The debate in the USSR over the convertibility of the ruble into foreign currencies or gold is probably least understood precisely because its political implications are far more significant than the financial merits of the controversy. When on December 9, 1988, the Soviet finance ministry announced that it had plans to soon make the ruble convertible into other currencies or gold, it startled the capitalist financial world. It also created considerable concern among the Soviet public, because included in the announcement was the news that the ruble would be devalued by 50% over the next two years. This was followed on October 25, 1989, with the announcement that an even more drastic cut in the exchange rate of the ruble would take place, although mainly affecting foreigners in the USSR or Soviet citizens traveling abroad. The initial effect of these measures, should they become fully operational, would be to thrust the Soviet economy further into the world capitalist market. To understand the meaning of this in terms of the overall political struggle, it is necessary to take into account the decade following the scuttling of the projected 1972 trade treaty between the U.S. and the USSR.1 It was fraught with internal difficulties for the USSR, notwithstanding considerable successes in agriculture that peaked in 1978 with a record harvest of 230 million metric tons of grain. Thereafter, however, the USSR suffered a period of bad harvests resulting from unfavorable weather. It was forced to import more than 30 million tons of grain a year from 1979 on, much of it from the U.S. and other Western nations. As late as 1988, the harvest fell 40 million tons short of the target of 235 million tons, according to preliminary estimates (New York Times, January 17, 1989).
In the early 1970s, the Soviet government had anticipated that the extension of credit by the U.S. Export-Import Bank would make it easier and perhaps less costly to purchase some of its heavy grain requirements. However, that didn't happen. While some credits were obtained from nongovernmental capitalist commercial banks on a short-term basis, longer-term credits from the U.S. Export-Import Bank were not available without a waiver of the Jackson-Vanik Amendment by President Gerald Ford.
The need to purchase such heavy orders of grain is one of the reasons why for many years the USSR has been obliged to maintain a considerable reserve of U.S. dollars in its treasury and also abroad in foreign banks. These huge stockpiles of dollars or other so-called hard currencies, such as the Japanese yen or the German mark, pay no interest and lie idle. Of course, the USSR's hard-currency accounts kept in banks abroad do pay interest, but they usually are deposited for short periods. They are quickly retrieved on demand for quick turnover of foreign trade with capitalist countries.
A matter of considerable political and economic importance in relation to Soviet foreign trade lies in the instability of the capitalist markets. This regularly pounds the capitalist currencies, compelling the USSR to absorb a multitude of capitalist economic and financial contradictions. It would be fine if the USSR, while participating in the world capitalist markets, were able to garner only the economic advantages for itself without also absorbing the inevitable risks and shocks. But that is not the case. As is well known, the USSR obtains much of its hard currency by the sale of huge quantities of gas and oil (the USSR is one of the world's biggest producers of petroleum). In this way it is able to take advantage of the capitalist markets. When the Arab nations instituted an oil embargo, this made it possible for the USSR to sell its oil at higher prices. However, this advantage was soon canceled when the oil market became glutted for an extended period of time.
Overall, the U.S. ruling class has never wavered very far from its basic position that normal trade relations would result in economic and financial advantages to the USSR over a protracted period. The ruling class had to weigh this boon to the development of the socialist economy against the purely temporary advantages that they themselves would garner from any full-scale agreement to deal with the USSR on an equal footing in commerce and trade. It is in this perspective that the scuttling of the projected 1972 trade treaty has to be seen.
The currency implications for the USSR in foreign trade relations with capitalist countries are of considerable importance, much more than is generally believed. Buying on credit is a recognized form of trade in both domestic as well as international commerce. Few indeed are the commercial transactions which are carried out on a cash basis. Deprived of customary credit terms, except through the large commercial banks that usually take their cue from their respective imperialist governments anyway, the USSR was forced to purchase U.S. grain by the millions of tons on a cash (dollar) basis. The Carter administration (1977-1981), in its reactionary pursuit of an anti-Soviet offensive arising out of the Afghanistan struggle, imposed a total embargo on U.S. sales of grain to the USSR. This was a blatant attempt to starve the Soviet people into submission. But it failed. By the time the Reagan administration was in power, the protests against the embargo, especially from farmers, were so great that the government was forced to abandon it in early August 1982. Reagan explained his action to a group of farmers in Des Moines, Iowa, in these words: "The granary door is open and the exchange will be cash on the barrel head." The lifting of the grain embargo was a classical example of how domestic protest and economic necessity can override a broader political objective of the ruling class.
