Gosbank started taking over short-term loan
operations from other banks and financial institutions. The credit
reform conducted from 1930 to 1932 shaped the basic structure of Soviet
monetary management and banking. After the 1930/32 credit reform,
intercompany credit was prohibited; all short-term financial
requirements were to be financed with Gosbank’s loans. The
transactions between companies and organizations were to be settled
through bank account transfers and netting.

The financial system that corresponded with the administrative
command economy reached its completion by the end of the second
Five-Year Plan in 1937. The essence of this financial system was that
state budget financing played the major role in financing the economy,
and bank financing played only a minor supplementary role (Riesz, 1973;
Lavrushin, 1974; Lavigne, 1978). State budget funds that required
neither interest payments nor repayment of the principal financed most
of the state enterprises’ financial needs: such as capital
investments and approved holdings of liquid assets. Bank loans were used
primarily to meet short-term financial needs that were difficult to
quantify in advance, such as seasonal demands for funds and bridge loans
during distribution and settlement. Moreover, short-term bank loans were
granted in a restrictive manner: material collateral was requested, and
the usage of the loans granted was strictly specified. (4) Long-term
bank loans were granted only to finance investments in peripheral
spheres, such as housing construction, collective farms (Kolkhoz), and
cooperatives. The dominant source of long-term bank loans was state
budget funding. Therefore, the investment financing banks were not like
banks in a market economy; rather, they were similar to administrative
institutions that managed the state budget funds supplied to investment
projects in the peripheral spheres (Atlas, 1967, p. 135; Manoilo, 1972;
Kuschpeta, 1978, p. 237). Both short- and long-term loans were allocated
in an administrative manner, as were material goods and state budget
funds. The planning organization set the limits on use of bank loans by
the enterprises and on supply of bank loans by the banks and their
branch offices.

The basic characteristics of the Soviet financial system in 1937
remained unchanged until 1988, when the transition to the two-tier
banking system began (Atlas, 1967, p. 138; Garvy, 1977, p. 31; Round
Table, 1989). Nevertheless, some efforts were made to reform the system.
The basic approach of the reforms was to increase the use of bank
financing. The financing system that relied on state budget financing
soon proved incapable of increasing fund use efficiency; it had been
expected that bank financing, which involves the obligation to pay
interest and repay principal, would help to increase the efficiency of
fund use. The government and the Communist Party officially announced a
policy to expand the usage of bank financing in 1954 (Resheniya, 1968,
pp. 129-144; Zakharov, 2007, pp. 144-145). This basic approach was
maintained until the end of the Soviet Union. In 1960, the former
investment finance banks were consolidated into one investment finance
bank, Stroibank, to supply more long-term loans and to improve the
management of investment funds (see Table 3). However, long-term bank
financing had been little developed: the percentage of bank loans in the
investment financing of state capital investment projects, which
excluded the capital investments of the collective farms and the
individual housing investments and accounted for 89% of all capital
investments in the average during the period from 1955 to 1985 (Narkhoz,
1985, p. 363), increased from 0% in 1965 to only 5% in 1981 (Rotleider,
1979, p. 66; Podshivalenko, 1983, p. 66). Conversely, short-term bank
financing rapidly increased, mostly through the introduction of a bank
loan facility, kredit po oborot, which was similar to overdraft
protection. Soviet economists believed that the introduction of the new
bank loan facility rationalized the clerical work that was part of the
old restrictive manner of allocating short-term bank loans but that
caused deterioration of fund use efficiency (Barkovskii, 1976, pp.
62-66; Garvy, 1977, pp. 102-103; Rybin and Mozhaiskova, 1979, pp.
325-326; Levchuk, 1988).

Position of Gosbank in the Soviet economy

Figure 1 compares the two major financial sources of the Soviet
economy: the state budget and Gosbank. The data of Gosbank’s
balance sheets from 1921/22 to 1940 were adjusted for the changes in the
compilation methodology of the balance sheets (see Appendix). Gosbank
frequently changed the compilation method of its balance sheets during
this period: the balance items were regrouped, and the accounting method
of a balance item was switched from balancing-off to non-balancing-off,
or vice versa. Additionally, Gosbank took over the short-term loan
operations of Prombank, Elektrobank, and Foreign Trade Bank in 1927 and
absorbed agricultural credit associations, as Tsentral’nyi
sel’skokhzyaistvennyi bank was liquidated in 1931 (see Table 3).
The balance sheets data used were adjusted for these changes.
Nevertheless, the balance sheets before and after 1930 are not fully
comparable. The accounting year regime that began on 1 October was
abolished on 30 September 1929, and moved to an ordinary calendar year
regime beginning on 1 January 1930.


D’yachenko (1978, chapters. 2-3) concluded that the dominant
financial source for the economy was bank loans before the 1930/32
credit reform because the fiscal base of the Soviet government was weak.
Figure 1 shows that the increases in the balance sheet totals were
smaller than those in the state budget expenditures, except in 1924/25.
Gosbank’s loans constituted one-third to one-half of the total bank
loans disbursed during that period (Table 2). Thus, the annual increases
in total bank loans disbursed to the economy were probably as much as or
more than the increases in state budget expenditures, as D’yachenko
argued. Both state budget expenditures and bank loans increased sharply
in 1929/30, when the first Five-Year Plan started, and both continued to
be almost equally important financial sources during the first Five-Year

During the period between the 1930/32 credit reform and 1954, state
budget funds were the main financial source for the economy. State
budget expenditures increased more than Gosbank’s balance sheet
totals did during this period, except in 1941, 1948, 1949, and 1952. The
ratio of Gosbank’s balance sheet totals to the nominal produced
national income (PAI) remained at almost the same level throughout the
period. Consequently, the difference between the ratios of the balance
sheet totals to PAI and the state budget expenditures to PAI increased
from roughly 10 percentage points in 1937 to approximately 40 percentage
points in 1953. However, the sharp decrease in Gosbank’s balance
sheet totals in 1947 was primarily due to the currency reform of 1947.
The main result of the 1947 currency reform was a partial confiscation
of the cash in circulation through the exchange of old-face banknotes
with new-face banknotes: the amount of cash in circulation was reduced
by 52.407 billion R–that is, from 65.829 billion R to 13.422 billion R
(see Appendix). The currency reform did not significantly change the
asset side of Gosbank’s balance sheet and therefore generated a
surplus in Gosbank’s assets. The balance sheets showed that part of
this surplus was used to charge off Gosbank’s claims to enterprises
in the occupied area during World War II and to the Ministry of
Finance’s claims related to war financing. Consequently, the
balance sheet total decreased by 13.296 billion R after the 1947
currency reform (see Appendix).

After the official resolution to expand bank financing in 1954, the
balance sheet totals demonstrated a clear tendency to increase, and the
trend accelerated after 1970. The balance sheet totals and the state
budget expenditures increased roughly equally from 1954 to 1970. After
1971, the balance sheet totals increased approximately twice as much as
the state budget expenditures did. The structure of Gosbank’s
assets also changed after 1954 (Figure 2). The ratio of the loans to the
economy to the total loans peaked in the I950s and showed a decreasing
tendency after 1971. In contrast, the increases in claims on the
government became pronounced; Gosbank’s claims on the government
accounted for 24% of the balance sheet totals and 40% of the stock of
loans to the economy at the end of 1987. Credits to foreign governments
also increased at a substantial rate after the late 1950s: its
percentage of the balance sheet totals increased from 4.9% at the end of
1955 to 11.8% at the end of 1987.

