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Currency Reform Designed to Punish Business Success : Russia: The Central Bank's attempt to "confiscate" rubles is yet another gasp of the old guard trying to head off a reviving economy.

August 01, 1993|Steven Merritt Miner | Steven Merritt Miner, a professor of history at Ohio University, has twice traveled to Moscow to do research in the Russian archives

ATHENS, OHIO — At first glance, the drastic changes in the Russian currency proposed last week by the Russian Central Bank appear unneeded. The bank's initial proposal was to remove from circulation all ruble notes printed before 1993. Citizens would be given only a few days to trade in their old ruble notes for new ones, and even then they would only be allowed to change a relatively small number--35,000, or roughly $35 at current rates of exchange. Any rubles they held over that amount would either be declared invalid or placed in savings accounts that would pay interest well below the rate of inflation.

Ostensibly, this "reform" was intended to combat inflation, but its timing raises several troubling questions. To be sure, inflation, which is clipping along at a monthly rate of about 20%, is a great problem in Russia. During the past months, however, the Russian economy has begun to show signs of new life for the first time since the fall of communism. Credit belongs to President Boris N. Yeltsin's program of industrial privatization. The inflation rate during the past month had actually fallen by one-third, and the ruble began to gain on the dollar in open exchange.

If the timing of the currency reform--more accurately, a confiscation--is suspect, so, too, is the method. Simply seizing privately held rubles over a certain arbitrarily chosen limit smacks of the policies of the old communist regime. Much the same thing was done by Josef Stalin, in 1947, and Mikhail S. Gorbachev, in the late 1980s. In these instances, the policy was highly unpopular, but the people had little choice but to submit to the authoritarian state.

Invalidating currency and confiscating private savings cuts right through the heart of the social contract between citizen and state; it makes economic life both unpredictable and capricious, and it sends the unmistakable signal to the average citizen that the government regards money as state property. It punishes most effectively precisely those citizens who have obeyed post-communist laws and made legal profits.

This seems to have been the intent. The director of the Russian Central Bank, Viktor V. Gerashchenko, was appointed by the anti-Yeltsin Congress of People's Deputies. This body has suffered one political reversal after another, most notably during the nationwide referendum, when Russian voters showed their support for Yeltsin and their distrust of the Parliament. The majority of its delegates are holdovers from the communist gime; their political and economic ties are to the old-style heavy industrial combines that have been the principal losers in the advent of a market economy. During most of the last year, they have attempted to force Yeltsin to slow, or even reverse, the march toward the market.

Last December, the Parliament forced Yeltsin to dismiss his prime minister, Yegor T. Gaidar, a strong advocate of the free market, and replace him with the much more conservative Viktor S. Chernomyrdin. Chernomyrdin's first promise was to attack widespread "speculation" and economic corruption. Significantly, he was the only member of Yeltsin's government to speak out unambiguously in favor of the proposed currency changes. By contrast, Yeltsin's finance minister, Boris G. Fyodorov, called the plan "criminal" and a "pointless, economically illiterate action."

On the surface, though, Chernomyrdin would seem to have a point. Even the casual visitor to Moscow is struck by the Wild West nature of budding Russian capitalism. There are few rules governing commerce and contracts. Prices are unpredictable; corruption is pervasive, as is the influence of organized crime.

If the enemy is corruption, however, the blunt instrument of currency reform is a dubious weapon. Seizing ruble savings is calculated to harm those people who make their profits in rubles, not those who, like the Russian mafia and speculators, traffic almost exclusively in American dollars or deutsche marks. Instead, the people most hurt will be the restaurateur or the hairdresser who has set up a private business to serve Russian clients who pay in rubles.

The currency "reform" is thus a direct attack on the market economy. Russian entrepreneurs, who have overcome the bureaucratic, economic and social hurdles to set up profitable businesses, now face the prospect of being deprived of their reward at the last minute.

Ruslan I. Khasbulatov, the speaker of the Parliament, has, late in the day, come out against the Central Bank's action. He is trying to blame Yeltsin for the fiasco, even though the latter was out of the country when the director of the bank announced the new policy, and even though the bank's director is an appointee of the Parliament, not Yeltsin.

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