How Dictators Make Money—and Money Makes Dictators

The Ruble: A Political History, Ekaterina Pravilova, Oxford University Press, 560 pp., $40, June 2023

This punditry is not unwarranted. And yet punditry inevitably misses some crucial context—context that only fine-grained case studies can provide. Societies have always created currencies with a political function in mind—but the qualities of a currency, in turn, can also shape politics, both domestic and global. Ekaterina Pravilova’s The Ruble: A Political History persuasively offers Russia’s currency as a case study in the entanglement of money and power, and in so doing, encourages us to understand what catalyzes these global trends. A 200-year “biography of a currency,” the book positions the ruble as both an important part of imperial organization and an unexpected anchor of Soviet influence. The ruble also emerges, amid political and financial crisis, as a potential instrument of Russian democracy—yet its history ultimately demonstrates how a currency can become a primary tool for creating and maintaining an autocracy.

And while Russia’s singular monetary history has earned its economy a “backward” reputation, better known for profiting from geopolitical chaos than sound policy, it has also made the country a pioneer, leading it in a direction that many autocracies are headed today—namely, toward greater isolation from the West’s financial ecosystem. Whether that will also involve greater financial cooperation with other autocratic powers, including, as many anticipate, increased denomination of its trade and investment in China’s renminbi, depends on the Russian government’s conception of its own currency—and the related strength of its own autocracy.

A silver ruble depicts Catherine I, circa 1726. Fine Art Images/Heritage Images/Getty Images

Assignats thus became Russia’s initial form of autocratic money, projecting Catherine’s absolute authority. At a time when the rest of Europe was demanding monetary accountability, Russia backed its currency’s value with its monarch’s “sublime power” rather than any material collateral. When Nicholas I reformed the system in 1839, replacing assignats with silver-based bills backed by the “entire patrimony of the state” rather than a mere personal promise, he intended to maintain this autocracy; indeed, the state’s wealth was not nearly sufficient to provide this support, given that it only had sufficient silver to back up one-sixth of the rubles in circulation. There was no way to actually redeem the entire nation’s wealth under these conditions: Unlike the gold reserves in Europe’s central banks, which were independent from their state’s treasury, Russia’s bullion reserve—representing the bulk of its tangible wealth—was the only one in Europe directly controlled by the state.

Liberal economists and intellectuals in Russia took issue with this lack of monetary independence. Inevitably, a monarch succumbs to the temptation to generate revenue by printing more money, leading to inflation. If money truly represented the nation’s wealth, as Nicholas I claimed, then the tsar should be prevented from destroying that wealth. Since the people bore the cost of the tsar’s excessive money printing, and they lacked political representation, the “people’s ruble” should be convertible—to gold, silver, or something else—and the state should not issue money beyond this wealth.

Where else would Russia get money? If the tsar couldn’t print it as needed, he’d have to take it from foreigners in exchange for Russia’s sovereignty.

Russian nationalists countered that convertibility impeded the tsar’s ability to finance wars that would expand the empire and defend Christian Orthodoxy. Where else would Russia get money? If the tsar couldn’t print it as needed, he’d have to take it from foreigners in exchange for Russia’s sovereignty. Having observed that the French monarchy’s large borrowing required it to cede power to its creditors, Russia avoided borrowing in any significant way until its 1877 war with Turkey. To some, its fiscal prudence had been a virtue—even leading U.S. diplomat Alexander Hill Everett to imagine a world in which Europe was united under Russia’s military, the only one not funded by public debt.

But Sergei Witte, a savvy bureaucrat who defined Russia’s monetary thinking in the 1890s, and the central figure in Pravilova’s history, agreed that backing the currency with gold was a good idea—but not because a gold standard forced the state to commit to rational monetary policy and limited its demands for cash, as liberals hoped. Rather, Witte believed that adopting gold would become a source of stability for the ruble and national pride for Russia; a necessary reassurance to foreign creditors; and, finally, admission to the club of economically civilized nations. Russia’s conservative faction thus spun the liberal idea of convertibility into the rhetoric of the monarchy.

In 1897, Russia, Europe’s only gold-producing country and claiming its largest bullion reserve, became the last major economy to join the gold standard. Witte’s gold-backed paper and small silver change was immediately unpopular among peasants, urbanites, and indigenous Russians alike. Billed as a necessary step toward modernity, Witte’s reform struck many as a return to a medieval economy. Some asked why a relatively poor European country was stockpiling gold, rather than spending it on, say, public education. “All of thinking Russia was against” it, Witte admitted, to the point that journalists in France, the country whose monetary thinking so influenced his plan, called it a “monetary coup d’état.”

