EKIP– Expert Club for Economics and Politics A Different Opinion
The year 1947 in Bulgarian history is associated with the implementation of an important monetary reform. It was part of a chain of profound and comprehensive changes that led to the establishment of a Stalinist economic and socio-political model: nationalization of industry, adoption of a new constitution, elimination of the parliamentary opposition, collectivization of agriculture, etc.
The important lessons of history are rarely seen in the stylized facts of major events. They do not allow us to reveal the basic processes, public reactions, and the practical significance of the manipulations with the lives and destinies of people that the authorities resort to. This publication will focus on the question: What can strong power do with other people's money?
The war and the "depreciation" of the Bulgarian lev
After the outbreak of World War II (1939-1945), Bulgaria declared neutrality, in 1941, although reluctantly, it became an ally of Germany, on September 9, 1944, a coup was carried out in the country, and the Bulgarian army joined the final stage of the fighting with Hitler's armed forces.
Against this background, another episode of the devaluation of the leva is developing. The prerequisites for it are many: the prices of all imported goods in wartime conditions are increasing, the expenses of the Bulgarian state for mobilization, armament and maintenance of the army are increasing, from September 1944, expenses are also made for the maintenance of the Red Army in Bulgaria, etc. The export of Bulgarian goods to Germany in the war years until September 1944 is huge, and the import of German goods is limited. This circumstance generates an increase in prices, because the export of mainly agricultural products leads to an increase in the available money in the Bulgarian population, but against this money there are not enough industrial goods, which are imported almost entirely from Germany. The solvent demand is high, and the supply is small. In addition to banknotes, the Central Bank issues interest-bearing 3% treasury bills, which serve as regular means of payment. They are attractive to the population because the interest on them is not subject to direct taxes. By the end of 1943 alone, about 8.5 billion leva worth of bonds had been put into circulation. The initial distrust of them was overcome, and from the beginning of 1944, people began to use them as a means of payment and as a form of savings.
The specific dimensions of monetary inflation during the war years are difficult to calculate. One of the most serious obstacles is the lack of data on the movement of market prices. The prices of almost all goods are regulated by state authorities, but some sales take place illegally on the so-called black market, where prices are much higher than officially regulated. With a number of caveats, economist Assen Hristoforov estimates that from 1939 to 1945 the depreciation of the lev was between six and twelve times.
Monetary reform and more
The idea of conducting a monetary reform to reduce inflationary pressure was associated with the change in political power that took place on September 9, 1944. The Fatherland Front coalition, in which the Bulgarian Workers' Party (Communists) played a leading role, took over the government. The experienced coup leader Kimon Georgiev became Prime Minister, and the Minister of Finance was Prof. Petko Stoyanov. In October 1944, a Bulgarian government delegation visited Moscow to sign an armistice with the allies of the anti-Hitler coalition. During his stay in the capital of the USSR, the Bulgarian Finance Minister consulted on the possibility of exchanging the old banknotes for new ones and ordered the printing of banknotes there. The fact that the war had not yet ended and the unclear future of Bulgaria caused the Fatherland Front governments to delay the implementation of a monetary reform.
Regardless of their political beliefs, Bulgarians reacted with a kind of monetary rationalism to the coup of September 9, 1944. Many people who had savings in banks or other institutions began to withdraw them. The trend covered not only the urban but also the rural population. The anxiety was probably caused by the general insecurity and the known hostility of the communists to private property. The withdrawal of money reached such proportions that the market lacked sufficient means of payment, which made economic activity and exchange difficult. Meanwhile, the depreciation of the lev continued under the new regime. Money circulation (coins, banknotes and 3% treasury bills) increased from about 57 billion leva to 73.8 billion in a little over a year: September 1944 - November 1945. The black market did not disappear, and the deficits of goods continued.
On February 10, 1947, Bulgarian representatives signed the Paris Peace Treaty. After officially leaving World War II, the communists moved on to consolidate their rule and implement reforms to implement their economic and social ideas. Even before the treaty was signed, the BNB asked the authorities in Moscow when the order to print 30 billion leva banknotes could be fulfilled. On March 6, 1947, the BNB Governing Council approved, and the Council of Ministers issued, a special Ordinance for the withdrawal from circulation and exchange of banknotes and 3% government treasury bills.
All old banknotes of 200, 250, 500, 1,000 and 5,000 leva, as well as state treasury bills, are being withdrawn from circulation and replaced with new banknotes. The withdrawal of the old banknotes and their replacement with new ones is planned to take place extremely quickly – from March 10 to 16, but the old banknotes cease to be legal tender from March 12. The authorities have repeatedly warned the population that there will be no extension of the deadline. Individuals can bring in an unlimited amount of old banknotes and treasury bills for exchange, but they can receive a maximum of up to 2,000 leva in new banknotes. The returned amounts over 2,000 leva remain as a blocked bank deposit for each person, i.e. this is money that cannot be withdrawn and nothing can be done with it. The purpose of such detention becomes clear a few weeks later. On April 8, 1947, the Law on a One-Time Tax on Property came into force. According to Art. 23 of this normative act, blocked funds are subject to a progressive tax, which starts at 5% for deposits from 5,000 to 15,001 leva and reaches 70% for the largest deposits.
First reactions
Despite the short deadlines for exchanging the money and the lack of clarity about the confiscation plans, people reacted to the first information about the planned reform with spontaneous rationality.
On March 7 and 8, as the opposition newspaper Svoboden Narod put it, life in Sofia “ took on a completely American pace.” Rushing men and women headed to the shops and bought up everything that could be bought. The longest queues formed in front of furniture stores, where “ the most battered goods were sold.” The same thing happened with luxury goods and cotton fabric stores. In order to oppose people’s attempts to somehow save some of their savings, the authorities closed all stores from March 9 to 11, except for food stores. It is curious that queues of people also formed in front of the tax offices. The ordinance of March 6 allows for a relatively long time for paying taxes with old banknotes. That is why queues of people wishing to pay their debts formed in front of the tax offices.
Rumors are circulating that individuals are seeking connections with foreign embassies to mediate the exchange, because there are no restrictions on the new banknotes that diplomatic representatives can receive. Such rumors are skillfully used by the ruling party to hurt and compromise their opponents. Nedelcho Ganchovski, who is the personal secretary of the communist leader Georgi Dimitrov, notes in his diary that a close associate of the opposition leader Nikola Petkov made an attempt to exchange millions through the French embassy… Georgi Dimitrov claims that the one-time tax does not affect the entire population, but only “a small group of rich people”. The collection of money in blocked bank deposits unleashes the traditional envy of the wealthier. According to some reports, in individual villages, local activists express a desire to find out which of their fellow villagers have made the largest deposits.
Meaning and consequences of the financial coup
In March-April 1947, the state actually confiscated part of the money of the Bulgarian population. It is obvious that with strong power and in a state of crisis, a way is found to legally steal the property of citizens. Their idea that the money is theirs turns out to be illusory. Again, the opposition "Free People" finds the right words to explain what happened. In an editorial note from March 8, 1947, it is noted that the reform was carried out " in order to forcibly obtain funds for the needs of government policy." The monetary reform intensified the class hatred of the poor towards the rich, justifying violence against them and against political opponents. Fears of such actions by the communists remain persistent, because years after 1947, the writer Chudomir noted in his diary that only rumors of an upcoming monetary reform made people run to the shops and buy whatever they could.
Traumatic experiences tend to fade with the passing of generations. And with oblivion, the likelihood of a similar financial upheaval happening again increases.
