SOVIET GOLD POLICY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP80T00246A062600220001-2
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 18
• Document Creation Date: December 22, 2016
• Document Release Date: January 13, 2012
• Sequence Number: 1
• Publication Date: April 10, 1962
• Content Type: REPORT

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(20-40)
CENTRAL INTELLIGENCE AGENCY
This material contains information affecting the National Defense of the United States within the meaning of the Espionage Laws, Title
18, U.S.C. Secs. 793 and 794, the transmission or revelation of which in any manner to an unauthorized person is prohibited by law.
REPORT
SUBJECT Soviet Gold Policy DATE DISTR. 10 April 1962
NO. PAGES 1
REFERENCES
DATE OF
INFO.
PLACE &
DATE ACQ.
THIS IS UNEVALUATED INFORMATION. SOURCE GRADINGS ARE DEFINITIVE. APPRAIS ONTENT IS ENTATIVE.
'ed L__-Lis stud of the gold olic of the USSR
7
ARMY
NAVY JAIR
NSA TFBI
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3
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The Soviet Union's Gold policy and Gold hale.
(late in 1961) F
Introduction,
Thr- considerable ar'ounts of gold, which the Soviet Union during recent years
has sold have aroused interest for the Soviet gold
questions, which will be treated, are as follows:
1. o4q large are the Soviet ',Trion's gold production and gold reserve ?
?. 'JLich ii-nortance do the Soviets attach to the gold in econorrics or with other
words, w at is the background for the policy led ?
3. How large are the gold sales and which are the reasons hereto ?
4. `.dhich are th'> future ,ossibilities for using the built-up gold reserve ?
II. The Cold Production and th;e Gold Reserves.
AT--The Production.
The Soviet Union has -,roduced gold for more than 200 years. In the beginning they
',roduced in the Ural Uountains, but as the eastern territories became colonized
the central -oint of the gold --roduction moved eastwards and now the most im-
portant production districts are the Aldan district near Yakutsk in East Sibiria
and the area between the rivers Kolyma and Indigirka in Northeast Sibiria
which together produce 75 to 80% of the total rroduction. These
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de'-osits seem to be extremely rich as the gold content can reach as high as 20
grams r,-r ton of the basic material,
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During the Tsar regime the gold production reached s considerable dimensions and
already at that time the Soviet Union was one of the world's leading gold pro-
ducers; but after the revolution in 1917 the production fell fast and got as far
dorm as to about 35,000 ounces a year. The decrease was due to the disturbed con-
ditions which characterized these years and rrobably also to the position of gold
in Communist mentality. l'e will give a further account on this in a following
nara.graph. The decline, however, was broken in the early twenties and the gold
production was resumed, partly by foreign firms which during the NEP period
aquired Fold winning rights in the Soviet Union. The size of production during
each individual year from 1921 and the time ahead are stated in table 1 in the
enclosure to the extent the available material makes this possible. The produc-
tion reached 800 to 900,000 ounces a year fast and it stayed at this level until
1928. Niti. t e gold -rice of 2-$21 per ounce at that time this amount corresponds
to a value of -l.ry to
19 million.
''ith the change to the elan period in 1928 a new break occurred in the development
because t~ey concentrated on giving rise to a drastic rroduction increase during
t e following years. They succeeded in this and the rroduction was nearly six-
folded un to 1Q36 to 1038. An important reason for this was the gold production's
high --riority at the distribution of investments which had the result that an es-
s-,nti.al part of the production was mechanized during these years.
The roduction development since the outbreak of the war is on the whole unknown
because of t).e secretiveness with which it has been surrounded by the Soviets.
'iow total t' e lac', of official information ',,as been is illustrated by the great
disagreements between the estimates of t::e rroduction which from time to time
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production after the war to not over two million ounces, while others estimate
its -resent size to close to 17 million ounces.
11 combination of these gives - a-art from the lowest ones as there seems
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to be a common agreement that the Soviet Union is second among the world's gold
producing nations - that the rroductionsbetween 1941 and 1960 must have amounted
to 150 to 25n million ounces.
B. The Reserves.
;a- can gFt an idea of the ap-roximate amount of reserves by subtracting the sales
effected to the outside world during the cast 40 years and the amounts which
have been used for non-monetary purposes from the total production during the
same period, excluding the gold reserve at the beginning of the period without
making any grave errors. Naturally the uncertain 'reduction statements for the
-gist 20 years make it difficult to give an exact figure of the size of the total
^roduction, but is the production given year by year since 1940 by an interval,
for which the limits are fixed from the existing estimate, the
total production must have been somewhere between 200 and 300 million ounces.
