How Soviets Used Bonds to Develop Russia

The EU has announced and started to implement the big Recovery Package that all members of the EU have accepted. The European Commission has today, in its first NextGenerationEU transaction, raised a €20 billion via a 10 year bond  to finance Europe’s recovery from the coronavirus crisis and its consequences… This is nothing new – after the Revolution in Russia the new government started to issue a very innovative series of bonds to start the New Economic Plan. One hundred years later there is not a lot to show for this focussed effort to kick start the economy after a very debilitating war. Russia is certainly a superpower, but not if you compare the GDP per capita between Russia and the EU today. One must wonder if the EU will be any better in securing sustainable growth!

Attempts to market loans in a quasi-market economy.

by Sergey Pakhomov. Doctor of Economic Sciences.

“First, think about your homeland, and then about yourself.” Internal loans of the USSR in the service of building and defending the socialist state.

Campaign poster “State loans serve the cause of communism!”

Throughout the history of the existence of Soviet Russia and USSR internal loans, voluntarily and compulsorily distributed among the population, faithfully served as an instrument of socialist accumulation of capital used for industrialization, strengthening defense capability, financing military spending, and implementing ambitious infrastructure projects. In this respect, the Soviet government never deceived the working people. With the exception of the first years of the NEP, loans have never been an investment instrument with the aim of obtaining additional income for workers on their savings and therefore almost never repaid, but converted into new loans with lengthening maturities and lower interest rates. State internal loans of the USSR had a mobilization political significance, their funds were purposefully directed to the landmark industrial projects of the five-year plans, during the Great Patriotic War, 10% of the military expenses of the USSR were financed by internal loans. A simple arithmetic calculation gives an idea of ​​the grandiose scale of the Soviet “loan project”. In total, from 1922 to 1982, 59 different loans were issued with a maturity of 8 months to 20 years with a total nominal volume of 210 million poods of rye, 100 million poods of refined sugar, 100 million rubles of gold and a little more than 480 billion Soviet rubles for various maturities. Note that a pood is an old Russian measure of weight equal to 16.3 kilograms. (See

New economic policy: exotic natural, peasant, gold loans and loans for NEPmen, who were businesspeople in the early Soviet Union, who took advantage of the opportunities for private trade and small-scale manufacturing provided under the New Economic Policy (NEP).Campaign poster for the Peasant Winning Loan.

World war, revolution, civil war, the policy of “war communism” led to total economic and financial devastation in Russia, accompanied by hyperinflation. According to the testimony of the People’s Commissar of Finance Sokolnikov, by March 1, 1924, 865.5 quadrillion rubles of paper money circulated in the USSR. (Economic history. Reader. M., 2008, pp. 439-440). The transition to barter took place almost everywhere. The beginning of the New Economic Policy (NEP), a gradual transition to the introduction of the gold chervonets (gold coins) into circulation, put on the agenda the attempts to place the first domestic loans, in kind and in gold terms, targeted loans for peasants and NEP entrepreneurs.

Sugar loan bond

Loans in kind had bonds calculated in poods of rye and sugar. (Grain and sugar loans). The loans were sold for money, the loan bonds were accepted by the state in payment of the tax in kind by the peasants, which ensured their relative popularity. Loans were repaid either in kind, with the same bread or sugar, or in money at the market value of bread or sugar at the time of repayment, or through the payment of tax in kind. The loans were short-term. On May 20, 1922, the first grain loan for 10 million poods of rye was issued, the repayment of which took place from December 1, 1922 to March 15, 1923. Bonds were issued to bearer in denominations from 1 to 100 poods of rye. The second grain loan was issued on March 22, 1923 for 30 million poods of rye, then increased (due to good demand) to 100 million poods. The bonds were in denominations of 1,2, 3, 5 and 10 poods of rye and were repaid from November 1, 1923 to March 1, 1924.The sugar loan for 1 million poods of sugar was issued on November 15, 1923 and was repaid during 1924.

Bond “grain loan”

Gold loans – the first Soviet monetary government loans issued in gold terms. The nominal value and income paid on such loans were calculated at the exchange rate of the gold ruble to protect investors in the face of the rapid depreciation of Soviet paper banknotes.

One “golden” ruble banknote

In gold terms, the State Winning Loan of 1922, the Second State Winning Loan of 1924, the 8% Domestic Gold Loan, and the Peasant Winning Loan of 1924 were issued from 5 to 10 years.

“Golden loan” bond

The bonds were placed by subscription among workers and employees, they could be sold without restrictions at the current market price and pledged in banks as collateral for loans. State organizations and enterprises have been obliged since 1924 to place 60% of their reserve funds in bonds of the state 8% of the winning loan. In 1924, 1925 and 1927 were issued with a special purpose winning peasant loans totalling 17.5 million rubles for placement in the countryside, which was moving to a monetary economy.

Loans were also placed on a compulsory basis among the “unearned elements”. Among the Nepmen there was placed in February 1925 a short-term 5% loan for 10 million rubles, which gave an actual yield of 20%, since its placement was made at 82% of the nominal. This loan drew fierce attacks from opponents of the New Economic Policy.

Bond “loan for Nepmen”

Loans of the NEP era, which were of a market nature and were repaid in full and on time, played a significant role in the restoration of the Soviet economy, giving in 1922-25. 7.5%, and in 1925-28. 6.8% of the revenues of the USSR state budget. (Financial and credit dictionary. T. 1, M., 1994, pp. 291-292).

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