Currency Reforms

Currency Reforms


conversions carried out by the state to normalize monetary circulation and strengthen the entire monetary system.

Currency reforms are carried out in various ways, depending on such factors as the mode of production, the political system, the position of particular classes, and the condition of the economy of the country involved. Currency reforms may involve withdrawal of all or some of devalued paper notes from circulation and their replacement with new money (paper or metal), a change in the gold content of the money or in its exchange rate, a reorganization of the monetary system, or other steps. Currency reforms establish a transition from one monetary system to another. For example, the Kankrin reform (1839) instituted silver monometalism, which was replaced by gold currency in Russia by the monetary reform of 1895-97. Currency reforms also include the replacement of the existing depreciated and devalued money with full-valued money; replacement of nonexchangeable bank notes with exchangeable ones; changes in the system of money emission; stabilization of the currency or partial measures to normalize monetary circulation; or formation of a new monetary system as part of state reorganization.

Various methods are used to normalize monetary circulation, including deflation, which is a reduction in the amount of money by withdrawal of surplus paper notes from circulation; nullification, the elimination of old bank notes and the issue of a smaller number of new paper bank notes; revaluation, a change in the nominal value of bank notes with exchange of old bank notes at a certain ratio for new, larger monetary units and a simultaneous recomputation of prices, tariffs, wages, and so on in the same ratio; devaluation, the reduction of the metal content of the monetary unit or reduction of the exchange rate of paper notes in relation to metal or to a foreign currency; and revaluation, an increase in the metal content of the monetary unit or the exchange rate of paper notes in relation to a foreign currency. Partial monetary reforms carried out by the methods of revaluation and devaluation are not always called currency reforms.

Under capitalism, currency reforms are carried out primarily in the interests of the ruling exploiter classes. They usually involve a rise in taxes, decreases in the state’s social expenditures, and so on. The capitalist states use currency reforms and various state-monopoly measures to try to alleviate the acuteness with which the general crisis of capitalism manifests itself in the monetary system and to try to normalize some elements of it (such as the exchange rate or the volume of money). Currency reforms are especially frequent under conditions of the general crisis of capitalism. The failure of gold money circulation, the universal spread of paper money, and the almost chronic devaluation of the paper money issifed, along with the increasing instability of capitalism, the aggravation of capitalism’s contradictions, and the rise in the aggressiveness of the imperialist countries, lead to a situation where currency reforms cannot ensure long-term stability in monetary circulation.

After World War II, many currency reforms were carried out in the capitalist countries. One of the largest currency reforms was the devaluation of the currency of 37 capitalist countries in 1949 (in amounts from 12 to 30 percent and more). In the current stage of the general crisis, where paper money and bank notes that cannot be exchanged for gold are circulating, devaluation and revaluation lose much of their importance as methods of stabilizing monetary systems. In the course of the aggravation of the world foreign-exchange crisis at the end of the 1960’s and the beginning of the 1970’s, devaluation (the American dollar, the English pound sterling, and the French franc) and revaluation (the West German mark, the Austrian shilling, and the Swiss franc) were used by certain countries simply as methods of partially escaping from currency difficulties.

Currency reforms are carried out in countries that have liberated themselves from the colonial yoke. A new type of currency reform, anti-imperialist in its content, arose as a result of the crumbling of the colonial system. These currency reforms are directed toward establishing a national monetary system or toward renovating and strengthening the monetary systems these countries have inherited from colonialism. In many of the developing countries, currency reforms serve to ensure economic independence. A typical example of such a currency reform is the establishment of the national monetary system in the Republic of Guinea. In 1960, Guinea established a national state central bank, the Bank of the Republic of Guinea, which began to issue a national monetary unit, the Guinean franc. The old bank notes were exchanged for the new ones at a ratio of 1:1. In a number of other liberated countries currency reforms failed to lead to the establishment of truly national monetary systems, a failure that was due in substantial part to the efforts of the imperialist powers to use currency reforms in former colonial countries as a means of furthering their own neocolonialist policy.

