Staunton, January 24 – A major problem in both the USSR and the Russian Federation has been the shortage of cash, the result of government policies which keep the monetarization of the economy “five to ten times less than in developed economies,” a situation that reached its apogee in the years immediately after the collapse of the Soviet Union.
One consequence of that decline in the 1990s when the rate of monetarization of the economy fell to 15 percent, the Tolkovatel blog points out today was the appearance of self-minted currency in 750 republics and cities of the Russian Federation as well as at about 25,000 enterprises (ttolk.ru/?p=9273).
In a detailed post richly illustrated with pictures of some of these notes and coins, the blog explains that the appearance of such currencies, which took the place of the lack of state-sanctioned cash, had its roots in Soviet times and was exacerbated by the specific conditions of Boris Yeltsin’s rule.
After the 1917 revolution, many regions and enterprises issued “surrogate banknotes” until these were forbidden by 1935 in the RSFSR and in some Central Asian republics in 1941, the blog portal reports. But after that time, Soviet leaders wanted to keep the monetarization of the economy low “because there was not a sufficient level of consumer goods and services.”
Indeed, Tolkovatel points out, “whenever the quantity of money in the economy exceeded a certain level, it was necessary to extract it from the population” by means of “monetary reforms” like those which took place in 1947 and 1991, confiscations which made Soviet citizens suspicious of their own state currency.
But even in Soviet times, “this rule had an exception: special currencies were printed for special people,” prisoners at the bottom and the party-economic elite at the other. Except for Weimar Germany in the 1920s, there are virtually no examples of a developed country “which had the parallel circulation at one and the same time of several types of legal money.”
During perestroika, “the highest monetarization of the economy” in the history of the country occurred, the blog says. By 1991, monetarization had reached “73 percent of GDP, one of the highest measures in the world for that time and even greater than was the case then in the United States.”
This Gorbachev experiment was a failure, the blog suggests, because of the absence of consumer goods and stock markets meant that population had nowhere to spend its cash, and as a result, “the economy and after it the USSR were destroyed.” Consequently, the Russian government carried out the older policy of keeping the population poor “for the sake of security.”
While the system was in crisis, at the time of “the peak of monetarization,” the first special currencies appeared But in this case, the primary cause was not economics but “the separatism of the regions and also the attemps of enterprises in the general deficit to create their own small internal market ‘for their own.’”
But the number of such currencies rose dramatically after Prime Minister Yegor Gaydar in early 1992 signed a special circular officially authorizing such currencies. Immediately, there appeared the currencies of Tatarstan, Nizhny Novgorod oblast, Khakasia, the Urals Republic and “hundreds of cities and districts,” ultimately involving 750 territories and 25,000 firms.
And that trend was exacerbated by the precipitous decline of the monetarization of the Russian economy from 70 percent in 1990 to between 9.8 and 17 percent of GDP between 1992 and 1997. Barter filled some of this gap, but surrogate currencies played an important role as well, especially to pay workers or to make political points, to avoid paying taxes, and to serve, along with foreign currency holdings, as a hedge against rumored monetary reforms.
Tatarstan’s currency which first appeared in 1990 is perhaps the best known, Tolkovatel suggests, but there were some equally intriguing efforts. Kaliningrad Governor Leonid Gorbenko launched the “Kaliningrad mark,” and Volgograd, which had ordered its currency printed in Italy, circulated what became known as “liras” because the firm had printed the bills in Italian.
There were also special currencies for refugees from Chechnya, the blog continues They were printed by the Committee to Assist Those Suffering from Armed Conflicts in the North Caucasus and were supposed to circulate “’only on the territory of resettlement points and temporary camps.’”
Such currencies began to disappear under Yevgeny Primakov’s premiership, but some, including that of Tatarstan, lasted until 2008. Under Vladimir Putin, the monetarization of the country rose to 40 percent before the economic crisis, a figure comparable with many African countries, Tolkovatel says, but far less than during perestroika.
The blog concludes that no one should think that the era of such currencies in the Russian Federation is now over forever. If the price of oil should fall to 50-60 US dollars a barrel, such “surrogate” currencies would likely reappear, Tolkovatel says, providing employment for “several thousand designers and contemporary artists of the so-called ‘creative class.’”