The hunt for hard currency or doing business with foreigners
These days you can change rubles to foreign currency just about anywhere in Russia. It’s hard to believe that there was once a time when transactions with foreign currency were punishable by a prison sentence of up to 15 years, and even the death penalty. This harsh law, which was introduced in 1960, wasn’t fully eliminated until 1994.
Foreign currency in Russia was always strictly monitored by the government. Not a single dollar was supposed to bypass the state treasury. It got so bad that a special kind of trade emerged in Russia. In addition to regular stores, where people bought things with rubles, there were closed trade points that only accepted foreign currency, which incidentally was always referred to as “hard currency” in Russia. In other words, it was always considered to be a lot more reliable than the ruble, which is still sometimes referred to as “wooden currency.”
Everything started in 1931, with the establishment of Torgsin – state-run hard-currency stores for trading with foreigners. This was a complex organization that has never existed in any other country in the world. It served foreign guests and Soviet citizens who had valuables such as gold, silver, precious stones, antique items, and currency that they could exchange for essential items and other consumer goods. Torgsin stores had over 15,000 different kinds of products. The list included flour, fresh and canned vegetables, tobacco, coffee, clothes, underwear. During its heyday, in the mid-1930s, there were about 1,500 Torgsin stores operating in the USSR. They were located in Moscow, as well as in other cities.
After the massive food shortages ended in the mid 1930s, Torgsin stores started to primarily carry industrial goods, furs, photo cameras, and records. “The displays featured Crepe de Chine, toffees, Krakowska sausage. The halls were filled with delicacies and rare goods – herring from Holland, makeup from France, fabrics and goat fur from Persia,” reads the article “Torgsin: the rush for currency in Soviet Moscow,” “Catalogs included American Fords, British medical gear. There was olive oil, lemons, canned goods, olives. It was profitable to sell foreign goods because Torgsin didn’t pay import tax and payed bulk prices for foreign products. Foreign goods were usually sold for 300-500% of their original price.”
Torgsin had one goal – to generate hard currency for the government. At the time, the country needed hard currency like it needed air. The USSR has launched the process of industrialization, the goal of which was to boost the industrial potential of the USSR in order to economically catch up to developed capitalist countries. As a result, the Soviet Union was to be transformed from a primarily agrarian country to a leading industrial power. This is exactly what happened. By the end of the 1930s, huge strides had already been made in this regard. Foreign experts had a lot to do with the transformation. Because the country had a severe shortage of engineers, they were often brought in from abroad, from countries like Germany or the US. Experts from these countries gladly came over to make money in a communist country, since their countries were bogged down by economic crises at the time.
For example, an Albert Kahn, Inc. branch opened in Moscow under the name “Gosproekstroi.” It was headed up by Maurice Kahn, the brother of the head of the famous American company. The branch employed 25 leading American engineers and about 2,500 Soviet employees. At the time, this was the largest architecture bureau in the world. In the three years of its existence, over 4,000 Soviet architects, engineers, and technicians learned from American experts at Gosproekstroi. Moscow also had a central heavy machinery bureau, which was actually a branch of the German company Demag.
Interestingly, the Stalingrad tractor plant, which was designed by Kahn in 1930, was initially assembled in the US. It was then disassembled, transported to the USSR, and reassembled under the supervision of American engineers. It was fitted with equipment from over 80 American engineering companies and several German companies. The Magnitogorsk Iron and Steel Works was designed by the American firm Arthur G. McKee and Co., which also supervised its construction. A standard blast furnace for this and all other metallurgical plants of the industrialization period was developed by the Chicago company Freyn Engineering Co. Of course, the USSR needed hard currency to pay for all these foreign experts.
No matter what historians think of Torgsin, it did get the job done. Suffice it to say that, after deducting the 13.8 million rubles spent to acquire foreign goods, Torgsin’s total revenue amounted to 300 million rubles over 5 years of its existence. This money was used to purchase imported equipment for the ten giants of socialist manufacturing: Gorky Automobile Plant (35 million rubles), Stalingrad Tractor Plant (35 million rubles), Stalin Auto Plant (27.9 million rubles), Dneprostroi (31 million rubles), Gospodshipnik (22.5 million rubles), Chelyabinsk Tractor Plant (23 million rubles), Kharkiv Tractor Plant (15.3 million rubles), Magnitogorsk Metkombinat (44 million rubles), Kuznetsk (25.9 million rubles), and Urlamash (15 million rubles). Even though some of the names have changed, these enterprises are still operating today!