Though a coup captures the reform’s dubious origins—Witte’s backroom dealings, a secret decree, and few administrative controls—this isn’t totally accurate. Russia managed to avoid the political revolutions that had forced many of Europe’s other gold standards. And as unpopular as the reform was with Russian citizens, it did please one important faction. According to one source, foreigners invested more capital in Russia in the year after Witte’s reform than the prior 40 years combined.

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A ruble note with the portrait of Soviet leader Vladimir Lenin, circa 1937. Universal History Archive/Universal Images Group via Getty Images

As its empire expanded, Russia became one of the most aggressive participants in capital markets, and Witte’s gold standard locked it in a vicious cycle: The bigger it became, the more money it needed to print or borrow, and the more gold it needed to hold in reserve. But the more it held in reserve, the less it had to spend, so the more it needed to print or borrow. Soon, Russia was borrowing gold abroad in order to sustain the rate at which it was printing gold-backed rubles, overlooking the fact that this cross-collateralized its bullion reserve, exposing it to both foreign and domestic creditors.

Most countries would simply suspend gold convertibility during war and issue fiat currency instead, but the size of Russia’s foreign debts prevented this. Revolutionaries, fed up with the state’s unaccountable, debt-funded budgets, called for an end to foreign borrowing at the expense of the Russian people. Hoping to expose the state’s insolvency, they circulated a manifesto, partly drafted by Leon Trotsky, that started a run on the regime. Depositors emptied their savings accounts, refusing to pay taxes or accept rubles for payment, while panicked creditors tried to offload Russian bonds.

The regime survived this financial crisis, but the revolution’s calls for political reform had some success: In 1905, Russia transitioned to a constitutional monarchy, and a year later elected its first legislature. However, the State Duma was given little power to separate the State Bank from the treasury, and the state maintained total monetary control.

Whereas, in the eyes of liberals and revolutionaries, the gold standard in other European countries signified true constitutionalism—political representation that demanded transparent financial policy—Russia’s gold policy was supposed to compensate for its lack of such assurances. But for Russians, the government’s rationale was a joke that, according to Vladimir Lenin, then an exiled Bolshevik leader, “made the entire world laugh.”

The viability of this unusual system was tested yet again during the First World War, which caused a race for gold that saw Russia pay unprecedented prices for it on foreign markets and led the state to call in all the country’s gold except the holiest Orthodox relics. “You’ve got a lot of gold trinkets,” read one official’s announcement, and “it is your patriotic duty to deliver all this useless luxury to the state.” Many of these trinkets were worth more in their original form than melted into gold bars. Some Russians, fearing seizure, melted their stashes of gold coins, the easier to carry them out of the country as newly crafted necklaces. The scheme netted only 655,000 rubles—enough for 13 days of wartime expenses.

World War I proved too much for Russia’s financial policy, and in 1914 it abandoned the gold standard. An income tax (which was transparent) and government bonds (which were voluntary) had replaced convertibility as the democratic mechanisms akin to a stake in Russia’s government, but they provided neither sufficient revenue to the state, nor adequate representation to the people.

Thus, even the Bolsheviks, so eager to eliminate money on the way to socialism, found that they still needed it, and generated revenue by printing rubles beyond anything seen by their imperial predecessors.

Thus, even the Bolsheviks, so eager to eliminate money on the way to socialism, found that they still needed it, and generated revenue by printing rubles beyond anything seen by their imperial predecessors. (The Bolshevik-created bureaucracy would soon employ three times as many officials as the imperial government.) Financing the government through monetary emission was not the Bolsheviks’ original plan, but central planning required coordination, and money helped organize resources. Soon, revolutionaries were simply trying to manage the ruble’s depreciation and maintain the state’s monopoly on money-printing.

Reflecting on these mishaps, the early Soviet state consulted a group of experts in 1920 to consider whether money should, in fact, exist under socialism. One participant, Vladimir Zheleznov, argued that money was the only language expressing social needs. To be sure, it represents a “compromise between personal freedom and social organization,” but Zheleznov suggested that each person has an economic interest—even under socialism—and this interest is expressed in money.

Zheleznov’s view, which drew on the Aristotelian concept of money (nomisma) as a tool of reciprocity among citizens, informed the Soviet Union’s New Economic Policy (NEP) in 1921. The NEP allowed citizens to keep money in any amount, replaced Soviet food requisitions with proper transparent taxes, and replaced the imperial ruble with a Soviet one. But just as ancient Greek currency became, over time, a tool for imperialism, the Soviet reform returned Russia to Witte’s imperial standard.