In the USSR and the other socialist countries revolutionary socialist transformations demanded (as an essential element of these transformations) major currency reforms. From the old order the USSR and the other socialist countries inherited a monetary circulation that was profoundly disordered as a result of paper money inflation.

In the USSR the need to reform the currency was pointed out by V. I. Lenin immediately after the October Revolution. Its purpose was to normalize the monetary system at the expense of the capitalists (who had profited by the war and ruin of the country) and thus to undermine this class’ monetary power. This was the new direction of currency reform, unlike the currency reforms of the capitalist states. In the summer of 1918, Soviet authorities stopped the depreciation of money, but the currency reform that was being prepared was cut off by the Civil War and military intervention of 1918-20.

With the transition to NEP, currency reform was advanced as one of the most urgent and important tasks of economic policy. The currency was revalued twice as a preparatory measure for the currency reform. The first stage in the currency reform was putting the chervonets, a Gosbank (State Bank) bank note, into circulation (at the end of 1922). It was 25 percent secured by gold, while the remainder was secured by short-term promissory notes and easily marketable goods. The chervonets was put into circulation as a short-term credit to industry and trade; as the credits were paid off they were returned to the bank. The gold content of the chervonets was set at 7.74234 g of pure gold and its foreign exchange rate was established accordingly.

The issue of bank notes satisfied needs for a stable medium of exchange. Meanwhile the sovznaki, which had been previously issued to cover the budget deficit, remained in circulation. In this way was established a system of parallel circulation of two currencies, a stable one (the chervonets) and a dropping one (the sovznak). The currency reform was completed in 1924. Copper and silver coins and treasury notes were issued in place of the sovznak. On Apr. 1, 1924, when issue of the sovznak stopped, 762.3 quadrillion rubles of sovznaki were in circulation, but their real value (in chervontsy) was only 15.2 million rubles. The sovznaki were bought at the rate of one gold ruble (in treasury notes) for 50,000 rubles of 1923 notes or 50 billion rubles of earlier notes (before the revaluation). A ratio of 1 chervonets for 10 rubles was established between the treasury ruble and the bank chervonets. With such a ratio the Soviet ruble had the same gold content as the prerevolutionary Russian ruble, 0.774234 g of pure gold, and the corresponding foreign-exchange rate. In the course of currency reform the budget deficit was liquidated, and after October 1924 the issue of bank notes to cover a deficit was prohibited by law.

The economic and financial strain experienced during socialist industrialization of the country and collectivization of agriculture was reflected in the sphere of monetary circulation, and thus in 1935-36 it was necessary to normalize this circulation: the rationing system for distributing food products according to fixed prices was eliminated, and new uniform prices were set at a level above the former (1924-25) one, with a corresponding revision of the exchange rate. The new gold content of the ruble was now established at 0.176850 g.

Under the conditions of the Great Patriotic War the volume of goods in the organized market dropped sharply, which reduced the income of the state budget at the same time as expenditures related to the war rose sharply. In order to cover the resulting budget deficit, the Soviet government was forced to resort to the issue of money. In the first three years of the war the volume of money in circulation increased 2.4 times, and by the end of the war it had increased 3.8 times. The buying power of the ruble dropped significantly. While fixed prices were kept for food produce in controlled supply, the pressure of the surplus monetary volume manifested itself in a rise in prices on the kolkhoz market (10-15 times greater than the prewar level) and in the introduction of increased prices, close to market prices, in state commercial trade where goods were sold without ration cards. In order to eliminate the negative consequences of the war in monetary circulation, in December 1947 a currency reform was carried out, the rationing system for distribution of food products was abolished, and a new uniform level of prices was set for state and cooperative retail trade. All bank notes in circulation were exchanged for newly issued ones at a ratio of 10:1. Worker savings up to 3,000 rubles in savings banks were not reassessed, while accounts over 3,000 rubles were: up to 10,000 rubles the ratio was 3:2, and beyond this sum the ratio was 2:1.

