Pavlov Reform

Overview

The Pavlov Reform was the last monetary reform of the Soviet Union. Under a presidential decree of 22 January 1991, 50- and 100-ruble banknotes of the 1961 series were withdrawn from circulation and exchanged. The official justification was that large notes had "concentrated in large numbers abroad and in the hands of shadow capital," and the aim was to absorb excess cash in order to ease shortages on the consumer market. The formal architect was Valentin Pavlov, who had just moved from finance minister to prime minister; until eight days before the measure he had publicly assured the public that no monetary reform would take place.

Preparations

As early as 14 December 1990, the State Bank and the Ministry of Finance had written to Premier Nikolai Ryzhkov arguing against a confiscatory reform, citing the social and political situation, extreme strain on the consumer market, and the absence of commodity or currency reserves to support the ruble's purchasing power after such a reform. Recollections differ on authorship: Arnold Voylukov, a deputy chairman of the State Bank board, and others named the KGB and its head Vladimir Kryuchkov as the actual initiators, and both Pavlov and State Bank chief Viktor Gerashchenko appear not to have favoured the plan. About ten variants were considered, including parallel currencies and outright annulment of old notes, but the final choice was a three-day exchange.

Terms of exchange

The exchange ran for three days, 23 to 25 January. The decree was announced on the evening of 22 January on the television First Programme, after financial institutions and shops had already closed. A limit of 1,000 rubles per person applied, with the exchange of larger sums left to special commissions until the end of March 1991. At the same time, cash withdrawals from the Savings Bank were capped at 500 rubles per month per depositor. The 25-ruble note was excluded from exchange. According to the testimony of Igor Lipsits, political parties were allowed to exchange money on preferential terms.

Results and consequences

Because the announcement came late, some residents managed to break large notes at metro and railway ticket offices or with taxi drivers, or to send large transfers from post offices. For the first two days panic spread and people all but stormed the savings banks; elderly people feared they would not manage to hand in their old money in time. Contrary to the government's account, much of the cash was not in the hands of underground millionaires but with the general population, all the more so because wages in the weeks before the reform had been paid out precisely in the 50- and 100-ruble notes being withdrawn.

Accounts of the sums recovered diverge. Gerashchenko told a cabinet meeting that about 40 billion rubles' worth had been presented by 26 January against 48 billion in circulation, leaving some 8 billion un-presented; other accounts put the state's initial gain at 10 billion rubles, later reduced to 4 billion after the exchange deadline was extended twice. English-language sources report that of a plan to confiscate 30 billion rubles, only 14 billion were withdrawn. On any of these figures the original target was missed, and current issuance exceeded the sums withdrawn.

The main consequence was the loss of public trust in the government. Having failed to stabilise the currency, Pavlov's cabinet went on to raise retail prices for basic goods and services from 2 April 1991. He continued to pursue an anti-crisis programme combining market-oriented and harsh administrative measures, but his participation in the August coup ended that course.