Moscow Gold - Monetary Consequences

Monetary Consequences

The withdrawal of the Bank of Spain's gold reserves to Moscow has been pointed out to be one of the main causes of the Spanish monetary crisis of 1937. While the gold became in practice an excellent source of funding, its usage dealt a hard blow against the coined and printed currency of the country. Nationalist efforts to expose the exportation of the gold put the government's financial credibility in question, and caused general mistrust among the public. A decree issued by the Ministry of Finance on October 3, 1936, obliging Spaniards to yield all the gold they possessed, caused widespread alarm. Even though the government denied in January 1937 that it had deposited the gold reserves abroad (vide supra), it was forced to acknowledge that it had made various payments with such gold.

Lacking a gold reserve to back up the Republican banknotes, and already suffering from significant devaluation, the Government of the Republic began to issue increasing quantities of banknotes with no backing in gold or silver, thereby increasing the overall paper money in circulation. By April 30, 1938, the number of new banknotes in circulation in Republican-controlled areas was calculated to be 12,754 million pesetas, an increment of 265.8% with respect to the 3,486 million of July 17, 1936; by then 2,650 million were in circulation in the Nationalist-controlled territory, in contrast to the approximately 2,000 million of July 1936. These actions caused massive inflation, and led to the amassment of precious metals by the population. While prices increased by 40% in the Nationalist areas, prices skyrocketed by up to 15-fold in the Republican-controlled areas. Metallic coins began to disappear and were replaced by paper or cardboard circles. Transactions with Republican banknotes became undesirable, as such notes were already highly devalued, and it was further known that, if Franco were to win the War, those banknotes would lose their full value, since they were all newly-issued series placed in circulation from the start of the War (June 1936) onwards. The State was unable to effectively respond to the lack of metallic currency, causing town halls and other local institutions to print their own provisional bonds, some of which were rejected in neighbouring municipalities.

Propaganda from the Nationalist side contended that such inflation had been premeditated and artificially created.

The Republican Government blamed the ills of the economy on the free market, and proposed as its salvation the nationalization of all prices and other changes on the economy in general. A report presented to the plenary session of the Communist Party of March 1937 by José Díaz Ramos openly reflected the position of the party:

...all our energies must be focused, with full rigour, against the true enemies, against the great industrialists, against the great businessmen, against the pirates of the banking industry, who naturally, within our territory have already been for the most part liquidated, however there still remain some who must be quickly liquidated, because these are the true enemies and not the small industrialists and businessmen. —José Díaz Ramos,

On the international scene, the perception that the Republic was experiencing revolutionary anti-capitalist movement began to arise, favoured by the testimony of Spanish businessmen, such as ex-Minister of the Monarchy and active Nationalist supporter Francesc Cambó, an individual of great influence in the financial world. Logically, upon having their interests and properties threatened, the financial world, both Spanish and international, positioned itself unequivocally in favour of the Nationalists (as exemplified by the support of Juan March, Ford and Texas Oil to the Nationalist side, or their facilities to obtain credits), thus accelerating the decline in the international value of the Republican peseta.