The horizontal axis of Figure 1 shows another gap between 1960 and
1961. The balance sheets are not fully comparable between 1960 and 1961
for the following three reasons. First, although the 1961
re-denomination set the ratio of the new ruble to the old ruble at 1 to
10, the official exchange rate did not follow this ratio. If the ratio
of 1 to 10 had been applied, the new ruble would have had a gold value
of 2.2168 g, as the old ruble had a gold value of 0.22168 g. After the
re-denomination, the gold value of the new ruble was set to 0.987412g:
the new ruble was devalued to approximately 44% (= 0.987512/2.2168) of
the old ruble. Thus, the foreign currency assets and liabilities in the
new rubles were reduced to 1/4.4 of those in the old rubles, and the
nominal amounts of the other balance sheet items in the new rubles were
1/10 of those in the old rubles. (5) Second, the balance sheets showed
that the amount of cash in circulation was 58.744 billion in the old
rubles and 6.018 billion in the new rubles at the beginning of 1960 (see
Appendix). The cash in circulation increased approximately 6%
(=6018/5874-1) in new-ruble terms. This finding suggests that
approximately 12 billion old-ruble banknotes were returned from abroad
and exchanged for new-ruble banknotes (see Nakamura, 2011, p. 1139, note
4). Third, the balance sheet of Foreign Trade Bank was consolidated with
Gosbank’s balance sheet from 1961 onwards. This consolidation
brought about only a small change in Gosbank’s balance sheet but
nevertheless caused a discontinuity. Before the consolidation, Foreign
Trade Bank conducted only non-commercial foreign currency transactions,
whereas the foreign exchange department of Gosbank conducted the
commercial foreign currency transactions. The consolidation increased
the balance of Gosbank’s foreign settlement accounts by only 7
million R in new rubles; in the end, the consolidation caused a decrease
of 9 million new rubles in Gosbank’s balance sheet totals because
of the netting of transactions between Gosbank and Foreign Trade Bank
(Kashin and Mikov, 2010, p. 88). Overall, Gosbank’s balance sheet
totals increased from 491.730 billion in the old rubles to 52.121
billion in the new rubles after the 1961 currency re-denomination (see


There is another gap between the two 1962 entries in the horizontal
axis of Figure 1. This gap reflects the Ministry of Finance’s
transfer of control over the thrift institution Sberekassa to Gosbank at
the beginning of 1963. Since 1963, Gosbank’s balance sheets
included the assets and liabilities of Sberekassa. The first and second
entries for 1962, which correspond to the balance sheets at the end of
1962, exclude and include Sberekassa, respectively. The consolidation of
Sberekassa increased the balance sheet total from 60.545 to 73.859
billion R at the end of 1962. Then the balance sheet total decreased by
5.725 billion R to 68.134 billion R at the end of 1963 (see Appendix).
This decrease was mainly due to a charge-off of government bonds.
Gosbank took over household deposits of 12.811 billion R as a liability
and government bonds of 12.961 billion R as an asset from Sberekassa
(Kashin and Mikov, 2010, pp. 60-61, 89). The balance sheets showed that
Gosbank balanced out 11.448 billion R of government bonds and an
equivalent amount of Gosbank’s liabilities to the government during
1963; the government bonds held by Gosbank declined to only 1.243
billion R by the end of 1963. By the end of 1964, Gosbank held no
government bonds.

There were many changes in the compilation methodology of the
balance sheets after 1963 as well. However, those changes did not
significantly affect the following analysis because the analysis uses
the aggregated balance sheet items (see Table 1). Gosbank started
compiling its balance sheets by using a completely different methodology
in 1988, when the transition to the two-tier banking system began.
Therefore, the period to be analyzed is limited to the pre-1988 period.


Institutional background

It is generally thought that an increase in the non-cash money
(deposit money) supply leads to an increase in the cash money supply in
an ordinary market economy. In contrast, cash and non-cash money
supplies were supposed to be generally unrelated in the Soviet economy
because of the division between cash and non-cash money. From
institutional and legal perspectives, the division between cash and
non-cash money was generally functional in the Soviet Union. Although
deviations from the restrictions existed on a considerable scale
(Gregory, 2004, pp. 220-221; Kim, 2002), non-cash funds could not be
freely converted into cash, and transactions among enterprises could not
be settled with cash.

However, the fact that the division was generally functional in
terms of institutions and legislation does not mean that the division
was effective in terms of economics. If households do not buy the
consumer goods offered by an enterprise and the enterprise’s
inventory increases, the enterprise will need an additional bank loan to
finance the increased inventory. A part of the non-cash money supplied
in the form of additional bank loans might be converted into cash to pay
the wages that directly or indirectly constitute the value of the unsold
goods. In this case, non-cash money was converted into cash money
without violating the institutional or legislative division between cash
and non-cash money. In general, the wage payments of an enterprise are
related to its financial situation, which, in turn, is related to the
provision of non-cash funds to the enterprise. In economics terms, cash
and non-cash flows are not separable (Campbell, 1966; Lavigne, 1978).

This rather simple notion that cash and non-cash flows are not
separable began to be accepted in the Soviet Union only in the late
1950s. Savluk (1982, pp. 156-157) concluded that the question regarding
the relation between cash and non-cash money supplies was not asked
before that time. (6) In retrospect, the notion of the division seemed
to reflect what actually happened in the Soviet Union at that time: most
of the cash issued through wage payments returned to Gosbank as
households expended it for consumption. Households generally accepted
the consumer goods supplied; any excess liquidity hoarded by the
households was mostly absorbed by the subscription sales of government
bonds, which were regarded as compulsory (Millar, 1975, pp. 611, 613).
Regardless of whether the economy was well managed, households generally
could not accumulate excessive liquidity. This situation seemed to
change by the late 1950s. Soviet households were afforded some luxury to
decline consumption goods, and efficient instruments designed to absorb
the excess liquidity held by the households did not exist after the
subscription sales of governmental bonds were abolished in 1957. This
change in the economic situation might have made Soviet economists
reconsider the division between cash and non-cash money.

Estimation of the relation between cash and non-cash money

This sub-section focuses on identifying whether any positive
correlation between cash and non-cash money supplies existed. It is
difficult to identify the causal relationship between changes in cash
and non-cash money supplies from the balance sheet data. It is also
difficult to distinguish the intended and unintended changes in the cash
and non-cash money supplies because neither data on the planned amounts
of cash and non-cash money supplies nor information on the monetary
policy intentions was available. However, it is possible to conclude
that the division between cash and non-cash money was practically
ineffective if a strong positive correlation existed between the cash
and non-cash money supplies. (7)

The basic estimation equation is as follows:

dln([Cash.sub.t]) = c1 x constant + c2 x dln(Non – [cash.sub.t]) +
c3 x trend + [[epsilon].sub.t] (3)

where dln([x.sub.t]) denotes the difference of the natural
log-transformed variable x: dln([x.sub.t]) = ln([x.sub.t]) –
ln([x.sub.t-1]). dln([x.sub.t]) approximates the growth rate of the
variable x. Cash in circulation (CAS) in the balance sheet was used for
the Cash variable, and the balance sheet total (TTL) and the liabilities
to the economy (LE) were used for the Non-cash variable (see Table 1 for
the notations and the Appendix for the data). Additionally, trend
denotes the trend term, c1-c3 represent the coefficients to be
estimated, and [[epsilon].sub.t] is the error term. The years of 1933,
1946, 1947, and 1960 were excluded from the sample because the CAS
figures from those years were clearly outliers: the years of 1933, 1946,
1947, and 1960 correspond to the money squeeze after the second
Five-Year Plan, the 1947 currency reform, and the 1961 currency

Table 4 shows the results. The [R.sup.2] was less than 0.5 for the
balance sheet totals (TTL) and the liabilities to the economy (LE),
which represent the non-cash variable. This result signifies that the
changes in non-cash money explain less than 50% of the changes in cash.
The coefficient of TTL was significant at the 1% level, whereas that of
LE was significant only at the 10% level. The estimated coefficient c3
of the trend term showed a decreasing tendency at a significance level
of 1% in both cases. The estimated coefficient c2 for the non-cash
variable indicates the elasticity of the cash money supply with respect
to the non-cash money supply; the estimated value is 0.313 for TTL and
0.194 for LE. The top and bottom values in the column ‘Wald’
indicate the probabilities that the elasticity c2 is larger than 1.0 and
0.5, respectively. The probabilities that the elasticity is larger than
1.0 were nearly zero for both TTL and LE; the probabilities that the
elasticity is larger than 0.5 were 8% and 0.1% for TTL and LE,
respectively. From these results, we can conclude that a positive but
weak correlation existed between cash and non-cash money supplies. The
cash supply seemed to increase as the non-cash money supply increased.
However, the growth rate of cash remained at approximately 20%-30% (the
elasticities were 0.194 and 0.313) of the growth rate of the non-cash
money supply.

