section_path: Reign (1762–1796)/Economics and finance
section_name: Economics and finance
paragraph_text: Economics and finance
  
  Russian economic development was well below the standards in western Europe. Historian François Cruzet writes that Russia under Catherine:
  
  had neither a free peasantry, nor a significant middle class, nor legal norms hospitable to private enterprise. Still, there was a start of industry, mainly textiles around Moscow and ironworks in the Ural Mountains, with a labour force mainly of serfs, bound to the works.
  
  Catherine imposed a comprehensive system of state regulation of merchants' activities. It was a failure because it narrowed and stifled entrepreneurship and did not reward economic development. She had more success when she strongly encouraged the migration of the Volga Germans, farmers from Germany who settled mostly in the Volga River Valley region. They indeed helped modernise the sector that totally dominated the Russian economy. They introduced numerous innovations regarding wheat production and flour milling, tobacco culture, sheep raising, and small-scale manufacturing.
  
  In 1768, the Assignation Bank was given the task of issuing the first government paper money. It opened in Saint Petersburg and Moscow in 1769. Several bank branches were afterwards established in other towns, called government towns. Paper notes were issued upon payment of similar sums in copper money, which were also refunded upon the presentation of those notes. The emergence of these assignation roubles was necessary due to large government spending on military needs, which led to a shortage of silver in the treasury (transactions, especially in foreign trade, were conducted almost exclusively in silver and gold coins). Assignation roubles circulated on equal footing with the silver rouble; a market exchange rate for these two currencies was ongoing. The use of these notes continued until 1849.
  
  Catherine paid a great deal of attention to financial reform, and relied heavily on the advice of Prince A. A. Viazemski. She found that piecemeal reform worked poorly because there was no overall view of a comprehensive state budget. Money was needed for wars and necessitated the junking of the old financial institutions. A key principle was responsibilities defined by function. It was instituted by the Fundamental Law of 7 November 1775. Vaizemski's Office of State Revenue took centralised control and by 1781, the government possessed its first approximation of a state budget.