The Bank of Russia and the milestones in the history

June 12, 2010 marks 150 years

since the establishment of the State Bank

The State Bank of the Russian empire was founded by the decree of Emperor Alexander II on 31 May (June 12, Gregorian calendar), 1860. Formally, it was transformed from the National Commercial Bank, established in 1817. However, we can say that the State Bank starts its «genealogy» from the first state-owned banks of Russia, from the Noble and Merchants Banks, established during the governing of the Empress Elizabeth in 1754. Despite numerous reforms state-owned banks remained its succession and traditions.

The Emperor Alexander II. Artist E. Boatman, 1860

Even the text of the «oath» of the employees of the State Bank had no particular difference from  the text of the oath of allegiance, which was given by the employees of state banks in times of Catherine II. Simultaneously with the signing of the Decree on the foundation of the State Bank, the Emperor Alexander II approved its Charter. Under the Charter the new institution was a short-term commercial loan bank, designed to help «to strengthen the credit system» and the «to revive the trade turnover» in the country. State Bank was located in St. Petersburg in the former building of the Assignation Bank, built in 1783 — 1790’s by the architect Giacomo Quarenghi. This building on Sadovaya Street was a symbol of financial power of the empire until 1917. The gold reserve of the country was treasured in the basement of the State Bank at that time. The first manager of the State Bank was A. L. Stiglitz. After taking the post of the bank manager, he liquidated his private banking business. The fact that A. L. Stiglitz headed the State Bank, meant   transfer of many functions of the court banker (primarily ensuring the international financial relations and settling foreign loans) to the new financial institution, which was to play the leading role in the Russian banking system.

Edict of Alexander II to the Senate about the establishment of the State Bank. 1860

However, the main ideologue of the new State Bank was a well-known economist and geographer E. Lamansky. He was also the author of the first Charter of the State Bank, initiated the establishment of joint-stock commercial banks. E. Lamansky supposed to organize the State Bank of the Russian empire on the model of the Bank of France, providing it with its relative independence from the government and with the issuing rights. However, Russian higher bureaucratic officials were skeptical about his idea of «state joint-stock company,» as a result the rights of the State Bank were significantly reduced. The State Bank was under the Ministry of Finance, until 1897, it had no issuing rights, but only the permit of  «temporary releases» of small amounts of credit notes.

The share capital of the State Bank at its facility was 15 million rubles, the reserve — 3 million. With the sharp increase in the volume of banking operations and the adoption of the new Charter of the State Bank in 1894, its share capital grown up to 50 million rubles, the reserve capital — up to 5 million rubles.

The structure of the State Bank had a high degree of centralization. The Board of the State Bank, headed by the manager was the supreme body of the immediate direction of the bank. The managing board and the central office departments formed the central apparatus of the State Bank, which had subordinated offices and departments. The largest compared by the volume of banking transactions were the Moscow office, that had been converted in 1860 from the office of Commercial Bank, and the St. Petersburg office established in 1894. The State Bank carried out commercial operation and the operation entrusted to it by the Ministry of Finance («at the expense of the State Treasury»).

Charter of the State Bank. Clerk’s copy with the resolution of Alexander II «Approved» .1860

The bank discounted the bills and the promissory notes, issued loans and opened credits, bought and sold securities, precious metals and foreign currency. Also it transferred, deposited money and opened current bank accounts. Some of the operations entrusted to the Bank by the Ministry of Finance, included: the placement of government securities, foreign debt service, the issuance by the order of the Minister of Finance of the hazing loans to the strategically important industries, the supply of loanable banks, lending the Noble and Peasant banks, serving the pay off payments and receiving state taxes, eliminating the abolished state-owned banks. Until 1887 the State Bank carried out the elimination of pre-reform bills of credit institutions.

State Bank in St. Petersburg (the former Assignation Bank). View from the Catherine Canal. Postcard beginning of the twentieth century

By the end of the XIX century the State Bank of the Russian Empire remained the bank that financed mostly large-scale industry and trade. The records of bills and issuance of loans for government securities became particularly important among the other active operations of the bank . At the same time lending to landowners, farmers, artisans, small industries and small-scale credit institutions was not well developed. Changes in the policy of the State Bank were associated with the activities of the Minister of Finance S. J. Witte, a supporter of the idea of «national loan» – about the broad lending of domestic producers. Almost immediately after his appointment as Minister of Finance in 1892, S. J. Witte began preparing a new Charter of the State Bank according to the expansion of its activities.