The 1947 currency reform restored the full-value ruble and strengthened the country’s monetary system. Like the monetary reform of 1922-24 and the normalization of circulation in the middle of the 1930’s, it had an active influence on the development of public production and promoted an increase in the material well-being of the working people.

The 1947 currency reform was developed further by switching the ruble rate to a gold base (1950). The foreign-exchange rate of the ruble began to be determined directly on a gold basis. Its level rose, leading to a change in the scale of prices. In 1961 the bank notes in circulation were exchanged without restriction for newly issued ones at a ratio of 10:1, and the prices of all goods, wage rates, pensions, stipends and grants, payment obligations, contracts, and the like were changed in the same ratio. In consideration of the actual ratio of prices in the USSR and in the main capitalist countries, a new (the current) gold content was established for the ruble (0.987412 g of gold) and a new ruble rate was established relative to the US dollar—90 kopecks for $1; the foreign-exchange rates for other currencies were fixed accordingly. With the December 1971 devaluation of the dollar, the ruble rate per dollar was changed; as of Jan. 1, 1972, it was 82 rubles 90 kopecks for $100.

The currency reforms carried out in the countries of the people’s democracy right after World War II were done for the purpose of normalizing monetary circulation: eliminating military-occupation and puppet currencies, restoring national monetary systems in many countries (Yugoslavia, Poland, Czechoslovakia, and Albania), canceling the money accumulations of collaborators and speculators, and undermining or weakening the financial power of capitalist elements. These currency reforms were one of the most important elements of the revolutionary democratic transformations. The bank notes in circulation at the moment that the currency reforms were carried out were exchanged for new ones within established limits. For example, in Poland and Czechoslovakia old zlotys and korunas were exchanged for new ones up to 500 monetary units per person. In Yugoslavia both Serbian and Croatian bank notes issued under the occupation forces were in circulation. The former were exchanged for the new currency at a ratio of 20:1 during the currency reform of 1945, while the latter were exchanged at a ratio of 40:1. In Rumania inflation and devaluation of money had reached such a critical state by the time of the 1947 reform that the exchange rate was 20,000:1, with an exchange ceiling of 3 million lei for each production and office worker and for each peasant family and a ceiling of 1 million lei for the remaining gainfully employed population. In Bulgaria the exchange ceiling was set at 2,000 leva per person, while for private enterprises it was up to 50 percent of monthly wages (but not more than 35,000 leva). Exchange was carried out at a ratio of 1:1. The principle of norm-controlled exchange of bank notes was applied during the currency reforms in North Korea (in December 1947) and in East Germany (before formation of the German Democratic Republic). In these countries the cash submitted for exchange into bank notes which went beyond the ceiling was frozen in the accounts.

Currency reform assumed a special character in Hungary, where inflation had reached an unprecedented scale. Counterrevolutionary elements provoked the reform in order to discredit and undermine the people’s democratic authorities. When the currency reform was carried out in 1946, the exchange was made at a rate of 400,000 quadrillion pengö for one new forint. The People’s Republic of China also inherited a completely disordered monetary circulation from the old order; under the Kuomintang regime China had suffered hyperinflation and the government lost control of monetary circulation. In addition to depreciated paper money, US dollars, English pounds sterling, Hong Kong dollars, Indian rupees, and many local monetary notes of different provinces circulated in the country. After the victory of the revolution in 1949 the Kuomintang money was declared void, and the paper money issued by local emission centers was exchanged during 1948-49 (in certain regions the exchange was completed in 1951) for national bank notes—notes from the People’s Bank of the People’s Republic of China (yuans). The exchange was carried out at differentiated rates depending on the index of market prices in different regions of the country. As a result of centralization of the issue apparatus and the implementation of the currency reform, a uniform nationwide monetary system took shape for the first time in the entire history of China.