Although the embargo was lifted, the USSR had to first purchase dollars on the so-called open market in order to buy grain from the U.S. and other countries. It was able to finance these currency purchases primarily through its heavy sales of oil and gas as well as gold and other raw material commodities. However, this was not adequate to counteract the heavy drain incurred from having to keep considerable foreign currency balances in its own treasury. Thus time and again the issue of making the Soviet ruble a convertible currency has come to the fore.
By convertibility is meant the ability of the holder of rubles to exchange them for gold or foreign currencies. Were the ruble to become convertible, it is argued, the USSR would be relieved for the most part of the necessity of maintaining such huge foreign currency reserves. (It should be added in all this that orthodox Marxists, especially in the early 1920s, were always for a stable unit of currency, guarding it against manipulation and inflation.)
Whenever these high priests of bourgeois economics in the USSR talk about foreign currencies, they wax eloquent as though these currencies were the apex of stability. They totally leave out the fact that none of them is convertible to the only true measure of value in bourgeois economics – gold. Why don't they remind their audience that even the most powerful capitalist countries have only a partially convertible currency? The dollar is not fully convertible in the traditional meaning of that term. It can no longer be exchanged for a fixed measure of gold or silver. At one time, the currency said on its face that it was convertible into gold, but not now. Any persons in possession of several hundred dollars, pounds, marks or yen can prove this by going to their respective governments and asking for the equivalent in gold. They'd get a rude answer.
When the British pound went off the gold standard in 1931, that signalled the end of the traditional, stable capitalist system. Then in 1934 President Franklin Delano Roosevelt devalued the dollar. At the same time, he put an embargo on the export of gold except in certain circumstances. No amount of ultraconservative opposition in the U.S. was able in any way to interfere with this momentous decision by the U.S. government. A Supreme Court that was basically hostile to the progressive reforms of the Roosevelt administration nevertheless quickly upheld the abandonment of the gold standard. It also ratified the power of the executive branch of the government to devalue the currency, notwithstanding the clear constitutional provision (U.S. Constitution, Article I, Section 8, Paragraph 5) which states that only Congress has the authority to "coin money and regulate the value thereof."
During the 1980 election campaign, Ronald Reagan used much demagogy and promised to reduce inflation by returning to the gold standard. However, once Reagan got elected, he appointed a 17-member commission to study the question. On March 31, 1982, the U.S. Gold Commission, headed by Donald Regan, later to become secretary of the treasury, concluded that "While there might be a future occasion for the return of the gold standard, the majority of us at this time favor essentially no change." 2 The commission rejected the use of gold in either the domestic or international monetary system. End of demagogy!
The reality of the situation today is that the capitalist economy is so unstable and the currency markets so nervous that it has become a regular part of the agenda of the seven most powerful imperialist governments – the U.S., Britain, France, West Germany, Canada, Italy and Japan – to meet, most of the time in strict secrecy, in order to arrive at some understanding on how far each of them will allow their currency to fluctuate. In effect, they maintain a secret agreement on how to control the stability of their currencies and maintain certain artificial ratios or proportions to one another. They may agree to let the yen or deutschmark rise to a certain extent, or let the dollar fall. Each of them is obligated by this agreement, or conspiracy, to intervene in the currency market by purchasing or selling a massive amount of a particular currency if it rises or falls too steeply.
Of course, this does not always work. Quite the contrary. The currency manipulators worldwide, reflecting the instability of the capitalist system, live in continual fear of an uncontrollable collapse of one or the other currencies and of being unable to rescue it by mere currency purchases. Indeed, the spreading fear in capitalist finance as well as in industry is that the dollar, among the strongest of the currencies, may take the kind of precipitous fall which could set off a chain reaction and signal a collapse of the capitalist economy.