This result implies that the division between cash and non-cash
money was effective to a certain degree. The cash money supply increased
as the non-cash money supply increased, but the cash money increases
lagged behind the non-cash money increases. It is not surprising that
the division was largely effective because the institutional and legal
restrictions on cash and non-cash money were generally functional.
However, whether this lack of a direct relation between cash and
non-cash money was beneficial to monetary management is another matter.
The division between cash and non-cash money may have distorted or
concealed information potentially useful for monetary management. The
result also confirmed that cash issuance was not a major financial
source of Gosbank’s loans; cash money grew slower than the balance
sheet totals and the liabilities to the economy. What, then, was the
main source of the bank loans? The next section analyzes this question.


A historical review of Gosbank’s financial sources

To identify the major financial sources of Gosbank’s loans, we
calculated the contribution ratios of the financial sources to the
increases in Gosbank’s net credits to the economy ([DELTA]NCE) from
equation 2:


where the notations are the same as those in equation 2.

The lower and middle panels of Figure 3 show the results. For
reference purposes, the upper panel of Figure 3 shows the ratios of the
changes in the net and gross credits to the economy ([DELTA]NCE and
[DELTA]CE) to PNI. Note the following three points: first, the years
1938, 1939, 1941, 1942, 1950, 1953, 1954, and 1986 were unusual years
during which the NCE decreased, as the upper panel of Figure 3 shows.
During these years, the items that decreased with the NCE showed
positive contribution ratios. Second, there were some extremely large
contribution ratios, mostly because the corresponding [DELTA]NCE was too
small; the contribution ratios of [DELTA]NLG were 791%, 205%, 1757%,
464%, 230%, 215%, 798%, 332%, and -272% for 1932, 1938, 1939, 1941,
1942, 1946, 1947, 1986, and 1987, respectively. The contribution ratios
of CAS were 923%,-1561%,-288%, 1818%, and-753% for 1932, 1939, 1941,
1943, and 1947, respectively. The middle panel of Figure 3 does not
fully show the magnitude of these ratios; the charts were cut off at
+200% and -200%. Third, net foreign liabilities include the credits to
foreign governments, here (NFL-CFG). The CFG were included in foreign
assets until 1957, after which the CFG became a separate balance item in
1958. The CFG mainly consisted of the Soviet Union’s claims on the
socialist countries, which largely corresponded to the accumulated
imbalances of the barter trade within the socialist international
economic organization CMEA (see Zverev, 1990, pp. 89, 174-175). The
foreign governments were unlikely to repay them in kind, not to mention
in foreign currency, which may be why the CFG were excluded from the
foreign assets item in Gosbank’s balance sheets. Nevertheless, the
CFG were Gosbank’s assets and therefore competed with rather than
contributing to the NCE. Moreover, Gosbank’s net foreign positions
excluding the CFG were small; their contribution ratios are almost
invisible in Figure 3 (see also Figure 2).


Figure 3 indicates that the contribution of the cash issuance to
the increases in Gosbank’s credits to the economy was large from
the 1920s to the end of the first Five-Year Plan in 1931. A closer look
at the period of the first Five-Year Plan, however, reveals that the net
credits to the economy increased not particularly rapidly during the
period. After the 1930/32 credit reform, the situation seemed to change:
the cash issuance contributed less and the net liabilities to the
government (NLG) contributed more. This tendency was obscured by the
war; during the period from 1939 to 1945, NCE were often decreased.
After the 1947 currency reform, it became clear that NLG were the main
financial source of Gosbank’s loans to the economy.

From 1947 to 1960, the contribution of NLG was dominant; the
contribution of CAS was negligible in most years and even negative in
some years during the period. From the 1961currency re-denomination, CAS
contributed more than in the period from 1947 to 1960. The pattern
changed noticeably in 1965. Instead of NLG, the household deposits (HDP)
became the dominant source of Gosbank’s loan supply to the economy.
The contribution ratio of NLG became small or even negative in some
years after 1965. The negative contribution ratio of NLG means that
Gosbank supplied funds net to the government. Note that 1986 was another
exceptional year during which both the NCE and the NLG decreased. Cash
emissions contributed to Gosbank’s loan supply to a greater extent
after 1965 compared with the period from 1947 to 1960. However, Figure 3
clearly shows that the household deposits were the main contributors to
Gosbank’s loan supply after 1965.

The lower panel of Figure 3 shows that the net foreign liabilities
(NFL) contributed little or negatively to the NCE after 1960. Gosbank
recorded increases not in the net foreign liabilities, but in the net
foreign assets in most of the years after 1960 (Figure 2). In the latter
half of the 1970s and after, the credits to foreign governments absorbed
Gosbank’s financial resources to a significant degree; Gosbank
needed the financial resources to cover the demands for credits not only
from the domestic economy but also from foreign governments.

The above findings can be summarized as follows. The 1930/32 credit
reform aimed to make state budget funds the main financial source of the
economy. After the credit reform, the main financial source of Gosbank
started moving from the cash emissions to the liabilities to the
government. This tendency was obscured by the war; nevertheless, it
became clear after the 1947 currency reform that the liabilities to the
government were the main financial source of Gosbank. After 1965, which
was two years after that Gosbank took control of the thrift institution
Sberekassa, household deposits became the main financial source of
Gosbank. Before the takeover of Sberekassa, Gosbank accepted household
deposits only in rather unusual cases. (8) Thus, it is little wonder
that household deposits became the main financial source of

Gosbank after 1965. However, this change in the pattern of
macroeconomic financial flows seemed to have a more significant meaning.
We discuss this significance in the next sub-section.

The change in Soviet financial flows

In a market economy, the banking system usually collects deposits
from the household sector and supplies loans to the enterprise sector
based on the collected household deposits. It may be possible to
interpret Gosbank’s takeover of Sberekassa as a sign that the
Gosbank system became closer to an ordinary banking system in a market
economy. However, this change did not occur only to make Gosbank
resemble a bank in a market economy.

Before Gosbank’s takeover of Sberekassa another notable policy
change had taken place: in 1957 the party and the government decided to
stop the subscribed sales of government bonds in 1958 and lengthened the
maturity of outstanding government bonds by 20 years (Strumilin, 1961,
pp. 613-614). The reason for this decision was the poor prospects of
effective revenue from further bond issuances and the increasing debt
service burden (Millar, 1975, p. 611). Allakhverdyan (1962, p. 323)
wrote that the subscribed sales of government bonds would be 1.922
billion R of the total issue of 3.522 billion R, while the debt
servicing cost would be 2.5 billion R in 1958. An archive material of
the Russian State Archive of Economy (Rossiiskii Gosudarstvennyi Arkhiv
Ekonomiki: RGAE) (RGAE 1562/41/543/25) reported that the lengthening of
the maturity reduced the actual debt servicing cost in 1958 to 766
million R, about one-third of the amount calculated by Allakhverdyan.9
Chetvernikov (1972, p. 51) stated that the government could not afford
at that time to service its debt as scheduled. Financing via government
bonds had reached its limit (Nove, 1992, p. 354).

The lower panel of Figure 3 shows that household deposits remained
relatively small until 1953. Household deposits increased in 1953 and
1954, when Marenkov reduced the subscription sales of government bonds
to seek popularity (Nove, 1992, pp. 333, 354). RGAE (1562/41/543/19-20)
shows that the subscription sales of government bonds decreased from
3.628 billion R in 1952 to 1.822 billion R in 1953 and to 1.727 billion
R in 1954. Then household deposits stagnated, as the government raised
the subscription sales again to 3.142 billion R in 1955. Another RGAE
(1562/41/233/134) publication indicates that the ratios of government
bonds held by households to household deposits were 5.7, 6.6, 4.6, and
3.4 at the end of the years 1940, 1950, 1955, and 1957, respectively.
Moreover, the household deposits collected by Sberekassa were used to
finance the state budget during the period when Sberekassa belonged to
the Ministry of Finance. Three percent of the household deposits were
left to Sberekassa for its operations; the remainder was transferred to
the Ministry of Finance through Sberekassa’s purchases of
government bonds (Allakhverdyan, 1962, p. 319; Chetvernikov, 1972, p.
25; RGAE1562/41/543/19-20). During the period from the abolition of the
subscribed sales in 1958 to Gosbank’s takeover of Sberekassa in
1963, Sberekassa continued to purchase government bonds, the amount of
which largely corresponded to the amount of household deposits. (10)

