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ABOUT THE CBA

History

Armenia’s banking system: from the end of the 19th century up to 1991

 
 
 
On October 7, 1893, the Yerevan branch of the State Bank of Tsarist Russia was opened in Yerevan.
 
 
Photo: building of the Yerevan branch of the State Bank of the Russian Empire, Tsarskaya str. (now Arami str.).
 
At the start of the 20th century, concentration of capital was taking place in Armenia as capitalism developed. Branch offices of banks owned by merchants from Azov-Don, Volga-Kamsk, Tiflis and Caucasus on the whole opened up in Yerevan. The Public Town Bank opened up in Alexandrapol, Armenia.
 
In 1914, there were 10 banking institutions functioning in Yerevan. Banks were involved in commercial and industrial activities through investing in shareholding companies, in addition to their lending operations. In the times of civil wars the financial and credit system as well as money cycle were disrupted; financial rights were just a formality, while no framework was in place to regularize the functioning of treasuries.
 
 
 
In the aftermath of the October overturn in 1917, the Transcaucasia Commissariat was established, which included Armenia, Georgia and Azerbaijan. Khachatur Karchikyan was appointed as the Minister of Finance of the Transcaucasia Commissariat.
 
In May of 1918, the Transcaucasia Commissariat was dissolved, and establishment of three independent republics followed thereafter.
 
On May 28, 1918, Hovhannes Qajaznuni was appointed as Prime Minister and Sargis Araratyan and, later on Grigor Jaghetyan, as Minister of Finance of the First Republic of Armenia. 
 
In 1918 - 1919 the monetary system of the country was completely ruined, the state Treasury was unable to cover current expenses and make much needed allocations. In order to retrench public expenditures and increase revenue, the Government decided to raise the taxes, cut down subsidies, and downsize the number of state servants.
 
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 600-800 million rubles monthly. 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 an abnormal rate”, Prime Minister Simon Vratsyan wrote.
 
The Government was issuing unsecured paper money in large number. From August 1919 through December 1920 checks worth 11 billion rubles were issued, which was equal to gold worth 6 million rubles. This led to inflation. Whereas in the summer of 1919 the gold chervonets of Russian Empire (10 rubles) was estimated to amount to 900 rubles in checks, the next summer it was already worth 200000 rubles.
 
On August 20, 1920, the law on “Counterfeiting” was passed. The law stipulated, in particular, that capital punishment could be sentenced to anyone, who would have any association to forgery, and/or supply tools and materials to the forger for counterfeiting.
 
On October 26, 1920, another law was passed with the goal to turn the Yerevan branch of the State Bank into the State Bank of the Republic of Armenia. However, the implementation of this law failed as a decree on nationalization of banks was adopted on December 20, 1920, after the Bolsheviks came to power.
 
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, since it was the Ministry of Finance who was responsible for implementing banking operations. 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 Transcaucasia bonds were used in trade. The Armenian Government attempted to negotiate with the Georgian Government for destruction of the Transcaucasia bonds.
 
Before the establishment of the Soviet regime there were 6 banks (branches) operating in Armenia, 340 million Transcaucasia 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 devalued. 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.
 
 
On December 28, 1920, the Order No. 5 of the People's Commissariat of Finance re-named the Yerevan branch of Russian State Bank into the State Bank of the SSRA and into the People's Bank of the SSRA the next day, with Vsevolod Moravski appointed as Governor of the Bank.
 
Photo: Vsevolod K. Moravski, 1916-1921.
 
In August of 1921 the People's Bank terminated activities and its power was assigned to the PCF.
 
On March 20, 1922, the State Bank of SSRA was established. The first Governor was Martin Sahakyan who held this position until 1924.
 
In 1924 the Yerevan branch of the State Bank of the SSRA was re-named into the Yerevan branch of the State Bank of the Soviet Union, with Grigor Jaghetyan as Governor of the Bank.
 
 
 
On April 15, 1924, the state decree endorsed a decision to replace all types of banknotes in circulation in Transcaucasia with the Soviet Union banknotes.
 
In 1929, in response to architect and academic Alexander Tamanyan’s proposal, a land parcel was provided for a new building of the Armenia branch of the State Bank. Designed by Nikolai Bayev, the construction started in 1930 and was completed in 1933.
 
 
 
Photo: building of the Armenia office of the State Bank in the early 1930s.
 
In 1930 - 1932, a credit reform was carried out to transform specialized banks to long-term lender institutions while the branch network was assigned to the competence of the Armenia branch of the State Bank. Specialized banks were functioning through the branch offices of the State Bank. As at January 1, 1930, there have been 7 branch offices; in 1931 branch offices numbered 26.    
 
In 1938 the State Bank came out of the structure of the People's Commissariat of Finance.
 
 
 
 
In 1946 the State Bank again joined the Ministry of Finance of the Soviet Union. The Governor of the Bank served simultaneously as Deputy Finance Minister.  
 
In 1953 the Armenia branch of the State Bank was re-named into the Armenian Republican Branch of the State Bank of the Soviet Union. 
 
In 1954 the State Bank of the Soviet Union eventually came out of the structure of the Ministry of Finance of the Soviet Union.
 
In 1961 a monetary reform was passed with the goal to exchange old series of banknotes with the new ones at a 1 to 10 ratio.
 
In August of 1977 a serious robbery was committed: a large amount of money was robbed from the vault of the Bank. People call this ‘the century’s robbery’. In summer of 1978 the offenders were arrested in Moscow, and most part of the stolen money was returned to the Bank.
 
In 1987 the Armenian Republican Branch of the State Bank was re-named into the Armenian Republican Bank of the State Bank of the Soviet Union. The Bank had 52 branch offices.  
 
In 1987 a number of specialized banks were established, including External Bank of Economic Affairs, Ardshinbank (bank for industry and construction), Bnaksotsbank (bank for household and social needs), Agroardbank (bank for agro-industry) and Khnaybank (savings bank).
 
Starting from 1988 all 52 branch offices of the Armenian Republican Branch of the State Bank, with their books, were transferred to Ardshinbank, Bnaksotsbank and Agroardbank.     
 
In 1988 the fourth and the last charter of the State Bank of the Soviet Union was approved, saying that the State Bank is the country’s head bank, the unified issuance center and the organizer of credit and settlement relations in the national economy.
 
 
 
 
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