However, important as it is, foreign exchange is only one aspect of the convertibility of the ruble. Its greater significance lies in the domestic aspect. It is notable that the greatest enthusiasm for making the ruble convertible into other currencies comes precisely from those bourgeois reformers in the USSR who are well-known for pushing the extension of the capitalist market, private cooperatives, enlarging the private sector, and much more.
An especially noteworthy article appeared in the Soviet periodical New Times with the title "When Will the Ruble Be Made Convertible?" 3 It is an interview with one Grigory Khanin, identified as a prominent economist and statistician. After describing some of the benefits that would result from the convertibility of the ruble, Khanin goes on to conclude, "We have long been thinking about how to make our state-owned enterprises really public." What can this mean? Millions of workers all over the planet have long believed that the state enterprises in the USSR are public. Haven't public ownership of the means of production, a planned economy, and a monopoly of foreign trade been the principal characteristics of the Soviet Union as a workers' state? But the way to make the ownership of the means of production public, says this prominent economist and statistician, is the "transformation of state-owned enterprises into joint-stock companies with the participation of the state, employees, and other private citizens and organizations, including foreign ones." That's public ownership, according to the new school of Soviet bourgeois economists!
If that isn't enough, he concludes that: "A stock exchange would be required for the sale of shares and other stocks." The process of reform cannot be accomplished by "bureaucrats in the economy and science," he says, but should be turned over to "economists who have proved their competence and dedication to the ideas of the reform." And who are they? He lists Gennady Lisichkin, Otto Lacis, Vasily Selyunin, Gavrill Popov, Nikolai Shmelyov and Leonid Abalkin. Only poor Tatyana Zaslavskaya has not been included in this clique of bourgeois economists, who are now entrenched in the Gorbachev bureaucracy and have become the principal architects for dismantling the socialist, centralized planning. The example of what is happening in Hungary doesn't deter them at all – on the contrary, it encourages them.
The neobourgeois elements in the USSR, especially economists like Aganbegyan and Abalkin,4 are interested in making the ruble convertible because they think the prices of such items as food and rent, for instance, are much too low and that a convertible ruble would reveal the true cost per unit. In their view, the government is subsidizing bread and other consumer items at the expense of the more privileged layers of Soviet society, who are not very concerned with the price of such bare essentials. They hope, on the other hand, that the government as it is presently constituted by the reformers will not reveal the true gap in income between the different strata of the population. But all this speculation is based on what has been the apathetic and passive position of the Soviet working class, which is only now being aroused to the possibilities for independent intervention in the political process.
Behind all this talk about the ruble lurks the bourgeois effort to dismantle the socialist economy. This has gone very far, as a report from Moscow in mid-November 1989 shows. Prime Minister Nikolai I. Ryzhkov is said to have told a national conference of students that the government hoped to slash state ownership from 85 percent of the economy to 30 percent! Gorbachev himself, speaking at the same event, affirmed public ownership but left a loophole for private property as wide as the Volga river: "Perhaps later, as our society develops a little bit further and our economy is reformed, we will develop a new type of economy, perhaps there will appear forms that will in some way resemble small-scale private property." 5 While they were speaking, the Soviet legislature was debating a law calculated to dilute the significance of state ownership.
Of course, one could conceive of a discussion on liquidating state ownership in order to advance to the higher stage of socialism – communism – when state property has been transformed into the property of all the people. But that's the furthest thing from their mind. This law favors a variety of disguised forms of private property, such as leaseholds, private cooperatives, family farms, and so-called workers' shareholding schemes, similar to the ones so badly discredited in Yugoslavia and Poland. Hopefully, this effort at legislating away the public ownership of the means of production, the key characteristic of a workers' state, will meet with a shattering rebuff from the working class and the general public in the Soviet Union at large.
1. See Chapter 2, "How the Imperialists See Detente."
2. New York Times, April 1, 1982.
3. "When Will the Ruble Be Made Convertible?," New Times (Moscow), July 25-31, 1989, p. 25.
4. See Article 3, "Joint Ventures and Socialist Planning."
5. New York Times, November 17, 1989.
Last updated: 23 July 2017