In the beginning of the 20th century concentration of capital was taking place as capitalism emerged in Armenia. The Russian capital ruled over the country. The major banks of Russia had their branches in major towns of Transcaucasia.

 

About 10 banking institutions were operating in Yerevan in 1914. In addition to credit operations, banks were involved in commercial and industrial activities by investing capital into shareholding companies. During civil wars the financial system and money circulation were completely dismissed. The financial rights were formal and it was impossible to regulate activity of the "treasuries".

 

After the October overturn​ the Transcaucasian Commissariat was established in order to govern the region. In February, 1918, the Ministry of Finance of the Transcaucasian Commissariat issued bones in nominal value 1, 3, 5, 10, 50, 100 and 250 rubles.

 

In May, 1918, the Transcaucasian Commissariat was dissolved, and independent republics were established. Achieving independence in May 28, 1918, Armenia proclaimed itself a parliamentary, democratic republic. Hovhannes Kajaznuni was appointed as the first Prime Minister and Khachatur Karchikyan - the Minister of Finance.

 

The monetary system of the country was completely ruined in 1918-1919, the Treasury was unable to cover current expenses and the necessary allocations. In order to retrench public expenditures and increase revenue the Government decided to raise the taxes, cut down subsidies, downsize the number of state servants, create new jobs.

 

The newly established Ministry of Finance of the Republic of Armenia planned to issue a new type of banknotes. As the implementation of that project required time and assets the Yerevan branch of the State Bank issued checks in August 1919 to regulate money circulation. These checks were designed to be provisional and substituted by banknotes in three months. But this failed to occur. Circulation of the checks lasted more than it had been planned.

 

The Government had to carry out an additional issue to cover the current expenses. "The Government covered growing public expenditures by issuing banknotes, the printing machine was functioning smoothly and quickly, printing 6-800 million rubles monthly. Armenian checks worth of 2 billion rubles had been issued by August. Armenian banknotes were printed in London. Transcaucasian bonds were also in circulation. Naturally, such flood of money reflected to a great extent the commercial and industrial situation of the country and the high cost of living. Food prices grew at abnormal rate", Simon Vratsyan wrote.

 

The Government was issuing unsecured paper money in large number. From August 1919 through December 1920 checks worth of 11 billion rubles were issued, which was equal to gold worth of 2 million rubles. This led to a galloping inflation. In the summer of 1919 the gold chervonets of Russian Empire (10 rubles) was estimated in checks worth of 900 rubles, it estimated 200.000 rubles in the next summer.

 

In June, 1920, i.e. some months before establishing the Soviet regime, the first Armenian Republic put into circulation banknotes in nominal value 50, 100 and 250 rubles. The designer of those notes was the famous artist Arshak Fetvajyan, and the banknotes were printed in London by "Waterloo & Sons Limited" company. The total issue of the banknotes was 189 million rubles.

 

The various issues of Russian Empire were in circulation in Armenia till the end of 1922.

 

In October 26, 1920, the law established the State Bank of the Republic of Armenia on the basis of the Yerevan branch of the State Bank, which was planned to inherit all the real estate and movable assets of the predecessor.

 

The law on "Forgery", in effect since 1906, was tightened in 1920. In particular, capital punishment could be sentenced to anyone, who would bear any relation to forgery, provide any tools and materials to the counterfeiter and/or deliberately import false paper from abroad.

 

In the framework of credit policy the Government of the Republic of Armenia took measures in order to halt inflation and turn the State Bank into a functioning institute. The Armenian Government attempted to supply a British bank in Batumi with Armenian checks at certain exchange rate. Attempts also included keeping some foreign currency in the Bank of Tiflis and carry out exchange of pound sterling, franc, Georgian and Azerbaijani currency by Armenian checks in all central towns of the Republic of Armenia in exchange of the said currency. In spite of all efforts of the Government the population, Moslem part in particular, had no confidence in Armenian banknotes, and basically Transcaucasian bonds were used in trade. The Armenian Government attempted to negotiate with the Georgian Government for destruction of the Transcaucasian bonds.

 

Before the establishment of the Soviet regime there were 6 banks (branches) operating in Armenia, 340 million Transcaucasian bonds and Armenian checks worth more than 11 billion rubles were in circulation with nominal value of only 353 thousand pre-war rubles. Money was completely depreciated. Issue proceeds and other income were channeled to the Ministry of Internal Affairs and military needs. The key component of the monetary system, the state budget, was missing.

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