Lenin, like Witte, thought gold might attract foreign investors the way it had after 1897. And so the new treasury notes, which were backed by the state’s credit just like Nicholas I’s bills, circulated alongside bank notes ostensibly backed 25 percent by gold. But with its gold reserves impaired by the war effort (and its Gulag camps yet to properly restart gold mining in Siberia), Lenin’s forces had to raid the last stash of gold in the country, the coffers of the Orthodox church.

But even as it stockpiled gold, the state never actually sanctioned the ruble’s convertibility as promised. “If a certain Ivanov comes to [the] State Bank” demanding gold, said the people’s commissar of finance, then they would assume Ivanov is a counterrevolutionary hoping to buy “a little gold mug with the tsar’s portrait.” With so many unexchangeable rubles circulating, Russians once again saw convertibility as “a panacea for our economy,” but subsequent reforms in 1947 and 1961 did not grant monetary independence—according to Pravilova, they merely reaffirmed the political role of Soviet money as “an instrument of governance, propaganda, and Cold War diplomacy.”

Both imperial and Soviet governments meddled with the monetary system without changing the institutional and political foundations of Russia’s economy, nor fixing its fundamental problem: a lack of productivity. It is no wonder, then, that former Soviet states celebrated their independence by issuing their own national currencies.

Members of a social network group called “I Really Like Putin” carry an oversized 1,000 ruble banknote in Moscow on Aug. 18, 2011, during an action in support of Russia’s currency. Alexander Nemenov/AFP via Getty Images

Reflecting on Putin’s reign, Pravilova writes that the ruble has absorbed the cost of attacks on Chechnya, Georgia, Crimea, and Ukraine. Putin’s second invasion of Ukraine in 2022 rendered the ruble mostly inconvertible to Western currencies and limited Russia’s access to global finance. Once more, the ruble became a symbol of autocracy and autarky to the West, while its exchange rate prophesied Russia’s fate in its latest war. It is why Putin rushed to stabilize the ruble after the invasion, and why the Biden administration hastened to declare its sanctions on Russia had reduced the currency to “rubble.”

Several scholars have argued that money can play a role in creating and shaping democracy, and Pravilova demonstrates that powerful rulers can use the very same instruments to control the public and consolidate their autocracy. While most of Europe was democratizing and developing the modern toolkit of central banking, Russia managed domestic crisis by changing the ruble’s form, value, or metallic backing, often in lieu of political reform. By designing a currency that maintains autocracy, true monetary accountability will remain beyond the public’s reach.

Once more, the ruble became a symbol of autocracy and autarky to the West, while its exchange rate prophesied Russia’s fate in its latest war.

Before Russia’s gold standard was co-opted by monarchists for the sake of securing foreign credit, it was a way for liberals to demand government accountability under a regime that did not offer true political representation for its people. This concept was always undermined by a lack of monetary independence in Russia, which became liberals’ second major demand for accountability. The ruble remains one of many marginal currencies—occasionally sanctioned, constantly fluctuating, and rarely circulating outside trade alliances—issued by autocrats hoping to retain the centrality of the state over the monetary system.

From Turkish President Recep Tayyip Erdogan’s historically inflationary policies to Indian Prime Minister Narendra Modi’s unilateral seizure of rupees, Putin is far from the only ruler forcing the costs of his regime on citizens who lack proper representation. Some of these rulers have sought new means to defend their autocratic model and challenge the U.S. dollar network with monetary symbols of their authority.

Today, autocratic countries make more than half of the world’s gold purchases, some of which insulate their economies from Western meddling or back trade-oriented cryptocurrencies. Broader currency alliances aim to directly challenge the dollar standard, but attempts in Latin America and other emerging markets have crumbled for lack of a stable keystone currency.

China’s renminbi may be the politically aligned alternative they seek. About 2.5 percent of foreign official currency reserves are held in renminbi, with almost one-third of that amount owned by Russia alone. Chinese President Xi Jinping’s capital controls make the renminbi’s convertibility into Western currencies doubtful, limiting its utility for now. A larger alliance of smaller currencies allays some of that concern, but it also means that, as in imperial Russia, it is the autocrat’s promise that backs up the renminbi, and financial stability depends on his goodwill.

Faced with this prospect, The Ruble contributes to a recently reinvigorated debate: What is money? Is it a mechanism of exchange and credit, or a tool of governance and coercion? A check on autocratic power or a symbol of that power? The ruble’s role at the center of crisis and reform shows that it could be all these things, or none of them. After all, currency not only reflects the political order—it actively shapes it.