It is not clear why the Soviet authorities chose bond financing to
secure the state budget revenue. The revenue from bond issuance
accounted for approximately 5%-10% of the total state budget revenue
(RGAE1562/41/ 453/23-24), except during the war period. The Soviet
authorities could have increased the state budget revenue by increasing
taxes, increasing prices, or decreasing wages instead of issuing
government bonds. Bond financing was clearly not a cheap financing
method; indeed, the Soviet government performed a conversion of
outstanding government bonds in 1938 and another conversion and a
partial confiscation of government bonds at the time of the 1947
currency reform (Allakhverdyan, 1962, pp. 120, 323; Chetvernikov, 1972,
pp. 49-50; Millar, 1975; Birman, 1981, p. 116; Nove, 1992, pp. 316,
333). RGAE (1562/41/453/23-24) indicates that the 1938 conversion
reduced debt servicing costs from 3.46 billion R in 1937 to 1.96 billion
R in 1938 and that the 1947 currency reform reduced debt servicing costs
from 6.9 billion R in 1947 to 2.95 billion R in 1949. The government
probably did not choose to increase taxes or confiscate government bonds
in 1958 because of the social and political costs associated with those
unpopular measures. However, the reason why the Soviet authorities chose
bond financing in the beginning remains unknown.

Regardless of the reason why the Soviet authorities chose bond
financing, government bond issuance virtually ceased, except for
small-scale issues of lottery bonds, after Gosbank’s takeover of
Sberekassa. The government bonds held by Gosbank were also charged off
within two years after the takeover, as has been mentioned. The debt
servicing costs for the government were reduced to an almost negligible
level. At the same time, the transfer of household deposits from
Sberekassa to the Ministry of Finance stopped as well. The government
lost this significant revenue source; Figures 2 and 3 show that
liabilities to the government (LG) (ie, the government’s assets
deposited in Gosbank accounts) decreased after 1963.

The consolidation of Sberekassa into Gosbank changed the flow of
funds. Before 1963, the government collected the households’ funds
bearing the debt servicing expenses and supplied the collected funds to
the economy. After 1963, Gosbank collected household deposits and lent
bank loans to the economy. (11) The state budget funds remained the
dominant financial source even after 1963, and it is unknown to what
extent the Soviet authorities actually intended to replace the state
budget financing with bank financing. Nevertheless, it is clear that
bank financing expanded much more rapidly after 1963 than it did before
that time (see Figure 1).

The change in the pattern of financial flows accompanied the
changes in the basic framework of Soviet monetary management. The
cornerstone of financial discipline before 1963 was the
government’s obligation to redeem government bonds. The Soviet
government seemed to be generally sincere in its intentions to fulfill
its obligations. The government did not simply write off its debts in
1938, 1947, and 1958 because the government might have been concerned
with the social and political costs of default (see Birman, 1980, p.
99). After 1963, the government was freed from its obligation to repay
government bonds. Instead, Gosbank started expanding bank loan financing
by using its own financial source, household deposits. Consequently, the
maintenance of financial discipline hinged on microeconomic events if
enterprises met their obligations to repay their bank loans. It was
difficult to find other ways to maintain financial discipline in the
Soviet context, where a financial market did not exist. The Soviet
authorities could not use macroeconomic instruments, such as interest
rate policies and open market operations, to manage financial flows
because they had abandoned money and financial markets.


This paper investigated the effectiveness of the division between
cash and non-cash flows and the source of gosbank’s loans. The
results showed that the division between cash and non-cash money was
largely effective in the sense that the cash money supply grew more
slowly than the non-cash money supply. As this result implies, cash
emissions were not a main source of gosbank’s loan supply, except
in the 1920s. The dominant sources of the loan supply were the balances
of the government accounts at gosbank until the transfer of the thrift
institution Sberekassa to Gosbank in 1963. After the transfer, household
deposits became the dominant source. This change was accompanied by a
change in the pattern of macroeconomic financial flows: the government
stopped collecting funds through government bond issue, and bank
financing increased. The trend towards increased bank financing
accelerated after 1970; household deposits almost exclusively financed
the increasing demands for credit.

What can we learn about the Soviet monetary economy from these
results? This study clearly shows the importance of reconsidering the
economic significance of Soviet monetary management and evaluating its
actual performance. Both non-Soviet and Soviet economists have pointed
out the lack of macroeconomic monetary management in the Soviet economy
since the latter half of 1950s (Levchuk, 1971, pp. 129-134; Garvy, 1977,
p. 114; Kuschpeta, 1978, p. 251; Zwass, 1979, pp. 16-17; Sigg, 1981, pp.
149, 176, 196; Birman, 1981, pp. 193-194; IMF, vol. i, 1991, pp.
362-363). The Soviet economy used fiat money without information and
with no instruments to manage the money. Marx did not seem to assume
that money would continue to be used in his socialist or communist
society (see Kuschpeta, 1978, pp. 208-221; Rubel and Crump, 1987). The
Soviet authorities did not seem to have any intentions to continue to
use money at first; material planning was thought to be the key to
managing the economy. Even if the Soviet authorities had intended to
establish a Soviet framework of macroeconomic monetary management, it
would have been difficult to conceive of how to manage fiat money in the
Soviet context, where markets of money, funds, and foreign exchange did
not exist.

However, the lack of macroeconomic monetary management was
relatively harmless during a time when excess money was absorbed through
government bond issues and the raised funds were expended as state
budget funds that required neither interest payments nor repayment of
the principal. This pattern of financial flows reached a deadlock, as
did material planning, in the middle of the 1950s because fund use
efficiency was too low. A new financial mechanism, bank financing,
emerged in the hope that it would increase fund use efficiency (see
Birman, 1981, pp. 171-172). It is no wonder that the Soviet economic
literature stressed that bank loan financing should provide enterprises
with incentives to increase fund use efficiency (Lavrushin, 1974, pp.
40-44; Krol, 1983). The enterprises were expected to use funds
efficiently and thus be able to pay interest and repay principal. If
this scenario had been realized, macroeconomic management of money would
have been unnecessary (see Riesz, 1973). Apart from the practical
problems associated with compelling enterprises to efficiently use
funds, this goal was not realized simply because nobody has perfect
foresight. The question that needed to be addressed was what to do if
enterprises had failed to use funds efficiently.

From this consideration, it is no wonder that some Soviet
economists began to argue around the middle of 1950s that cash and
non-cash money flows should be managed somehow in an integrated manner
and that macroeconomic financial instruments should somehow be developed
(Shteinshleiger, 1956; Shenger, 1961; Melkov, 1969, pp. 21-23; Levchuk,
1971; Barkovskii, 1976; Savluk, 1982, p. 157; Krol, 1985; Dembinski,
1988; Volkov, 1987, pp. 216-243; Round Table, 1989). This argument was a
compelling one, but the plan never materialized because there were no
financial markets (see Wiles, 1968, pp. 43-55). Alternatively, it may be
said that the idea was finally realized when the transition to a market
economy and the re-introduction of the financial markets began after the
collapse of the Soviet Union.

This study could show the historic change in the Soviet flow of
funds. Many questions still have to be answered to better understand the
Soviet financial economy. First, this study did not directly evaluate to
what extent Soviet monetary management was successful or unsuccessful.
It is naturally difficult to evaluate the performance of Soviet monetary
management because the Soviet economy lacked the very information
necessary to evaluate the macroeconomic financial situation. One
possible method would be to compare the policy intentions of the Soviet
authorities with the actual results and the planned figures of the
monetary indicators with the actual figures. Second, this study did not
analyze the entirety of Soviet financial flows. State budget financing
dominated the Soviet monetary economy until the end of the Soviet
system, despite the expansion of bank financing. It is necessary to
reconstruct all of the macroeconomic financial flows in the Soviet
economy and analyze them. The data and information necessary for these
analyses have been unavailable thus far but may exist, if only
partially, in the Soviet archives.


