Lenin and the currency competition Reflections on the NEP experience (1922-1924)

Nikolay Nenovsky

Bulgarian National Bank and ICER

Summary: Institutional competition stirs the interest of economists following a certain cyclical pattern. In this context, it is very interesting to look back at the experience of Lenin and the Bolsheviks of adopting monetary competition to stabilize their political and economic power after the crash of the war communism (and the attempts to annihilate money). The currency competition lasts less than two years and ends up with establishing the chervonetz as the only monetary unit. As a whole, this can be considered a successful economic experience.

Nevertheless, the main conditions for effective institutional competition were not met – the two currencies were unequally positioned and, what is more, the institutional complementarity principle was not present. Other basic market institutions were lacking or much diminished in functions – mostly the property rights, the principle of free price setting as well as competition in the political and ideological sphere. In general, the NEP model is utterly controversial and its market structure is to a great extent false. This is what actually doomed monetary stability afterwards and left no room for money competition to spread its wings.

Despite all these shortcomings, even in its reduced form, the monetary competition, gives a number of positive, though only temporary, results. This reveals the presence of purely technological characteristics of currency competition related to the behavior of money users. In part one we remind briefly of the chronology of events in the first years of the Bolshevik’s
regime; part two shows the dynamics of currency competition between the sovznak and the chervonetz, and in the last part we attempt to draw some theoretical observations related to the
necessary conditions for a successful institutional competition.