The management structure of the State Bank by the Charter of 1860

New State Bank Charter was adopted in 1894 and acted, despite the occasional harsh criticism, until 1917. On the one hand, the Charter established the right of the bank to issue «industrial loans», much of which were small loans to small and medium scale industries, farmers and artisans. On the other hand, the lending of certain industries, mostly of the heavy industry had increased with its adoption. The volumes of commercial loans, mainly loans for grain had also  been expanded. In the late XIX — early XX century, the size of the industrial enterprise loan could not exceed 500 thousand rubles and the loan to the small merchant — 600 rubles. However, the industrial boom and the influx of foreign investment could not quickly change the predominantly agrarian economy of the country in the late XIX century. The crops remained a staple of Russian exports. With the successful implementation of grain to Europe, the deficit of free loan capital decreased, trade turnovers and credits enlivened. Because of it, by the initiative of the Ministry of Finance it was decided to create a state system of elevators. This system had to help to minimize the grain losses during transportation, which were particularly noticeable in Russia. As part of the state regulation of «bread campaign» the State Bank started building a network of silos and grain elevators in 1910.

The State Bank also contributed to the creation of institutions of small loans, lending the cooperatives, farmers and artisans. Since 1904 small credit institutions were under the complete control of the State Bank. A specially created Office of the small loan provided them with financial, consulting, auditing and other assistance.

The cooperation received credits with the help of savings and loan associations and the crediting of the State Bank, the Moscow People’s Bank established in 1912.

Another bright page in the history of the State Bank is also connected with the name of S. Y. Witte — Monetary Reform of 1895 — 1897. According to the memoirs of Sergei Yul’evich, it was carried out with the personal approval of the Emperor Nicholas II, in spite of the negative opinion of the majority of senators, members of the State Council — and was quickly and naturally, without too much upheaval in society. But at the same time, the reform was widely discussed in the press and the economic literature. For a while, S. Y. Witte was considering the possibility of introducing a new monetary unit in Russia. Following the example of the franc, he wanted to call it «Roos». However, the notion of «ruble» was so firmly entrenched in the minds of the people that the renaming of the currency had to be abandoned.

The participants of the celebrations of the 500th anniversary of the State Bank foundation. In the foreground — Finance Minister V. N. Kokovtsov left — managing the State Bank A. Konshin. Photos of 1910. The picture was taken on the grand staircase of the bank in St. Petersburg

As a result of the monetary reform of 1895 — 1897’s  the State Bank received the emission right. Since then, the currency of the empire was based on gold monometallism, gold and silver coins were freely exchanged for banknotes, which traditionally kept the name of the credit notes. The traditional colors of the king’s money remained in the Soviet period: the background of one ruble bill was yellow, three-ruble — green, five-ruble — blue,  ten-ruble — red, a hundred-ruble — again yellow. These colors were also used in the manufacture of state treasury bills of the USSR and the USSR State Bank bills in 1961 and 1991. Monetary policy of the State Bank of the Russian Empire was aimed at maintaining the stability of the national currency and the gradual development of the economy. To meet these challenges, the State Bank used various tools, including the creation of syndicates to maintain the exchange rate of Russian securities (since 1899) and the consortium banks to provide financial assistance to domestic firms in the crisis years (since 1906). At the beginning of the XX century the Russian Empire had finally formed a two-tier banking system, headed by the State Bank, which loaned large amounts of joint-stock commercial banks. During this period there was a tendency to transform it into a «bank of the banks». Since 1905, the State Bank refused more often to be a direct lender of the economy, carrying out lending through commercial banks, which received large loans (about 80% of the total loan accounting and operations). The largest joint-stock commercial banks of the Empire often served as agents of the State Bank for the implementation and conversion of foreign loans, or as the State Bank’s companions in the syndicates and consortiums. From 1903 the joint-stock commercial banks and firms operations were organized at the offices of the State Bank.

