Russia

Pavlov monetary reform

The Soviet monetary reform of 1991, commonly referred to as the Pavlov reform, was the last monetary reform prior to the dissolution of the Soviet Union. Initiated on 22 January 1991, it was intended to withdraw money from circulation for reallocation to the production of consumer goods, which were in short supply.[16] In a speech, Pavlov stated that the reason for the withdrawal was the government's belief that money was being sent to the Soviet Union from abroad, fuelling inflation. Although ridiculed by the Soviet press at the time, three years later the truth of Pavlov's statement was verified.[17] Mikhail Gorbachev then signed a presidential decree ordering the Soviet financial system to stop accepting and exchanging banknotes issued in 1961. The directive also included 50-rouble and 100-rouble banknotes issued in 1991. On 23 January 1991, the government began restricting monthly bank deposit withdrawals to 500 rubles with the official explanation that this was to freeze the income of corrupt officials, capitalists and criminals.[16]

Under the orders of Pavlov, the Government freed forty percent of prices on 1 January 1991, and introduced sales tax of 5%. Prices of consumer goods, in particular, were now considered free in the sense that negotiation became possible between producers and the distributor.[18] According to Philip Hanson in his book, The Rise and Fall of the Soviet economy: An Economic History of the USSR from 1945, Pavlov's reform was undermined by the Union Republics who failed to follow Pavlov's orders, along with the widespread existence of local monopolies, which tended to have their own definition of luxury goods and as a result imposed higher prices on such items.[19]

Soviet citizens had only three days from 23–25 January to exchange their old 50 rouble and 100 rouble banknotes for the new currency. Exchange could be postponed, but only through specialised government commissions. Due to this short exchange window, long queues formed in front of Soviet savings banks, even though it was also possible to exchange money at workplaces and post offices. This reform also dealt a crippling blow to Soviet citizens who had saved their money and could not move fast enough to get it exchanged; some lost as much as 15,000–30,000 rubles overnight.[16]

In the end the reform proved unsuccessful. The government only managed to withdraw 14 billion rubles from circulation of the country's money supply against an intended target of 81.5 billion rubles. As a result, the Pavlov reform did not put an end to inflation. Prices for items including food and transport rose by 100–300 percent, while the Soviet standard of living decreased sharply and the state budget deficit increased by an estimated 20–30 percent of GNP. In the aftermath of the reform, inflation exceeded the 50 percent mark every month