RUSSIA’S LATEST MONETARY REFORM STARTS SMOOTHLY.

In contrast to previous attempts at monetary reform, the introduction of a new Russian ruble (to be worth 1,000 current rubles) seems likely to go off without a hitch. (Russian agencies, August 13, 14) According to a decree signed by President Boris Yeltsin on August 4, new ruble notes and coins will begin circulating on January 1, 1998, parallel with the notes currently in circulation. The new ruble — which will take the form of bank notes with face values of five, 10, 50, 100 and 500 rubles, as well as coins worth one, five, 10, 50 kopecks and one, two and five rubles — will be worth 1,000 old rubles. Old rubles will remain legal tender through 1998, and can be exchanged in banks for new notes through the end of 2002. Stores will be required to list prices in old and new rubles through the end of 1998.

The ruble’s redenomination is intended to simplify economic activity by effectively chopping three zeros off every transaction. As such, Russia’s reform is most similar to one carried out in Poland, where the new zloty (worth 10,000 old zlotys) has continued to circulate since January 1995. (The old zlotys are slated for retirement by the end of this year.) The ruble’s redenomination occurred nearly a year after a similar reform in Ukraine, under which the hryvnya was substituted for the temporary karbovanets at the rate of 1 to 100,000 in August 1996.

Unlike previous Soviet and Russian attempts at monetary reform, the ruble’s redenomination will not be inherently confiscatory, since it will not by itself change either the money supply or the population’s money holdings. This contrasts sharply with the substitution of the Russian for the Soviet ruble during July-August 1993, as well as Soviet prime minister Valentin Pavlov’s confiscation of 5,000 ruble notes in early 1991. These "reforms" were "sprung" on the population without official warning, and by limiting the time period in which old bank notes could be exchanged for new ones, they outraged the population and further damaged confidence in the ruble. By contrast, the ruble has remained as solid as a rock following the early August announcement. It has not fluctuated dramatically against the dollar, and consumer prices increased by only .03 percent during the first two weeks of August. (Russian agencies, August 14)

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