Notations and Sources: When two or more sources give slightly
different figures for the same year, the figure of the newer source was

Columns from (a) to (m), Gosbank balance-sheet items: (See Table
A1) Kashin and Mikov (2010) for the balance sheet data except for
household deposits (HDP) in 1930 to 1961. The balance sheet data for
1922 to 1940 are the data adjusted to the changes in the balance sheet
compilation methodology (Kashin and Mikov, 2010, pp. 114-125). MNY:
money gold, precious metals, and cash held by Gosbank, EMS: cash
emission. EMS does not exclude the cash that Gosbank holds. The cash in
circulation (CAS in Table 1) is defined as: CAS=EMS-MNY. CFG: credits to
foreign governments. The CFG figures with t for 1953 to 1956 are shown
for reference; these figures are included in the foreign assets (Kashin
and Mikov, 2010, p. 86). The CFG became a separated balance sheet item
in 1957. HDP: The HDP figures in italic for 1930 to 1961 were the
amounts of the household deposits that Sberekassa held and, thus, were
not included in Gosbank’s balance. They are taken from Nakamura
(2011, p. 1154). Gosbank’s household deposits were negligible and
included in the other liabilities (OL) until the take-over of Sberekassa
by Gosbank in 1963. The HDP figures from 1962 and after were the figures
shown in the Gosbank’s balance sheets. See Table 1 for the other

Column (n): Nominal produced national income (PNI):
RGAE7733/4/1052/51 for 1923-1927. The figures for 1928-1931 and 1935 are
based on the data in Vainshtein (1969). The amounts of turnover tax were
added to the original Vainshtein figures of 1928-1931, following Suhara
(2008). The 1933 figure was estimated by Suhara (2008). The 1932, 1934,
and 1936 figures were interpolated. RGAE (1562/41/65/36) for the figures
of 1957 to 1949. Vainshtein (1968, p. 111), RGAE1562/33s/3108/4, and
RAGE1562/33s/4925/ 2 for 1950 to 1960. Narkhoz (1964, p. 575), Narkhoz
(1979, p. 405), Narkhoz (1982, p. 378), Narkhoz (1983, p. 378), Narkhoz
(1984, p. 424), and Narkhoz (1990, p. 11) for 1961 to 1987.

Column (o): State budget expenditure (SBE): RGAE (7733/15/491/25,
29) and RGAE (7733/36/1847/119, 127, 129) for 1923-1937. Note the
figures for 1923-1937 were adjusted to the budget classification for
1938 and after. RGAE (7733/36/1847/125-6) explains the details of the
adjustment. RGAE (1562/41/543/21-25) and RGAE (1562/41/654/9) for
1931-1962 except for 1940-1945. Goskomstat SSSR (1990. p. 15) for
1940-1945. Narkhoz (1962, p. 635), Narkhoz (1963, p. 654), Narkhoz
(1964, p. 770), Narkhoz (1965, p. 781), Narkhoz (1968, p. 774), Narkhoz
(1969, p. 770), Narkhoz (1970, p. 730), Narkhoz (1975, p. 742), Narkhoz
(1980, p. 522), Narkhoz (1982, p. 521), Narkhoz (1984, p. 573), Narkhoz
(1985, p. 559), Narkhoz (1990, p. 16) for the other years.

Table A1: Balance sheets, nominal produced
national income, and state budget.

Year        (a)          (b)          (c)          (d)          (e)
             FA           CE           CG          CFG          MNY

1922 *         28.1         57.8          0.8                      14.1
1923 *        147.4        456.0          0.0                      22.5
1924 *        301.0        838.5          0.2                      62.3
1925 *        301.4      1,717.7          2.0                     134.9
1926 *        256.7      2,143.3         76.0                     106.6
1927 *        306.1      3,246.3         53.1                      89.8
1928 *        308.6      3,832.5         33.8                      59.2
1929 *        433.1      4,755.5         77.6                      89.3
1930 *        590.9      8,424.0         48.4                      83.6
1930          585.5      9,874.5         64.9                     110.3
1931          720.0     14,825.0        225.5                     270.3
1932          839.0     17,189.8      3,205.5                     270.2
1933          942.2     20,983.8      3,014.0                     132.2
1934          958.9     24,414.1      3,032.1                     152.8
1935        1,080.2     34,114.2      3,289.7                     154.2
1936        2,224.5     42,346.8      4,446.6                     227.3
1937        2,512.9     47,694.2      4,428.5                     165.9
1938        2,345.4     46,179.9      4,120.3                     196.2
1939        2,601.3     49,714.7      4,364.3                     266.6
1939          318.5     49,714.7      4,365.7                   2,548.4
1940          860.2     58,038.3      4,364.9                   2,712.0
1940          860.2     57,740.0      4,364.9                   2,712.1
1941          779.0     57,065.6     18,728.5                   2,693.2
1942          703.0     49,913.8     39,248.4                   3,099.4
1943          721.2     54,524.7     52,147.3                   2,851.0
1944          834.9     64,534.9     51,651.6                   3,317.2
1945        1,199.2     71,102.9     53,835.0                   3,921.0
1945        1,200.0     71,100.0     53,300.0                   4,300.0
1946        2,255.7     79,565.1     43,812.9                   3,472.8
1947        2,689.3     89,767.4     19,918.4                   3,376.4
1948        4,841.1    135,436.7      1,623.8                   3,054.4
1949        4,928.1    182,870.9      2,217.7                   2,975.1
1950        5,360.2    173,111.1      3,011.7                   2,659.1
1951        6,895.4    191,402.4      2,874.2                   2,384.4
1952        9,546.7    210,815.0      4,965.6                   2,580.2
1953       12,438.0    216,137.7      5,819.7   12,303          2,399.2
1954       14,189.1    199,777.4      5,769.6   11,006          2,665.8
1954       14,189.1    199,777.4      5,769.6   11,006          2,665.8
1955       18,788.5    209,471.0      3,418.1   15,494          2,589.0
1956       20,172.9    255,922.8      3,236.1   15,204          3,009.4
1957       45,63.5     277,613.8      3,945.2     15,960.3      3,310.1
1958        2,703.7    333,585.6      4,242.7     17,127.1      2,582.2
1959        4,011.7    431,767.4      6,941.5     16,612.3      2,781.6
1960        4,107.9    454,904.8      8,102.5     16,496.0      5,230.1
1960          873.7     45,513.8        960.6      3,682.0        787.7
1961          853.1     49,744.7        758.9      4,320.6        570.2
1962          967.6     52,983.3        903.1      4,807.6        577.0
1962          967.6     52,983.3     13,594.6      4,807.6        606.6
1963        1,150.5     58,664.1      1,958.8      5,313.8        683.3
1964          952.9     66,945.6        991.6      5,926.4        659.2
1965          850.8     71,273.3      2,118.3      6,610.8        661.2
1966          807.4     80,326.0      2,341.1      7,559.0        613.4
1967        1,344.2     92,208.3      1,584.5      8,513.0        727.2
1968        1,505.0    102,284.9      4,486.0      9,736.8        706.2
1969        1,945.8    108,326.2      7,672.2     10,953.3        844.4
1970        2,396.6    118,755.4     11,276.1     11,998.8        816.3
1970        2,396.6    118,738.4      9,803.5     13,381.3        816.4
1971        3,486.0    129,127.3     13,180.9     13,979.7        774.9
1971        3,486.0    129,127.3     13,180.9     13,979.7        774.9
1972        1,677.9    141,251.1     17,290.0     17,373.2      1,189.8
1973        2,118.9    158,073.9     21,007.0     18,535.5      1,243.7
1974        3,451.0    175,577.2     27,275.9     21,004.7      1,106.2
1975        3,134.1    188,746.5     35,744.8     22,233.3      1,155.4
1976        4,135.1    208,523.0     45,024.1     24,536.3      1,133.6
1977        5,158.3    227,273.6     54,338.1     28,932.3      1,453.2
1978        5,639.4    241,211.0     64,109.8     35,063.5      1,482.2
1979        7,982.1    262,574.3     71,331.7     39,600.8      1,622.2
1980        9,435.6    292,753.1     79,762.3     44,039.8      1,745.2
1981       10,653.4    333,685.1     85,526.5     47,528.9      1,763.2
1982       12,361.8    363,496.7     92,995.6     53,137.3      1,371.7
1983       13,759.5    384,700.2    105,758.3     60,144.6      1,381.2
1984       15,238.8    405,197.5    115,584.4     67,582.8      1,803.1
1985       14,696.5    426,662.4    126,859.6     72,498.1      1,823.4
1986       15,706.2    422,544.2    149,587.5     78,497.5      1,589.7
1987       13,638.0    438,705.2    173,094.8     84,716.1      1,863.9

