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Soviet Ruble Notes Withdrawn in War on Black Market

January 23, 1991|MICHAEL PARKS | TIMES STAFF WRITER

MOSCOW — President Mikhail S. Gorbachev, in a move meant to crush the Soviet black market by confiscating its profits and working capital, ordered the withdrawal from circulation of all 50- and 100-ruble notes at midnight Tuesday as well as a virtual freeze on personal savings accounts.

The decree, by far the toughest measure in Gorbachev's efforts to pull the country out of its deepening financial crisis, is intended to sweep across the country like an economic tidal wave, putting speculators out of business, driving down consumer prices and restoring the value of the ruble, the Soviet currency.

But it could also crush tens of thousands of private entrepreneurs whose businesses, although legal, operate on a cash basis within the Soviet Union's centrally planned economy and wipe out much of the savings of the urban middle class, which keeps much of its money in cash rather than in bank accounts.

The 50- and 100-ruble notes account for more than a third of the cash in circulation, according to government figures, and at the very least their withdrawal appears likely to throw the already staggering economy into chaos while they are exchanged for new bills.

Long sought by conservatives, Gorbachev's decree constitutes a major political victory for those who advocate a return to central planning with its strict government controls before further moves are made toward establishing a mixed, market economy.

Prime Minister Valentin S. Pavlov, who proposed the measure, said in a television interview that the target was the country's "shadow economy," now so large that more than half of all consumer goods are sold through it.

The government's intention, Pavlov said, was not to confiscate money from the "working masses" but to deprive speculators of their profits and the capital they would need for further purchases of scarce goods.

By stripping the operators of the "shadow economy" of most of their funds, he said, the government wanted to reduce it in size and in its influence on the market.

"The 50- and 100-ruble notes are one of the main elements of the shadow economy," Pavlov said. "They account for more than a third of the money in circulation . . . and are the main means of payment outside the control of the state."

Under the order, individuals will be allowed to exchange no more than 1,000 rubles in the old bills unless they can prove to special commissions, including tax collectors, police investigators and officers from the KGB security police, that they had earned the money legally.

Even to exchange 1,000 rubles, people will have to persuade committees of their co-workers that the money was legal income and saved over the past year.

The decree was issued "in the interests of the overwhelming majority of the population," Gorbachev said, and was intended to "step up the struggle against speculation, corruption, smuggling, counterfeiting and unearned incomes and to normalize money circulation and the consumer market."

People were given just three days to turn in all their green 50-ruble and brown 100-ruble notes for new bills, causing near panic Tuesday evening as middle-class families with several thousand rubles kept at home against the sudden appearance of scarce goods wondered how they would cope with the decree.

But factory workers, whose salaries average about 285 rubles a month, are likely to be pleased by the measure that hits so hard at the small but growing bourgeoisie.

Customs officers meanwhile were ordered to maintain special vigilance on all travelers during the period to ensure that the estimated 7 billion in the large-denomination bills believed to be illegally outside of the country are not brought in for redemption.

Pavlov, who had served as finance minister before being promoted to prime minister by Gorbachev this month, said the measures had been in preparation for a year but had been kept secret for maximum effect.

The government at the same time barred people from withdrawing, except through bank transfers, more than 500 rubles a month from their savings accounts in a measure intended to reduce inflation by keeping money out of circulation. The order runs for six months, but could be extended.

At the official rate of exchange, 100 rubles is worth about $185, but its value on the street is about $4 or $5; at the new commercial rate of exchange, 100 rubles is worth $55 and at the tourist rate about $18.50. Converted into highly sought consumer goods, $1 might buy about 50 rubles in a further devaluation.

Turnover in the shadow economy, a term preferred to black market even by conservative economists, is estimated at a minimum of 300 billion rubles a year and probably more than 500 billion rubles, which is the equivalent of $925 billion at the official rate of exchange.

Alexei Sergeyev, a leading proponent of monetary reform, who has studied the shadow economy closely, estimated last year that it accounts for about a quarter of the country's national income and employs upwards of 20 million people directly.

Sergeyev had expressed particular concern that the major dealers in the shadow economy were using the newly established private businesses and cooperative firms to launder their profits.

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