The sales to the outside world (see table 1) for
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the ^eriod from 1936 through 1960, have amounted to 50 to 60 million ounces of
which the main part has been sold during recent years. Even regarding the sales
from the early twenties up to 1936 it is doubtful whether the total sale would
exceed 6^ million ounces considerably. Finally, it is probably permissible to ex-
clude the use of gold for non-monetary purposes, jewels for examrle. Herein the
'J,-st the use of gold for jewels amounts to a sixth of the available amount of gold
and it is reasonable to guess that this is considerably lower in the Soviet Union.
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So the conclusion is that the gold production has exceeded the gold consumption
considerably , so a reserve of 14.0 to 240 million ounces should have been worked
ug~ which gives a value of 4.9 to 8.1 M a month at the present gold ;:rice of "35
-er ounce. The reserve is probably closer to u per than the lower limit. The In-
terfund estimated Soviet's gold reserve to about eight G a month in April 1960.
III, The Bac' round for the policy Led.
tt a rears from the above t'at the Soviet Union has taken a great interest in
the gold roduction, a fact which seers strange recalling tie attitude to gold
and coney taken by the r gi_me during the beginning of the period which so aptly
was manifested in statements by several leading rersonalities like Lenin for ex-
a- le. So it is natural to as" te, r---)-son for the revulsion and i.n this connectii
ti.e i_m ortarce which t e `'oviets attach to gold. U3efore t i.s 'a ens there may
good reason to define furtier which missions the gold carries out - or is as-
sum71er1 to carry out - in t' e nati-mal and international economy.
A._-The Gold's Economical Functions.
Tnrougi- out the ages Fold has acted as means of payment, partly directly in the in-
dividual transactions, -??irtly inditectly when thc- money institutions used gold to
cover t>'eir enf-agements, including tL;- notes they issued. It has had these func-
tions within a country as well as in the relation between the countries.
First lornki_ng at the conditions within a country we can roughly say that the, di-
rect use of ;oil as means of rayment in the ,ast was replaced by a system where
a number of ban'-s suprlt d p-ople with means of -payment in the share of notes. In
this way a number of money systems, whichi were mutually inderendent, arose within
Vie country. The fold acted as a reserve for eac`. individual bank in these systems
as this as the on1v one of all approved means of payment. The trust in the notes
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issued by the hank de-Pn.ed on ti- fact that t P bank owned a gold reserve and
that these notes could be converted i^to Fold at any time. '~Je have a -arallel to
this in t}e modern bank system where the trust in the individual bank - and thus
tie desire to have claims on it in the form of deposits - derends on the fact
t!at the hank has a reserve of claims on the central bank, notes or deposits.
The next step in t'e development was t at the right to issue notes was taken from
the individual banks and passed over to a central bank of which the notes were
made legal means of payment ever where within the country. Thus the gold was played
out in the national ropey system. Now the private banks could replace the gold re-
serve with claims on the note issuing bank and neither this one had any real need
for a told reserve in t'e relation to te country itself because its notes were
leral means of r.ayment and it could always free itself from its obligations by
issu i.nh new notes.
Still, t'?e rules, which previously -:ad been formed gradually, were passed over to
the new system , so the note circulation, which is claims on the bank, was supposed
to be covered by Fold in some relation or other. Later on, owever, most countries
ave left t ese rules realizing their surerfluity and unr-ractical character; in
countries where the rule: still exist they have no real imrortance.
1L, - 5 E v Luen-G rr ati ?,-oJa oac ringcan be of no impor-
tance to the trust in the notes without such an o?portuni.ty.
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No money svster corresponding to the one existing in the individual countries has
ilevelor,ed in the relation between the countries as vet
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B. The "otives for the Soviet Union's Gold `'olicy.
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the energy, which the Soviet Union has gut
into t-e gold roduction, would have been rationally founded if it had served to
supply the country with an international means of payment primarily. Had this been
the case cart of the production would have been used fo'^ building uF a certain
reserve to meet situations of great claims to the country's international solven-
cy, while t'-e -,art of the rroduction, which exceeded this need, should have b-en
sold on the world market. Then the Soviet Union would have led the same policy as
South Africa, the world's greatest Fold prthducer, which sells by far the greatest
-art of its production to the world market and for which gold is an export article
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on the same lines as other "ordinary" articles.
