Skip to main content

Banking System, Soviet

BANKING SYSTEM, SOVIET

In the Soviet economy, the role of money was basically passive: Planning was primarily in physical quantities. Therefore, the banking system lacked most of the tasks it has in market economy.

Money circulation was strictly divided into two separate spheres. Households lived in a cash economy, facing mostly fixed-price markets for consumer goods and labor. Inside the state sector, enterprises could legally use only noncash, monetary transfers through a banking system closely controlled by the planners, for transactions with other enterprises. Wages were paid out by a bank representative, and retail outlets were tightly supervised.

The banking system basically consisted of a single state bank (Gosbank), which combined the roles of a central bank and a commercial bank. Such an arrangement is often called a monobank. Gosbank had no autonomy, but was basically a financial control agency under the Council of Ministers. As a central bank, Gosbank created narrow money (cash in circulation outside the state sector) by authorizing companies to pay wages in accordance with accepted wage bills. If government expenditure exceeded government revenue, and sufficient household savings were not available to cover the budget deficit, state sector wage bills still had to be paid, which would contribute to imbalance in the consumer goods markets. This was probably the case at least toward the end of the Soviet period, though the relation between the state budget, Gosbank, and money supply was among the best-kept secrets in the USSR. Gosbank also managed the currency reserves of the country.

As a commercial bank, Gosbank issued short-term credit to enterprises for working capital. Household savings were first kept by a formally separate Savings Bank, which was incorporated into the Gosbank in 1963. Household savings were an important source of finance for the state. Gosbank also controlled Stroibank, the bank for financing state investment, and Vneshekonombank, the bank for foreign trade. There were also several Soviet-owned banks abroad. In the perestroika period, the number of specialized formally independent banks increased, but no competition between them was allowed. The emergence of cooperative banks in 1988 and afterward had a key role in the informal privatization of the Soviet economy and the emergence of a market-based banking system.

The key role of the Soviet banking system was in controlling plan fulfillment. The financial plan was an essential component of enterprise planning. All legal inter-enterprise payments had to go through Gosbank, which only authorized payments that were supported by a relevant plan document. Thus the banking system was primarily a control agency. This also meant that money was not a binding constraint on enterprises: Any plan-based transactions were authorized by Gosbank. The banking system thus facilitated a soft budget constraint to enterprises: The availability of finance did not constrain production or investment.

See also: gosbank; stroibank

bibliography

Garvy, George. (1977). Money, Financial Flows, and Credit in the USSR. Cambridge, MA: Ballinger.

Johnson, Juliet. (2000). A Fistful of Rubles: The Rise and Fall of the Russian Banking System. Ithaca, NY: Cornell University Press.

Zwass, Adam. (1979). Money, Banking, and Credit in the Soviet Union and Eastern Europe. White Plains, NY:M. E. Sharpe.

Pekka Sutela

Cite this article
Pick a style below, and copy the text for your bibliography.

  • MLA
  • Chicago
  • APA

"Banking System, Soviet." Encyclopedia of Russian History. . Encyclopedia.com. 19 Nov. 2018 <https://www.encyclopedia.com>.

"Banking System, Soviet." Encyclopedia of Russian History. . Encyclopedia.com. (November 19, 2018). https://www.encyclopedia.com/history/encyclopedias-almanacs-transcripts-and-maps/banking-system-soviet

"Banking System, Soviet." Encyclopedia of Russian History. . Retrieved November 19, 2018 from Encyclopedia.com: https://www.encyclopedia.com/history/encyclopedias-almanacs-transcripts-and-maps/banking-system-soviet

Learn more about citation styles

Citation styles

Encyclopedia.com gives you the ability to cite reference entries and articles according to common styles from the Modern Language Association (MLA), The Chicago Manual of Style, and the American Psychological Association (APA).

Within the “Cite this article” tool, pick a style to see how all available information looks when formatted according to that style. Then, copy and paste the text into your bibliography or works cited list.

Because each style has its own formatting nuances that evolve over time and not all information is available for every reference entry or article, Encyclopedia.com cannot guarantee each citation it generates. Therefore, it’s best to use Encyclopedia.com citations as a starting point before checking the style against your school or publication’s requirements and the most-recent information available at these sites:

Modern Language Association

http://www.mla.org/style

The Chicago Manual of Style

http://www.chicagomanualofstyle.org/tools_citationguide.html

American Psychological Association

http://apastyle.apa.org/

Notes:
  • Most online reference entries and articles do not have page numbers. Therefore, that information is unavailable for most Encyclopedia.com content. However, the date of retrieval is often important. Refer to each style’s convention regarding the best way to format page numbers and retrieval dates.
  • In addition to the MLA, Chicago, and APA styles, your school, university, publication, or institution may have its own requirements for citations. Therefore, be sure to refer to those guidelines when editing your bibliography or works cited list.