I'm familiar with the story, except I always thought it was Tsar Nicholas I. Also, I've been told Tsar Nicholas I's name was on the original issue of those crosses, the ones that were given to all Russian priests at the time.
Photius
Originally posted by Deacon Nikolai:
I am not sure of any documentation, but I have always heard that Catherine the Great asked a deacon for his blessing and after being ambarassed in finding out he was not a priest, in order to stop future confusion, she asked the Church to allow all priests to wear the pectoral cross at all times and thus all other men should wear their baptismal crosses only inside of their clothing.
In Christ,
Deacon Nikolai