Soviet Ruble - Replacement Currencies in The Former Soviet Republics

Replacement Currencies in The Former Soviet Republics

Shortly after the fall of the Soviet Union in 1991, local currencies were introduced in the newly independent states. Most of the new economies were weak and hence most of the currencies have undergone significant reforms since launch that included change of names and denominations.

In the very beginning of the post-Soviet economic transition, quite a lot of people and institutions (including the International Monetary Fund) believed in the possibility to maintain the common currency working for all or at least for some of the former Soviet Union’s countries.

Political considerations were one reason for this advocacy. Certain politicians were hoping to rebuild the former Russian empire in some way, or at the very least, maintain "special relations" among former Soviet republics, or the "near abroad" as they came to be known in Russia. Another reason were the economical considerations for maintaining the ruble zone. The wish to preserve the strong trade relations between former Soviet republics was considered the most important goal.

The break-up of the Soviet Union was not accompanied by any formal changes in monetary arrangements. The Central Bank of Russia was authorized to take over the State Bank of the USSR (Gosbank) on 1 January 1992. It continued to ship USSR ruble notes and coins to the central banks of the fourteen newly independent countries, which had formerly been the main branches of Gosbank in the republics.

The political situation, however, was not favorable for maintaining a common currency.. Maintaining a common currency requires a strong political consensus in respect to monetary and fiscal targets, a common institution in charge of implementing these targets, and some minimum of common legislation (concerning the banking and foreign exchange regulations). These conditions were far from being met amidst the turbulent economic and political situation.

During the first half of 1992, a monetary union with 15 independent states all using the ruble existed. Since it was clear that the situation would not last, each of them was using its position as "free-riders" to issue huge amounts of money in the form of credit (since Russia held the monopoly on printing banknotes and coins). Ukraine was very active in this. As a result, some countries were issuing coupons in order to "protect" their markets from buyers from other states. The Russian central bank responded in July 1992 by setting up restrictions to the flow of credit between Russia and other states. The final collapse of the ruble zone began with the exchange of banknotes by the Central bank of Russia on Russian territory at the end of July 1993. As a result, other countries still in the ruble zone (Kazakhstan, Uzbekistan, Turkmenistan, Moldova, Armenia and Georgia) were "pushed out". By November 1993 all newly independent states had introduced their own currencies, with the exception of war-torn Tajikistan (May 1995) and unrecognized Transnistria (1994).

Details on the introduction of new currencies in the newly independent states are discussed below.