The secret history of the monetary reform of 1993

© Fotolia / ilfatkinСоветские rublesThe secret history of the monetary reform of 1993© Fotolia / ilfatkin

Twenty-five years ago, on 26 July 1993, Russia began the next monetary reform. The famous phrase of Viktor Chernomyrdin, «we wanted the best, but it turned out as always» — that’s about it. Deputy Prime Minister and Finance Minister in Chernomyrdin’s government Boris Fedorov put it more sharply: «Nonsense, who caused a huge material damage to our state.» Why both officials were wrong — in the material RIA Novosti.

Monetary reform in 1993, I remember much worse than conducted two years earlier, «Paul», when citizens demanded within three days to exchange all their 50 and 100 — ruble banknotes for the new. The shock of the reforms of 1991 were much stronger.

But the economy is more significant reform of 1993. It led to the emergence of a new Russian ruble, replacing the motley collection of banknotes that were in circulation before that.

Before the reform of the calculations used Soviet banknotes of the sample of 1961 the value from one to 25 rubles, all the money in 1991 from one to 1,000 rubles, Soviet coins of any denomination, and issued in 1992 by Bank of Russia banknotes of 5000 and 10 000.

The Central banks of the new States launched a massive issue non-cash rubles, handing out loans to companies for settlements. Eventually these unsecured rubles could buy goods in Russia.

In fairness it should be noted that domestic producers is also benefited. In terms of total internal defaults the export to the countries of the former USSR for many has become the only source of money.

But as a result of the shortage of goods became aggravated, and the amount of Fiat money grew like an avalanche. Hence the hyperinflation.

The first alarm sounded American economist Jeffrey Sachs, who led in the early nineties a group of economic advisers to the President of Russia Boris Yeltsin. In may 1992 he sent to the government a memo.

«There is a real opportunity to exercise control over the money in a system where there are several independent Central banks with the right to grant loans, said Sachs. — Each country is committed to issuing ruble credits at the expense of others».

The economist stressed that the consequences of a «forgery of banknotes, and perhaps even more serious, because from a technical point of view it is much easier to issue credit money compared to cash.»
Politics beats Economics

The government has listened to the sax, and from 1 July 1992 the Central Bank of the Russian Federation has introduced a special procedure of settlements with the Central banks of the neighboring republics. They issued non-cash rubles, in fact, was declared a national currencies and converted into the Russian ruble at the market rate.

But while being protected from the influx of Fiat money from the neighboring republics, the government immediately launched a program of providing so-called technical credits.

The fact that the Kremlin expected to maintain the ruble zone as an «economic leash» for the neighbors.

CIS is also not objected to the ruble zone. They were interested in the traditional economic relations with Moscow, including financial support and the supply of cheap energy and raw materials from Russia, and also the extensive market for their products.

In the second half of 1992, Russia has supplied the CIS technical credits 1,258 trillion rubles, or 8.4% of GDP. In 1993, the credit assistance to the countries of the former USSR has reached 932 billion only in the first half.

For some of the CIS States these loans were the main source of funds. For example, in Uzbekistan they accounted for 69.2% of GDP in 1992 and 52.8% of GDP in the first seven months of 1993.

In Kazakhstan, 25.1 percent and 40.9% of GDP, respectively, in Turkmenistan 67.1 per cent and 45.7%, in Tajikistan 42.3 percent and 40.9 percent, in Armenia — 53,2% and 19.7%.

Almost all of the money eventually fell to the Russian market, increasing shortages and increasing the «inflationary overhang».

The game ended

Twenty-fifth day of July 1993, the Russian official media said: «With zero hours on July 26, 1993 the state Treasury notes of the USSR of the sample of 1961 the advantage of one, three, five rubles, tickets of the State Bank of the USSR of the sample of 1961-1992 years advantage one, three, five, ten, 25, 50, 100, 200, 500, 1000 rubles and banknotes of Bank of Russia of the sample of 1992 worth 5000 and 10 000 are not subject to receive any types of payments and transfers throughout the Russian Federation.

In the cash circulation in the Russian Federation remain banknotes of Bank of Russia of 1993 with dignity 100, 200, 500, 1000, 5000, 10 000 and 50 000 metal coins of the USSR and Bank of Russia of the sample of 1961 and subsequent years.»

The new banknotes were depicted the Senate tower of the Kremlin, with the Kremlin Senate, and waving over him a tricolor.

On the reverse side is engraved with the image of the Kremlin. Banknotes of different denominations different color.

© RIA Novosti / Boris to Praticipate in photobacteria marks of the Russian Federation 1993 editionThe secret history of the monetary reform of 1993© RIA Novosti / Boris to Praticipate in photobacteria marks of the Russian Federation of 1993 of release

The exchange of old money for new was carried out for two weeks (from 26 July to 7 August), but to go to the exchange was only possible once. Thus in the passport put a special mark.

Upon presentation to the exchange of more than 35 thousand rubles amount is fully credited on Deposit interest the Deposit for six months. As the country was raging hyperinflation, the money is essentially lost. Foreign nationals (that is, visitors from former Soviet republics) could only be exchanged 15 thousand rubles.

In the country there was panic, fueled by the fact that the beginning of the reform fell on Saturday, when the savings Bank was not working (and other banks for the population simply did not exist). Besides to exchange money only at the place of residence and many citizens were in a summer vacation far from home.

«It is clear that the reform brought the citizens of certain disadvantages explained later, the head of the Central Bank Victor Gerashchenko. — Well, where would go? Once it became clear that a unified rouble space cannot be saved, the main task was quickly cut off from the economy a huge mass of Soviet rubles, went to neighbouring CIS countries. They freely entered the domestic market, causing shortages and price increases. This primarily explains the restrictions on the timing of the exchange and the exchanged amounts of cash. But for political reasons, naturally, we could not say openly about it».

As a result, monetary reform, citizens have seized 24 billion. Sixth of August, summing up the exchange of money, Prime Minister Viktor Chernomyrdin and uttered the phrase that has become a cruise: «Wanted as better, and it turned out as always». However, the reform was a boon to the economy.

Ruble zone in the CIS has ceased to exist. Until the end of 1993, all countries of the former USSR (with the exception of Tajikistan) introduced its own currency. Formally, the need in rubles they have disappeared, so that the enumeration of technical credits from Russia in 1994, virtually stopped.

Loans in 1992-1993, reissued in the official public debt of the CIS countries to Russia.

In the end, the government has achieved the desired inflation declined from 22.4% in July to 12.5% in December. In 1994, the growth of prices slowed down four times in comparison with the previous year — from 840% to 215%.