Year        (f)          (g)          (h)          (i)          (j)
             OA           FL          EMS           LE           LG

1922 *         42.0          5.8          0.0         33.9         15.5
1923 *         39.0         14.9        235.0        176.3        109.0
1924 *         45.7         70.1        521.8        305.2        160.1
1925 *        145.1         55.7        756.6        854.1        316.6
1926 *        140.5         59.5        856.8        988.1        368.1
1927 *        110.3        129.7      1,127.0      1,220.0        771.2
1928 *        154.9        143.9      1,797.7      1,017.1        621.8
1929 *        163.9        142.4      2,443.4      1,529.3        705.8
1930 *        206.8        163.5      4,033.0      3,073.0      1,113.4
1930          234.2        145.5      4,078.1      3,889.2      1,611.9
1931          536.1         78.7      5,361.9      7,763.4      1,625.2
1932          671.0         95.7      8,049.0      9,838.8      2,315.4
1933          468.9        146.9      6,493.1     10,356.5      6,216.7
1934          347.0         94.1      7,337.4      9,629.9      9,208.5
1935          437.5         47.4      9,291.0     13,044.4     13,498.6
1936          464.0        369.1     11,255.6     19,312.6     16,234.4
1937        1,779.5        730.2     13,582.3     19,581.7     18,971.7
1938        1,264.7        653.8     17,216.3     20,953.2     12,749.5
1939          915.3        879.0     22,214.0     24,803.8      7,446.3
1939          915.4        879.0     22,214.0     23,708.4      8,414.5
1940          893.9      1,050.0     22,103.2     27,794.6     13,010.4
1940        1,194.5      1,050.0     22,103.2     28,652.4     12,135.4
1941        1,527.0        828.3     34,727.1     32,363.5      6,161.1
1942        8,55.7       1,294.8     45,830.5     33,659.7      7,220.8
1943        1,390.2      1,793.4     57,369.4     37,622.1      8,869.2
1944        1,608.2      2,031.7     64,531.6     39,040.5      9,834.3
1945        3,586.3      2,557.7     73,886.6     39,401.3     10,456.0
1945        3,700.0      2,558.0     73,887.0     39,105.0      8,226.0
1946        2,283.8      2,399.0     65,829.2     39,601.1     15,857.0
1947        2,343.0      1,980.6     13,422.2     42,858.7     47,395.6
1948        2,068.3      2,169.9     23,784.8     39,697.4     70,709.9
1949        1,841.9      2,372.7     27,134.9     53,754.0     96,767.0
1950        1,662.5      2,604.9     33,112.7     52,642.4     81,708.5
1951        1,578.0      2,224.1     33,991.7     57,220.4     93,055.5
1952        1,551.4      2,220.9     36,437.7     53,028.2    115,398.2
1953        1,847.0      2,281.6     38,247.6     60,453.7    112,523.9
1954        1,923.1      2,832.6     45,740.8     66,913.6     82,703.2
1954        1,923.1      2,832.6     45,740.8     66,913.6     93,600.3
1955        1,338.2      2,347.8     46,969.0     69,142.8    104,479.9
1956        2,079.3      3,129.8     54,469.8     84,763.1    129,035.9
1957        1,398.4      3,201.0     56,442.2     88,474.8    145,733.2
1958        2,053.4      2,510.5     61,793.6    108,999.4    175,583.8
1959        1,750.5      2,785.6     67,053.0    124,443.2    250,560.4
1960        2,889.3      2,324.5     58,774.0    123,015.0    266,428.8
1960          294.3        523.4      6,018.0     12,325.4     29,053.8
1961          313.6        726.0      7,704.1     13,746.6     30,313.0
1962          315.9        782.2      9,266.2     14,275.0     32,081.6
1962          899.4        782.2      9,266.2     14,054.3     32,624.1
1963          363.7        832.0     10,104.2     16,447.8     22,479.0
1964          370.7        868.6     11,352.0     19,503.1     24,001.7
1965          577.5      1,188.8     13,102.9     22,190.0     22,515.9
1966        1,214.1      1,147.0     15,430.7     25,124.7     23,829.2
1967        1,188.7      1,424.8     17,877.5     29,313.3     25,582.9
1968          927.1      1,857.0     20,635.5     32,569.4     27,306.7
1969          594.5      2,176.6     23,003.3     35,397.3     26,189.9
1970          692.2      2,554.3     23,070.5     38,828.7     28,897.2
1970          799.2      1,070.4     23,070.5     37,309.5     30,839.2
1971          997.9      1,183.0     25,345.3     41,875.6     32,290.8
1971          997.9      1,184.4     25,345.3     38,902.7     36,109.4
1972          910.5      2,282.1     28,054.4     41,252.3     41,566.5
1973        1,056.7      6,798.6     30,593.9     45,504.9     44,458.5
1974        1,231.4      9,257.7     34,080.4     51,313.3     49,391.0
1975        1,324.8     11,582.3     38,091.9     55,878.8     49,998.8
1976        1,430.4     13,314.7     42,110.6     60,725.4     59,379.6
1977        1,699.7     14,259.7     45,630.3     66,933.3     68,324.1
1978        1,588.5     15,985.4     48,455.9     73,175.8     72,561.7
1979        1,755.0     18,742.7     49,781.0     82,257.6     76,281.4
1980        2,110.0     20,883.0     53,100.3     97,828.3     87,121.6
1981        2,736.3     29,428.4     54,123.5    114,343.0     99,800.1
1982        2,110.1     29,729.4     57,617.6    137,444.0    106,831.1
1983        2,126.7     30,815.6     62,925.0    144,370.5    121,102.2
1984        2,299.9     31,580.5     67,086.7    156,284.5    127,963.7
1985        2,477.0     36,431.5     71,190.7    161,453.5    132,388.9
1986        2,622.3     40,163.4     75,100.6    167,290.9    122,047.7
1987        3,753.6     40,948.9     80,994.8    176,788.7    127,450.2

Year        (k)          (1)          (m)          (n)          (o)
            HDP           OL          TTL          PNI          SBE