There 's no indication, however, that gold ta''es ur this rosition in the Soviet
Union and thus that the nurrose with the gold production ha:, been the procurement
of an international means of payment alone. It has peen mentioned rreviously that
only a shall 'art of the gold -,,roduction has found its way to the world market,
regarding the eriod -revious to 1953 es-ecially, and that the main mart of the
Fold production has beon used to build up a gold reserve of about
which seems over-dimensioned considering the relatively modest commercial inter-
co rse between the Soviet Union and the "ca''italistic" countries. In 1959, for ex-
amrle , the im^ort amounted to about 1300 million and so the gold reserve could
finance six years of Soviet imrort from the West. It is often stated that the dis-
inclination towards gold sale, which the development indicates, is due to the con-
siderable Px-'enses connected to tl.e geld ~"roduction. This is no satisfactory ex-
,lanation, however, because it does not answer the question why the Soviet Union
t en under so unfavorable cost circir stances has strived to work uc a gold reserve
wh,cl exceeds the ammount, which the reserve claim would dictate alone., to such a
decrree.
Furthermore, it is char=acteristic for the Soviet gold sales that they take place
at certain times of the year, for a number of years for example during the last
quarter of the year and sometimes stretching into the new year, during recent years
during the second quarter. This ray indicate that the gold sales primarily take
'lace in order to equalize instabilities already arisen in the commercial inter-
course with the outside world. So the gold sales cannot be considered an export
article li';e in Africa but on t'e sane lines as international capital movements
and so on the sale lines as credit from the '.lest to the Soviet Union.
The policy led does not 'harmonize very well with the view that gold only has a va-
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lue as international currency. ur er explanation is necessary, and in the
following an evaluation of the importance, that the USSR attaches to its
1)
gold policy, will be attempted.
After the rvolution it soon proved impossible to create the ideal Communist
society, where a money system would be unnecessary. It was apparent, that
for a while developments would rest at a step called "Dictatorship by the
Proletariat". For the next decade it was discussed whether to maintain the
capitalistic system of money - and gold- or whether to use physical units as
payment. This idea was especially promoted by the economist STRUMILIN. The
post-war inflation as well as the state's efforts to get along without a
money-system resulted in a very poor economic period, further hampered by
barter-trade. Because of these difficulties SOKOLNIKOV's views, that until
the perfect Communist society could be achieved a money-system based on gold
would have to be established, could gain ground. This is in complete agree-
ment with MARX, whose thought was, that gold must be estimated on the basis of
the labor-value of other goods. Paper-money on the other hand representing no
labor-value should only be valid if backed by gold. After a period of
indecision LENIN supported this line of thought, and put through a resolution
re-establishing a money-system based on gold. This reform was highly
criticized by STRUMILIN, who in turn was criticized by SOKOLNIKOV for not
accepting the Marxist theory about gold and paper-currency backed by gold.
The reform was part of many compromises during these years characteristic of
the NEP politics.
1) The following is based on an article by Alfred Zaubermann: Gold in
Soviet Economic Theory and Politics. The American Economie Review; 1951.
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Wff~A
The money-system introduced in 1922 was somewhat altered in 1921. The
Ministry of Finance was authorized to issue notes without gold-basis in
order to cover the budget's deficit. This is still in effect. Notes of
10 rubles or more are issued by the Treasury and are gold-backed. Notes of
less than 10 rubles can be issued by the Ministry of Finance up to 50% of the
value of the notes issued by the Treasury. Actually this limit has not been
observed.
The conclusion must be, that the stimulation of the gold-production is
motivated by the desire for a stable currency.
This viewpoint is still valid in the USSR. Citations from economic works
approved by Stalin shortly before his death are proof of this: Money can
only be a measure of value (its main function), if money itself is a com-
modity, i.e. has value. On socialist economy: The stability of USSR currency
is secured by enormous amounts of goods available to the state and put into
circulation at set prices, also the Soviet currency is gold-backed. In these
economic works it is pointed out that Treasury-money is gold-backed. It also
comes to mind, that in 1960-61 at the time of the currency-reform the impor-
tance of the gold-basis and the gold-value of currency was very apparent.
The Soviet interest in gold-production, however, is not only furthered by the
desire for a stable money-system, but also for an international buying-power.
Thus in the above-mentioned economic works it is mentioned, that the stock-
pile of gold is the state's reserve-fund of international currency. The
reluctance that the USSR has demonstrated - especially some time back - in
using its gold-reserve even in times of great need clearly illustrates the
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important role of the gold in internal USSR policy.