Torgsin ceased to exist on February 1, 1936. There were still hard currency stores for foreigners. Soviet people who wanted to sell their valuables did so at a state bank. But instead of getting Torgsin notes in exchange, they now got Soviet rubles.
However, 28 years later, in 1964, a new form of unusual trade emerged in the USSR. The country had a chain of stores called Beryozka. These stores were not the same as Torgsin, but the guiding principle was similar. the goal was to ensure that foreign currency does not leave the country.
And unlike Torgsin, Beryozka stores also popped up in other Soviet countries. They just had different names. In Latvia they were called Dzintars, in Azerbaijan they were called Chinar, and in Ukraine – Kashtan. But the concept was always the same. Only Soviet people who worked abroad could buy products at these stores – diplomats, journalists, and experts from other professions. Foreigners had their own Beryozka stores, which accepted hard currency. But even Soviet people who worked abroad were not allowed in those stores. The reason was the same. Soviet people were not allowed to own foreign currency, such as US dollars, British pounds, French francs, or German marks. All of the foreign currency that Soviet citizens earned abroad had to be exchanged when they returned back home for Vneshposiltorg checks, which they could then use to shop at Beryozka stores.
The checks were different: with no stripes and with stripes of different colors, like blue and yellow. It all depended on which country the person worked in – a capitalist country or a socialist one. Mongolian certificates, for example, which had a blue stripe, were the least valuable. The most valuable were checks that didn’t have any stripes at all. Soviet diplomats or journalists that got paid in checks essentially took a huge loss, because prices on imported goods in Beryozka stores were several times higher than in foreign stores. You could get almost anything these: produce, drinks, furniture, technical equipment, furs, and even cars.
Vneshposiltorg checks were an effective way to extract hard currency from USSR citizens who worked abroad. The government used part of the obtained currency to purchase Western consumer goods and sell them to the same citizens who returned from abroad for several times the original price.
Of course, this was not a good deal. There is an interview with the singer Alla Pugacheva, who at the time was at the peak of her popularity, where she recalls the Beryozka stores with disdain. The Soviet star had to all but starve during her trips abroad.
The singer got just enough foreign currency to feed herself, and received the rest of her pay in checks, which she could only use upon her return to the USSR at Beryozka stores, where prices were astronomical. So she ate poorly when she toured abroad so that she could use her lunch money to buy clothes at local stores.
All Soviet people who had the chance to go abroad back then saved up all the hard currency they could get their hands on. They didn’t spend it on food, instead buying clothes for themselves or their relatives at local stores. But people also had to eat. To make sure they got enough food, Soviet people working abroad brought food from home with them. Usually they brought canned fish and meat, grains, pasta, and sausages. The people working at the border knew about this, and took away all the produce in countries where bringing in food was illegal. There is a famous story about how a group of Soviet sports journalists, who came to Tokyo to cover some sort of competition, made pasta they brought from Moscow in their sink every night. They filled it with water, plugged it, and then used a heater to boil the water and make spaghetti.
In the 1980s, the Beryozka payment system gave rise to a major black market where people could trade checks for Soviet rubles.
Aside from from Beryozka stores, from the mid-60s until 1992, port cities in the USSR had check-based stores called “Albatros,” which were established by the Soviet Navy for sailors who served abroad. The sailors had to exchange the hard currency they earned for Vnesheconombank checks, which they could then use to shop at Albatros stores.
One of the goals of the perestroika, which began in the USSR in 1985, was equality, or the fight against privileges. It’s no wonder that Beryozka stores were closed in the 90s.
Curiously, it’s impossible to give any kind of final assessment of Beryozka stores, an unusual Soviet trade enterprise. The problem is that all of the archives, including accounting documents, are still secret. And they will remain so until the middle of the 21st century.