Chervonets

Conditions of the reform

Money had effectively collapsed during the civil war. The sovznak lost value as issue expanded, so that by 1922 prices stood at tens of millions of times their prewar level, and wages and transfers between enterprises were settled largely in kind. Once NEP restored market transactions, a stable money that could serve as a unit of account became a necessity.

The reform led by Finance Commissar Sokolnikov ran the new money in parallel with the old. The chervonets introduced in 1922 was defined as the equivalent of 7.74 grams of pure gold, matching the tsarist ten-rouble coin, and was backed by gold, foreign exchange, and short-term commercial paper. The sovznak was not abolished but circulated alongside it until the currency reform of 1924 retired it at a fixed rate of exchange.

Effects of stabilization

The chervonets quickly became the reference money in wholesale trade and enterprise accounting. As prices steadied, deposits and credit recovered, and the State Bank acquired the function of supplying working capital to enterprises by discounting commercial paper. It won confidence abroad as well, and was quoted on the New York and London exchanges from 1924.

This success cannot be separated from the economic recovery under NEP. Without a stable money the peasant had no reason to bring grain to market and no way existed to calculate price relations between sectors. It was this reform that allowed the debates of the mid-1920s to treat the scissors, the gap between sectoral prices, as a matter of figures.

Loss of convertibility

The character of the chervonets changed once industrialization began. Demand for investment funds expanded issue and generated price pressure, and from 1926 restrictions on foreign-exchange dealing tightened until convertibility had effectively gone. Through the 1930s the rouble existed abroad only at an official rate and functioned at home as a unit of account supporting allocation and rationing.

Notes denominated in chervontsy were retired in the currency reform of 1947. In Soviet monetary history the chervonets is cited afterwards as the exceptional interval in which a stable currency proved possible under a planned economy, and it was invoked repeatedly in the currency reform debates of the late 1980s.