Despite the issuance of the bank with the emission rights, it was noticeably different from many European central banks by the nature of its activities and tools, including the dependence on the Ministry of Finance. The new round of liberal reforms in 1905, the establishment of the State Duma and the abolition of prior censorship made the discussion of the State Bank’s problems more open. Duma debates and projects on the new organization of the banks were added to the press criticisms. In 1908, was prepared a project of the new Charter of the State Bank. The main innovations of the project were to increase the bank’s capital, to restructure its management and, more importantly, to limit the capacity of the Ministry of Finance to influence the bank. However, the project of the Charter based on the experience of a number of central banks of Europe, was “shelved” until better times. It was due to the economic crisis of 1908 and the stock market crisis of 1912, when, according to the members of the State Bank, it was not desirable to change organization of the bank. But the main motive for this decision was the position of Finance Minister V. N. Kokovtsov, who considered the new project of the Charter too radical. He, like S. J. Witte did not consider it necessary to let the State Bank be more independent from the Ministry of Finance. In the prewar years, the volume of transactions conducted by the State Bank of the Russian Empire, were significant. So, on January 1, 1914 the balance of the State Bank amounted to 3,040,503 thousand rubles. Gold, located in Russia and abroad, was estimated at 1,695,234 thousand rubles, the most frequent active operation’s amounts — accounting and loan — reached 1,071,987 thousand rubles. The credit bank notes, that were in circulation amounted to 1,664,652 thousand rubles. The other major liability accounts were «treasury funds» — 951 216 thousand rubles and «deposits and current accounts» — 263 110 thousand rubles. In an acute international crisis on the eve of World War I Russia, like other European countries, was forced to abandon the free exchange for gold (according to the law of July 27, 1914). The activities of the State Bank was focused on the financing of military expenses. The bank willingly credited sectors related to defense, was engaged in distribution of domestic bonds of «military» loans. The State Bank managed to stabilize the currency, to finance the real sector, to mobilize financial resources for the defense of the country. The high prestige of the main bank of the empire was created by the efforts of its staff. The credit system of the country was formed through hard work of thousands of bank employees. Of course, the most prominent figures, thanks to their positions, were the leaders of the State Bank. The managers the State Bank of the Russian Empire since its foundatiion were already mentioned Baron Alexander Stieglitz Lyudvigovich (1860 -1866) and Evgeny Lamansky (1866 — 1881), Alexei V. Tsimsen (1881 — 1889), Julius Galaktionovich Zhukovsky (1889 — 1894 ), Edward D. Pleske (1894 -1903), Sergei Timasheff (1903 — 1909), Alexey Konshin (1910 — 1914), Ivan Pavlovich Thorns (1914 — 1917).

After the October Revolution of 1917, according to the decree «On the nationalization of the banks» signed by V. I. Lenin’s on December 14, 1917, the State Bank was converted to a credit institution of the new government. The country had a state monopoly of banking. Joint-stock commercial banks were a subject to nationalization and were merged with the State Bank, which became known as the People’s Bank of the RSFSR. One of the main lessons to be learned from the history of the Bank of Russia, is its absolute necessity in all phases of national history. Only once — in January 1920, in the situation of the «war communism» policy — the bank was closed, but with the proclamation of the new economic policy in October 1921 it was re-established as the State Bank of the RSFSR / USSR. The State Bank of the USSR played a significant role in the industrialization of the country during the first five-year plan, in the mobilization of national economy and supplying the Army during World War II, contributed to the postwar reconstruction of the national economy. The State Bank has always served the interests of the country, sought to provide a stable and sustained economic growth. That’s why the main areas of its activity (emission, loan calculation, supervisory, etc.) always remained significant. The  bank’s efforts to stabilize the monetary circulation, to create a favorable investment climate in the country and to ensure the sustainability of the banking system brought visible results not only in the pre-revolutionary and Soviet periods but also during the tuff times at the turn of XX — XXI centuries. Historical experience shows that it is in times of economic and political crises that our country has gone through a lot, the value of the main bank became more evident, it was a symbol of Russian statehood and the guarantor of the continuity of development. We are proud of the rich history of the State Bank, of its experience, which has not lost its significance nowadays.

The following sources were used while preparing the material:

History of the Bank of Russia. 1860-2010. In 2 vols. Ed.: Y. A. Petrov, S. Tatarinov.

M., 2010.

State Bank of the Russian Empire: 1860-1916 years. M., 1998.

Yury Petrov, Kalmykov S. V. Thrift Industry in Russia: Milestones in the history. M., 1995.

Bugrov A. V.  Essays on the History of the State Bank of the Russian Empire. M., 2001.