1922 *                      87.6          143
1923 *                     129.7          665
1924 *                     190.5        1,248       11,970        2,318
1925 *                     318.1        2,301       14,260        3,002
1926 *                     450.6        2,723       21,540        4,066
1927 *                     557.9        3,806       23,370        5,391
1928 *                     808.5        4,389       25,010        6,670
1929 *                     698.5        5,519       26,330        8,784
1930 *                     970.8        9,354       27,480       13,322
1930           49.4      1,144.7       10,869       43,690       17,347
1931           72.9      1,747.7       16,577       57,250       24,995
1932           97.4      1,876.6       22,176       80,430       37,995
1933          118.2      2,327.9       25,541       97,000       42,081
1934          163.8      2,635.0       28,905      128,700       55,445
1935          246.1      3,194.4       39,076      185,500       73,572
1936          353.9      2,537.5       49,709      213,840       92,480
1937          451.5      3,715.1       56,581      243,800      106,238
1938          606.1      2,533.7       54,107      257,400      124,039
1939          705.7      2,519.7       57,863      328,800      153,299
1939          705.7      2,646.8       57,863
1940          725.3      2,911.1       66,869      368,200      174,350
1940          725.3      2,930.6       66,872
1941          496.0      6,713.4       80,793      404,100      191,400
1942          441.0      5,814.4       93,820      330,100      182,800
1943          440.5      5,980.4      111,634      418,600      210,000
1944          523.2      6,508.6      121,947      489,600      264,000
1945          900.1      7,342.7      133,644      441,400      298,600
1945          900.1      9,869.0      133,644
1946        1,220.8      7,704.2      131,390      573,000      307,545
1947        1,266.1     12,437.2      118,095      643,700      361,542
1948        1,287.9     10,662.4      147,024      721,700      370,922
1949        1,546.1     14,804.9      194,834      810,400      412,288
1950        1,853.0     15,736.3      185,805      740,400      413,237
1951        2,192.4     18,642.8      205,135      780,900      443,041
1952        2,644.5     22,373.9      229,459      812,600      460,208
1953        3,864.9     25,134.9      238,642      856,900      514,697
1954        4,835.3     26,134.5      224,325      918,300      553,867
1954        4,835.3     15,237.5      224,325
1955        5,366.4     12,665.3      235,605      985,000      539,538
1956        6,374.8     13,021.9      284,420    1,068,000      563,482
1957        8,100.0     12,940.2      306,791    1,128,000      607,315
1958        8,719.0     13,407.4      362,295    1,277,000      642,750
1959       10,056.0     19,023.2      463,865    1,362,000      703,911
1960       10,909.2     41,188.3      491,731    1,450,000      731,262
1960        1,090.9      4,191.1       52,112      145,000       73,126
1961        1,167.1      4,071.4       56,561      152,900       76,310
1962                     4,149.7       60,555      164,600       82,154
1962       12,880.9      4,251.6       73,859
1963       14,124.6      4,146.5       68,134      168,800       87,000
1964       15,834.9      4,286.1       75,846      181,300       92,230
1965       18,855.7      4,239.0       82,092      193,500      101,620
1966       23,045.9      4,283.7       92,861      207,400      105,580
1967       26,997.0      4,370.3      105,566      225,500      115,240
1968       32,500.8      4,776.3      119,646      244,100      128,560
1969       38,536.7      5,032.3      130,336      261,900      138,530
1970       46,743.1      5,841.6      145,935      289,900      154,600
1970       46,743.1      6,902.6      145,935
1971       53,369.0      7,482.9      161,547      305,000      164,150
1971       53,369.0      6,635.7      161,547
1972       60,889.4      5,648.0      179,693      313,600      173,220
1973       68,815.8      5,864.1      202,036      337,800      183,980
1974       79,074.2      6,529.7      229,647      354,000      197,380
1975       91,153.8      5,633.2      252,339      363,300      214,520
1976      103,174.3      6,078.1      284,782      385,700      226,740
1977      116,839.7      6,868.2      318,855      405,600      242,800
1978      131,322.3      7,593.5      349,095      426,300      260,200
1979      146,438.2     11,365.2      384,866      438,300      276,370
1980      156,729.8     14,183.1      429,846      462,200      294,630
1981      165,945.2     18,253.4      481,894      486,700      309,800
1982      174,572.1     19,279.0      525,473      523,400      343,150
1983      187,187.0     21,470.1      567,871      547,200      354,260
1984      202,339.2     22,451.9      607,707      569,600      371,180
1985      221,078.4     22,474.0      645,017      578,500      386,470
1986      243,080.5     22,864.4      670,548      587,400      417,089
1987      267,193.5     22,395.5      715,772      599,600      430,900

Note: The unit is a million current ruble. The columns from (a) to
(m) show the stock data at the end of year. The year with is the
economic year ending on 30 September of the label year. When two
entries of (a) to (m) for the same year exist, the first was
compiled by the old methodology and the second by the new
methodology. The columns of (n) and (o) show the flow data in the
label year.


I would like to thank the members of the Russian historical
economic statistics research group for their comments and suggestions in
the early stage of this study. I am greatly indebted to Prof. Kuboniwa
of Hitotsubashi University, the head of the research group, for helpful
advice and the data. I am also grateful to the Editor for the useful
comments and suggestions on the earlier draft of this paper and to
Sergei Deogtev of the RGAE and Elena Katasonova of the Russian Academy
of Sciences for their kind support for my work at the RGAE. This work
was financially supported by JSPS KAKENHI Grant Numbers 24530592 and


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(The archive materials of the Russian State Archive of Economy
(Rossiiskii Gosudarstvennyi Arkhiv Ekonomiki: RGAE) are referred to in
the conventional way to indicate the Fond number/the Opisi number/the
Delo number/[if available] the List number as RGAE w/x/y/z).

Gosplan SSSR and TsSU SSSR, Narodonoe khozyaistvo SSSR (1913-1957
gody), RGAE 1562/41/233.

Ministerstvo finansov SSSR, Finansovyi plan narodonogo khozyaistva
na pyatiletie 1926/1927-1930/1931 gg., RGAE 7735/4/1052.

Ministerstvo finansov SSSR, Gosudarstvennyi byudzhet SSSR na
1918-1937 gg., RGAE 7733/15/491.

Ministerstvo finansov SSSR, Ekonomichskie obzory po ispolneniyu
gosudarstvennogo byudzheta SSSR za 1923/24-1943 gody i materialy k
gosudarstvennomu byudzhety SSSR, RGAE 7733/36/ 1847.

Tsentral’noe statisticheskoe yplavlenie pri sovete ministrov
SSSR, Balans narodonogo khozyaistva SSSR za 1955-1957g. g., RGAE

Tsentral’noe statisticheskoe yplavlenie pri sovete ministrov
SSSR, Balans narodonogo khozyaistva SSSR za 1961-1962g. g., RGAE

Tsentral’noe statisticheskoe yplavlenie pri sovete ministrov
SSSR, Statisticheskie dinamicheskie ryady za 1913-1951, RGAE 1562/41/65.

Tsentral’noe statisticheskoe yplavlenie pri sovete ministrov
SSSR, Finansy SSSR, Statistichekii Sbornik, RGAE 1562/41/543.

Tsentral’noe statisticheskoe yplavlenie pri sovete ministrov
SSSR, Finansy SSSR, Statistichekii Sbornik, 1961-62 gg., RGAE


International Graduate School of Social Sciences, Yokohama National
University, Tokiwadai 79-4, Hodogaya-ku, Yokohama 240-8501, Japan.


(1) It would be more appropriate to use the term means of
settlement used by households and by enterprises instead of cash and
non-cash money. Soviet households could use means of settlement in a
non-cash form, such as bank transfers and credit cards. Thus, cash money
includes non-cash means of settlement. However, non-cash money does not
correspond to deposit money. Although deposit money includes household
deposits, household deposits were not non-cash money because they were
not allowed to be used as means of settlement in the non-household
sphere. Despite this ambiguity, I use the terms cash and non-cash money
in accordance with the traditional Soviet nomenclature.

(2) Hereafter, the term wage payment includes an enterprise’s
use of cash money to pay for various monetary benefits to households and
small expenses.

(3) The Chervonets banknotes were used until the currency reform of
1947 (Kravtsovaya, 1983, p. 104).

(4) Smirnov (1982, p. 40) wrote that it was necessary to change the
item of a bank loan at each step in the production process (ie, stock of
material, production costs, sales inventory, distribution, and
settlement) because of the restrictive method of granting bank loans.

(5) There were two other major revaluations of the ruble. One was a
devaluation from 1.139 ruble/USD to 5.04 ruble/USD on 1 April 1936; the
other was an appreciation from 5.3 ruble/USD to 4.0 ruble/USD on 1 March
1950 (Holzman, 1974, pp. 256-258; CBR, 2012). The 1937 devaluation
caused an increase in the net foreign assets equivalent to 8% of the
balance sheet total as of 1 January 1938; the 1950 appreciation caused a
decrease in the net foreign assets equivalent to 1% of the balance sheet
total as of 1 January 1951. In both cases, the figures include the
changes caused by factors other than the revaluation (Kashin and Mikov,
2010, pp. 38, 38, 54, 55, 82, 122). It is not clear how Gosbank adjusted
the differences between the creditor and debtor sides caused by the

(6) Batyrev (1939) argued that both cash and non-cash money should
be managed in an integrated manner, This issue did not seem to gather
serious attention at that time.

(7) The result of the unit root test was not reported because the
estimation was performed to find any correlation, spurious or
substantial, between cash and non-cash money.

(8) Most of the household deposits held by Gosbank before 1963 were
the deposits made by war participants during the war (Kashin and Mikov,
2010, p. 83).

(9) See the reference for the citation style of the archive
materials of RGAE.

(10) The Soviet literature explains how the household deposits
accepted by Sberekassa were transferred to the Ministry of Finance from
1958 to 1962 in different ways. Allakhverdyan (1962, p. 319) and Melkov
(1969, p. 21) wrote that the government borrowed from Sberekassa not in
the form of governmental bond sales. Conversely, Soviet statistical
materials (RGAE1562/41/543/15-20; RGAE1562/41/654/9) showed the revenue
item of the state budget, Government bonds purchased by Sberekassa,
during the period in the same way as they did before 1958.

