Witte's financial reform: reasons, results

Witte's financial reform was an important stage in the development of the Russian economy in the late 19th and early 20th centuries. It strengthened the ruble not only in our country, but throughout the world due to the establishment of its free exchange for gold. The reason for this was the instability of the monetary system in Russia at the end of the century. However, after the "recovery" of the ruble, the prestige of the domestic economy increased significantly, which led to an increase in investment and a flow of foreign capital.

Causes

Witte's financial reform was caused by the need to create a stable currency, which was so needed by the monopoly associations that emerged at the turn of the century in our country. The fact is that at the time being in Russia, under the influence of the main trends of the world economy, large monopolistic associations such as cartels and syndicates began to appear. For large monetary transactions, a currency was required that would preserve the value of financial capital.

Initially, the government tried to solve the problem by issuing so-called superfluous paper money, but this did not help. By the end of the century, the need to introduce a gold currency became evident. Witte's financial reform was carried out according to the Western European model. The matter is that the gold coin standard was introduced in many countries of Europe in connection with the emergence of a single world market. Russia actively pursued foreign trade, and therefore, like its partners, needed a similar monetary system.

goal

The tsarist government was interested in developing the country's foreign economic ties . The last circumstance was hampered by the fact that the ruble, despite being a convertible currency, was not strong enough to serve as an equivalent exchange.

Foreign entrepreneurs often did not dare to sell their denominations, since it was not provided with gold. The financial reform of Witte sought to overcome this barrier and put the ruble on the same level as European monetary units. This was to attract foreign investment and investments in the domestic economy.

Preparatory measures

The financial reform of Witte, whose date is 1897, was prepared by his predecessors. Bunge and Vyshnegradsky understood the weakness of the paper money system and tried to replace it with a metal standard. Both wanted to make the domestic ruble strong enough for it to freely exchange not only for silver, but gold. To achieve this goal, they set the task of creating a stock of this valuable metal, pursuing a protectionist policy, making foreign loans, and limiting imports and increasing exports of goods.

Thus, even before Witte came to the post of Minister of Finance, the rate of the domestic currency was stabilized. By the year of the reform, our country's gold reserves have reached more than 800 million rubles. The State Bank introduced a foreign currency into circulation with the new minister and stopped speculating on the ruble.

"Improvement" of the economy

Witte's financial reform was a natural continuation of the policies of his predecessors, who by their measures achieved a firm fixation of the ruble and the cessation of exchange speculation. Thus, all the necessary prerequisites for the introduction of the gold standard were created. The stock of this precious metal, the stable exchange rate, the well-formed budget, the development of foreign and domestic trade, the independent work of the Ministry of Finance contributed to the "recovery" of the domestic economy and stimulated the breakthrough in industrial development that Russia reached by the outbreak of the First World War.

Policy of the Minister of Finance

Sergei Yulievich Witte for ten years held this post and during this period has achieved considerable. Thanks to his efforts, railway construction was accelerated, a favorable trade agreement with Germany was concluded, a wine monopoly was introduced, which became an important source of replenishment of the state budget. Due to its monetary reform, gold turnover increased sharply, and the number of paper units fell, which, of course, increased the prestige of the Russian economy on the world market.

Sergei Yulievich Witte achieved "recovery" of the domestic financial system, which was reliable until the outbreak of World War I in 1914. However, it should be noted that many contemporaries were dissatisfied with the abolition of bimetallic treatment in the country, as the bulk of the population began to experience an acute shortage of monetary units, which adversely affected their purchasing power.

gold standard

This concept means the recognition of gold as the basic monetary commodity and the only equivalent of values. The advantage of this system is that it is not subject to inflation. In the event of a fall in economic activity, this valuable metal settled in the hands of contemporaries, when the situation stabilized, he again went into circulation. Witte's financial reform of 1897 was primarily beneficial for the development of foreign trade, since it facilitated the payment of transactions. The introduction of the gold standard was very displeased with the landowners and nobles, but the enterprises of the domestic bourgeoisie received a new impetus for development in large part due to the export of grain, which increased incomes.

First steps

Witte's financial reform, which was caused by the instability of the monetary system of the second half of the 19th century, began with the decree of the emperor of 1895, which allowed to pay transactions with gold domestic currency or credit cards at its rate. However, new monetary values were rather slow to enter into circulation. Therefore, the State Bank decided to buy a gold coin at a good price - 7 rubles 40 kopecks.

The latter measure helped to stabilize the relationship between paper and metal monetary units. In 1897, the government decided to introduce a golden appeal in Russia. Coins from this metal began to be minted from 1897. The first of them were worth 5 and 10 rubles. Also issued were imperial (15 rubles) and half-imperial, which amounted to half their value. However, it is significant that the majority of the population still preferred paper money, as it was easier to keep on hand.

Effects

Witte's financial reform, the results of which were generally very positive for the domestic industry, was prepared in strict secrecy, as its developers were not in vain afraid of confronting the court circles and the local nobility. The fact is that the introduction of the gold standard strengthened the positions of the Russian bourgeoisie, but led to a fall in prices for agricultural products. After the reform began, its initiators were subjected to sharp attacks by the public.

However, Witte enlisted the support of the emperor and the special finance committee and achieved approval of his project. As a result, the ruble rate stabilized, and domestic entrepreneurship received a new impetus for development. The positions of the domestic economy on the world market have strengthened, which brought Russian industry to a new level. One of the shortcomings of the reform is the increase in Russia's debt due to the attraction of foreign capital, but the cost of borrowing has fallen.

In addition, during the reform, there was an increase in state property due to the creation of a gold reserve and the acquisition of railroads in the ownership of the treasury. Success was contributed by Witte's skillful budget policy, which refused to save public funds. This thrift, he opposed the financial activity, contributing to the inclusion of capital in the industrial turnover. So, the monetary reform strengthened the Russian economy and brought it to the world level.