IV; Gold sales in recent years.
in earlier times the USSR would use its gold reserve as international
currency only to a very limited degree, but since 1953 she seems increa-
singly willing to do so. Thus the USSR in the period 1953-1960 has sold
about 40 million ounces valued at 1400 million Dollars in the West.
This means about 4/5 of the total sales in the time since 1936, when the
first gold-sales were recorded. I
Such sizable sales have naturally caused speculation. It would be
interesting to know, why the USSR is now willing to sell gold, and for
what purposes the gold has been sold. The answer to the first question
could be, that the importance of gold as international currency outweighs
the internal value, or it could be, that the gold-reserve is big enough
to allow a more liberal expenditure. It is difficult to say which is the
right explanation. But it is safe to assume - if the above-mentioned
estimates of the gold-production are correct - that the main part of the
production goes into the stock-pile. The conclusion is, that the gold-
sales are geared primarily only to the increased money-transactions with
the rest of the world. This will be illustrated in the following. On
the basis of existing information possible changes, that have taken place
will be shown. This will require a table of the Soviet budget during
those years. This is difficult as only the amounts connected with the
I
USSR s foreign trade are known. It is true, that these make up the
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largest part of the USSR payment balance, but it is impossible to ignore the
remaining balance. It looks as if the USSR has a deficit on these other
items, for instance expenses on freight, tourism and probably support to
Western Communist parties. Before the big gold sales the USSR's trade with
the West showed a profit, even though gold was sold in small quantities,
about 1 million ounces annually, valued at about 35 million dollars. The
total of the surplus of the trade balance plus the gold sales can be con-
sidered to make up the USSR demand for Western currency - net - for pur-
poses other than import. Taking for granted that this demand is unaltered
the question is: Has the foreign-trade-balance changed so much as to explain
the considerable rise in gold sales? In other words how big a change does this
item show compared to the years before 1953? In the attachment, table 2,
it will be calculated up till 1959. In the foreign-trade-statistics,
transactions not showing income or expense have been entered, these will
be corrected. For instance under export will be included deliveries to
underdeveloped countries according to agreements between the USSR and these
countries.
The USSR's payment-
position in relation to the West has been decreased with 986 million
dollars, since 1952. Assuming that the Soviet holdings of Western currency
are constantly low, a total gold sale of 986 - 1231 million dollars could
be expected during this period. The actual gold sales amounted to 1250
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million dollars. The largest part of these sales can thus be connected with
the development of the commerce with the West. Below follows a table of this
development in relation to Western industrial and developmental countries.
Trade Balance with the West from 1952 - 1959 in million dollars.
1
)
Industr. Developm. Other Total C
hange relative
countries countries trade t
o 1952
1952 96 -50
46
-
1953 26 -42
-16
-62
1951 24 -71
-47
-93
1955 130 -103
27
-19
1955 175 -lots
7 6 145
-
1956 105 -174
102 13
-151
1957 73 -256
93 -175
-339
1958 109 -201
98 6
-158
1959 193 -288
95 0
-164
Total
-986
Up till 1955 Western statistics have been the basis of this table, after
1955 Soviet statistics were available for the first time. In order to
avoid mistakes due to the difference in sources the year 1955 has been
calculated both ways.
1) Including loans of 20 million dollars in 1956 and 85 million dollars in
1957 in Western currency to Eastern Bloc countries.
It can then be seen that the gold sales during the first years were the
result of the more liberal import-policy after Stalin's death. After 1955
the position in relation to the industrial countries improved greatly.
The gold sales can thus be connected with the "economic offensive" conducted
on the industrial countries. There are two aspects to this. One is in
relation to the export, because a great part of the increased export to
these countries after 1952 - the real "economic offensive"-has been
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finRnced by Soviet credit, whereas the import from these countries has been
increased to 9 times the volume in 1953.
Actually this satisfactorily explains the recent Soviet gold sales, although
part of them still remains a mystery.
This remaining part may be explained by the
way the ISSR conducts her trade and payments in relation'to the West.
It is a fact that the postwar Soviet Union; believes in trade with the West
only in the form of bilateral trade- and payment-agreements that stipulate
balance of the trade and require payments through the respectice central banks,
thereby making foreign currency unnecessary. The agreements contain automatic
credit within certain limits in order not to hinder the trade by having to be
in balance at all times. Foreign curr-ncy then enters the picture only, when
accounts have to be settled - most often annually- this is done partly through
delivery of goods, partly with free currency.