(11) The borrower was not only the economy. The foreign governments
borrowed also as discussed above. Moreover, Zakharov (2007, p. 60, 178)
wrote that Sberekassa directly loaned a certain amount of its household
deposits to the government after 1963. It is unknown whether
Gosbank’s balance sheets reflect these transactions.

Table 1: Gosbank's balance sheet

Assets                           Liabilities and capital

Foreign assets (FA)              Foreign liabilities (FL)
Credits to economy (CE)          Cash in circulation (CAS)
Credits to the government (CG)   Liabilities to economy (LE)
Credits to foreign governments   Liabilities to the government (LG)
  (CFG)                          Liabilities to households (HDP)
Other assets (OA)                Capital, reserves, and other
                                   liabilities (OL)
Total (TTL)                      Total (TTL)

Note: CAS is net of the cash that Gosbank holds as asset (see
Appendix). The following notations are derived from the above:
Net foreign assets (NFA)=FA/FL, Net foreign liabilities (NFL)=FL/
FA, Net credits to economy (NCE)=CE/LE, Net credits to the
government (NCG)=CG/LG, Net other assets (NOA)=OA/OL, Net other
liabilities (NOL)=OL/OA. The original balance sheets use the
terms, Credits to the Ministry of Finance and Liabilities to the
Ministry of Finance. The Ministry of Finance can be the union
and/or republic Ministries of Finance. I use the terms, the
credits and the liabilities to the government, for the

Table 2: Share of Gosbank in all bank loans to the economy (%)

Year (a)   Short-term loan   All loan

1923/24          67             66
1926/27          57             48
1932             97             65
1940             99             91
1950             94             89
1960             96             95
1970             92             89
1980             85             80
1987             91             88
1990             1.3           0.1

(a) At the end of year. As of 30 September 1924 for 1923/24 and
30 September 1927 for 1926/27.

Sources: Narkhoz (1987, p. 595) and Kashin and Mikov (2010, p.
75) for 1987. Kashin and Mikov (2010, p. 8) for the other years

Table 3: Major changes in the Soviet banking system

1922-1923        1924-1930     1931-1932       1933-1935

Gosbank (a)      Gosbank (a)   Gosbank         Gosbank
                 TsSB (h)                      SKhB (n)
Pokobank (b)     VsekoB (i)    VsekoB          VBFKSK (o)
UB (c)           UB            UB

                 TsekomB (j)   TsekomB         BFKZhS (p)
TPB (d)          TPB           BDK (m)         Prombank (q)
EK (e)           EK
                 EB (k)
Sberekassa (f)   Sberekassa    Sberekassa      Sberekassa
RKM (g)          VTB (l)       VTB             VTB

1936-1956        1957-1959     1960-1987       1988-1990

Gosbank          Gosbank       Gosbank         Gosbank
SKhB             SOB                           APB (t)
TorgB (r)                      Stroibank (s)   ZhSB (u)

                                               PSB (v)
BFKZhS           BFKZhS
Prombank         Prombank
Sberekassa       Sberekassa    Sberekassa      Sberbank (w)
VTB              VTB           VTB             VEB (x)

Notes: The table roughly shows the reorganizations, consolidations,
and separations of the Soviet banks. The size of a cell does not
correspond to the size of the bank. The following list shows the
popular short name, if exists, and the establishment year in the

(a) Gosbank: Gosudarstvennyi bank RSFSR for 1922-1923.
Gosudarstvennyi bank SSSR was established in 1923.

(b) Pokobank: Bank potorebitel'skoi kooperatsii (1922).

(c) UB: Vseukrainskii kooperativnyi bank (1922).

(d) TPB: Torgovo-promyshtennyi bank (1922).

(e) EK: Vserossiskoe aktsionernoe obshchestvo finansirovaniya
mestnoi elektrifikatsii (Elektrokredit, 1922).

(f) Sberekassa: Gosudarstvennye turudavye sberkassy (1922).

(g) RKB: Rossiiskii kommercheskii bank (1922).

(h) TsSB: Tsentral'nyi sel'skokhzyaistvennyi bank (1924). TsSB was
liquidated in 1930. Gosbank had overtaken its function until the
establishment of Sel'khozbank in 1932.

(i) VsekoB: Vserossiiskii kooperativnyi bank (Vsekobank, 1923).

(j) TsekomB: Tsentral'nyuu bank kommunafnogo khozyaistva i
zhilishchnogo storitel'stva (Tsekombank, 1925). Tsekombank and its
successor, BFKZhS, included the local communal banks.

(k) EB: Aktsionerny bank po elektrifikatsii (Elektorobank, 1924).

(l) VTB: Bank dlya vneshnei torgovli SSSR (Vneshtorgbank, 1924).

(m) BDK: Bank dologosrochnogo kreditovaniya promyshlennosti i
elektrokhozyaistva (BDK, 1930).

(n) SkhB: Bank finansirovaniya sotsiatisticheskogo sel'skogo
khozyaistva (Sel'khozbank, 1932).

(o) VBFKSK: Vsesoyuznyi bank finansirovaniya kapitat'nogo
storoitel'stogo kooperatsii (1932).

(p) BFKZhS: Bank finansirovaniya kommunafnogo i zhilishchnogo
stroitel'stva (1932).

(q) Prombank: Bank finansirovaniya kapitat'nogo stroitel'stva
promushlennosti i elektrokhozyaisva (Prombank, 1932).

(r) TorgB: Vsesoyuznyi bank finansirovaniya kapitafnogo
stroiel'stva torgovli i kooperatsii (Torgbank, 1936).

(s) Stroibank: Vsesoyuznyi bank finansirovaniya kapitafnykh
vlozhenii (Stroibank, 1959).

(t) APB: Agropromyshlennyi bank SSSR (Agroprombank, 1988).

(u) ZhSB: Bank zhilishchno-kommunafnogo khozyaistva i sotsial'nogo
razvitiya (Zhilsotsbank, 1988).

(v) PSB: Promyshkenno-stroitefnyi bank SSSR (Promstroibank, 1988).

(w) Sberbank: Bank turdavykh sberzhenii i kreditovaniya naseleniya
SSSR (1988).

(x) VEB: Bank vneshneekonomicheskoi deyatel'nosti SSSR
(Vneshekonombank, 1988).

Sources: Zakharov (2007, p. VIIIIX), Kashin and Mikov (2010, p. 8)

Table 4: Relation between cash and non-cash money

                           (1)           (2)

Period                  1925-1987     1925-1987
Obs.                       59            59
Const.                    0.204         0.205
                       (4.97 ***)    (5.64 ***)
TTL                       0.313          --
                       (2.98 ***)
CE                         --           0.194
                                      (1.96 *)
Trend                    -0.003        -0.003
                       (4.16 ***)    (4.27 ***-)
D. W.                     2.13          1.96
[R.sup.2]                 0.47          0.42
F                       26.7 ***      22.0 ***
White                      Yes           No
J-B                       0.383         0.190
Wald c2=1               0.00 ***        0.00
c2=0.5                   0.08 *       0.00 ***

Abbreviations and notations:

* significant at the 10% level, *** significant at the 1% level.

Obs.: the number of observations, Const.: constant, TTL: Gosbanks
balance total, CE: credits to economy, D.W.: the Durbin-Watson test
statistic for auto-correlation, [R.sup.2]: the adjusted coefficient of
determination, F. the F-statistic, White: the White test statistic
for heteroscedacity, J-B: the Jaraque-Bera test statistic for
normal distribution.

Notes: (1.) The upper and lower figures of Const., TTL, CE, and
Trend are the estimated coefficient and its t value, respectively.

(2.) Yes and No for White mean the existence and non-existence of
heteroscedasticity, respectively. If yes, the heteroscedasticity
and autocorrelation consistent (HAC) covariances were used to compute
the statistics.

(3.) The null-hypothesis of the J-B test is that the errors distribute
normally. The figures of J-B show that the null-hypothesis was accepted
for both (1) and (2) well above the 10% level.

(4.) The upper and lower figures of Wald show the p-values of the
estimated coefficients for TTL or CE when the coefficient is assumed to
be 1 and 0.5, respectively.