The currency reforms of the various people’s republics led to a significant reduction in the amount of money in circulation. Nevertheless, when these currency reforms were carried out, most countries did not yet have the financial and economic prerequisites for stabilization of their currencies. In the European socialist countries these prerequisites were established in the early 1950’s (in the German Democratic Republic and Hungary, stabilization was already achieved in 1946-48), and in the Asian socialist countries it was achieved in the middle and late 1950’s. Foreign-exchange stabilization was the main goal of the new currency reforms carried out after the establishment of the dictatorship of the working class in these countries, the domination of the socialist sector in the national economy, and the formation of a national economic planning system. In this period the state budgets showed a surplus of income over expenditure, and progress in restoring and developing the national economy made possible the establishment of the commodity base necessary to ensure currency stability. In Poland a second currency reform was carried out in October 1950; in Rumania, in January 1952; in Bulgaria, in May 1952; and in Czechoslovakia, in June 1953.

The currency reforms of the 1950’s involved a change in the scale of prices and the fixing of the gold content of the currency of each country. The bank notes in circulation were exchanged for new ones without restriction. In Poland and Bulgaria the exchange was made at a ratio of 100:1, whereas in Rumania the first 1,000 lei were exchanged for new ones at a ratio of 100:1, the second and third thousands at a rate of 200:1, and beyond 3,000 lei the rate was 400:1. In Czechoslovakia sums up to 300 korunas were exchanged at a rate of 5:1, and beyond 300 korunas the rate was 50:1. In all of these countries deposits were assessed on more advantageous conditions than those that existed for the exchange of cash.

In these reforms the greatest losses were suffered by the exploiter and speculative elements that had accumulated large sums of monetary capital. Carrying out the reforms promoted economic improvement and successful implementation of socialist reconstruction of the national economies of all these countries and facilitated a rise in the standard of living of the working people. In most of the countries the rationing system for distribution of food products was eliminated concurrently with the currency reform or within a set time limit after it was carried out. In the People’s Republic of China the monetary reform was conducted in March and April of 1955, when the real value of the yuan was very low. For this reason the exchange of old money for new was carried out (without restriction) at a ratio of 10,000:1, and commodity prices, wage rates, tariffs, and monetary obligations were recalculated in the same proportion. The 1955 currency reform was the concluding stage in the currency stabilization achieved by that time. When carrying out the reform, the government of the People’s Republic of China established its foreign exchange rate without fixing the gold content of the yuan; in 1970, 100 yuan were equal to 45 rubles.


Lenin, V. I. “Groziashchaia katastrofa i kak c nei borot’sia.” Poln. sobr. soch., 5th ed., vol. 34.
Lenin, V. I. “Doklad na I Vserossiiskom s”ezde predstavitelei finansovykh otdelov Sovetov 18 maia 1918 g.” Ibid., vol. 36.
Lenin, V. I. “Piat’ let rossiiskoi revoliutsii i perspektivy mirovoi revoliutsii: Doklad na IV kongresse Kominterna 13 noiabria [IV Kongress Kommunisticheskogo Internatsionala 5 noiabria-5 dekabria 1922 g.].” Ibid., vol. 45, pp. 278-94.
“O provedenii denezhnoi reformy i otmene kartochek na prodovol’stvennye i promyshlennye tovary, Postanovlenie Soveta Ministrov SSSR i TsK VKP (b) ot 14 dekabria 1947 g.” Izvestiia, Dec. 15, 1947.
Atlas, Z. V. Ocherki iz istorii denezhnogo obrashcheniia v SSSR. Moscow, 1940.
Atlas, Z. V. Ukreplenie denezhnykh sistem SSSR i stran narodnoi demokratii: Infliatsiia v stranakh kapitalizma. Moscow, 1951.
D’iachenko, V. P. Sovetskie finansy v pervoifaze razvitiia sotsialisticheskogo gosudarstva, part 1. Moscow, 1947.
Boldyrev, B. G. Finansy evropeiskikh stran narodnoi demokratii. Moscow, 1951.
Bregel’, E. Ia. Denezhnoe obrashchenie i kredit kapitalisticheskikh stran, 2nd ed. Moscow, 1955.


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