Over a. loner period of time this method of calculation will not make any
differance in regard to the demand for Western currency, as a deficit must be
covered some time or another. Within one year, however, it means that the
USSR receives a short-term loan from its trading-partner, so that a deficit in
the trade does not require immediate settlement in Western currency. It is therefore
not to be expected to find complete balance between movements in the trade and
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V. Other possibilities for the use of the gold reserve.
The secrecy with which the U"SR has attempted to surround her gold production,
has led to many speculations as to what she wants to use it for. Two possibilities
shall be mentioned here, one dated, one recent one. The first one is the
assumption, that the USSR is storing gold in order to sabotage the capitalistic
system, the other that she is trying to make the ruble internationally convertible
in the manner of the dollar and the pound.
The first possibility was ouite popular in the West. This is the natural conse-
quence of the Soviet hope of overthrowing the capitalistic system paired with
the Western fear, that the TF,SR through active, economic measures might actually
fulfill this hope. It has been thought that the USSR through her gold reserve
could make transactions on the world-market aimed at causing price-instability
and exchange-fluctuations. This would panic the capitalistic world, ruin world-
trade, create unemployment and disturbances. It does not seem a likely possibility.
It is hard to imagine such reactions. In order to obtain them, the USSR would have
to require a gold reserve considerably larger than what she has after !i0 years of
gold production. Also it would have to be presupposed that the Western countries
weu.uld undertake no precautionary measures, which would be highly unrealistic.
Thus it is doubtful that the USSR could produce more than a few scattered
disturbances in the capitalistic system in this fashion. Furthermore it must be
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questioned, that the USSR would want a policy completely opposing the current
USSR thinking; on the importance of gold. It must not be forotten that although
considerations/
the Soviet hopes and aims are apparent, purely economic can and do decide Soviet
international transactions. When for instance the IISSR sold tin under world-
market prices, she unsettled the tin-market. This could hardly be called
Soviet policy, rather it must be considered an attempt at procuring - through
whatever available means - Western currency, an economically motivated trans-
action.
In the fall of 1960, during the gold crisis, the tUSR discontinues the gold
sales. The result had to he an increase of the gold price, consequently gold-
instability. Rather than to overthrow the capitalist system, the USSR most
likely intended to cause a devaluation of the dollar, and thereby an increase in
the gold-price. For a gold-producer a normal behaviour, above all economically
motivated.
It then seems reasonable to outrule the possibility of the USSR wanting to
create panic in the capitalistic system via the gold reserve.
The other possibility was to obtain convertibility for the ruble. K. V.
Ostrovityanov - vice-president of the Soviet Academy of Sciences-some years ago
predicted, that in the future the ruble would enter the world market and become
more valuable than the dollar. Articles on the ruble-reform of 1 January 1961
stressed the fact, that this had already happened to some extent, pointing out
that the trade in the bloc cotmtries is settled in rubles. However this does
not make the ruble convertible in the Western sense of the word. Convertibility
means that a currency as well as'gold can be the basis of an international
payment-system, making possible a condition, where the payments do not have to
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balance bilaterally, but where credits in one country may be freely converted
to other currencies and be made to cover deficits in other countries. If this
condition does not exist, but payments have to balance reciprocally, the need
for international currency does not arise, this is the case in the satellites.
The satellite credit-country has a very limited opportunity to use its surplus
as payment to another country in the bloc. This reduces the ruble to a mutual
payment unit in this trade. However, lately the bloc seems to be interested
in creating a more flexible system in the future, emphasizing a multilateral
payment-system over the bilateral system,with the ruble as payment-unit. On
the extent of the success of this plan depends the convertibility of the ruble.
There would then be a ruble-area as well as a sterling and dollar-area.
The above-mentioned quote by Ostrovityanov could point to the fact, that the
ISR is aiming higher. This possibility deserves attention. He indicates, that
the ruble also will be used as payment in the Western central banks on line
with dollars and pounds, and even become more valuable. Basis for this is full
external convertibility, that is ruble-assets can freely be exchanged into other
currencies and gold, or no Western central bank would accept ruble-assets as
payment.
In this connection it is often said that the Soviet system cannot permit
convertibility, because the trade is completely controlled by the state. Ac-
cording to this opinion convertibility would presuppose liberalization of the
Soviet foreign trade. This is not necessarily so. Actually the ruble could
obtain convertibility at the same time as the trade were controlled by the
state through trade-agreements. Possible ruble-assets not intended for import
because they would not meet with the economic requirements in the MR, could be
converted into other currencies or gold in case the Western central bank would 50X1-HUM
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