Invalidation of 'Old' Ruble Notes Shakes RussiansBy James Rupert
Washington Post Foreign Service
Monday, July 26, 1993; Page A01
MOSCOW, JULY 25 -- Russians scrambled to spend or exchange their older ruble bills today before they become worthless at midnight as the result of a sudden government decree. Many voiced anger at what they said was the government's insensitivity to the problems of ordinary people.
More than 24 hours after the decree was announced, it appeared that the independent-minded Central Bank had made the decision without a government consensus. Finance Minister Boris Fyodorov, informed of the action while on a trip to the United States, attacked it as "senseless" and said he was returning home ahead of schedule. President Boris Yeltsin's position was not clear.
Political analysts who support Yeltsin warned that the sharpest effect of the order will be a loss of public confidence in the government and possibly a political crisis.
The Central Bank announced Saturday that all ruble notes printed before this year would be worthless as of Monday, and it placed tight limits on exchanges of old bills for new ones. The move, it said, was designed to gain control of Russia's ballooning money supply and slow the rate of inflation.
Anguished by the decree, Muscovites rushed to get rid of their pre-1993 notes. They lined up at gas stations, at the few stores that stayed open over the weekend and even at subway ticket counters to buy anything they could.
Prime Minister Viktor Chernomyrdin defended the Central Bank decision Saturday, telling reporters at a news conference in the city of Pskov that new bank notes had been stored up to allow for an easy exchange of old ones, the Interfax news agency reported. Chernomyrdin said he expected no political backlash from the bank's action, such as the one that followed a similar forced bank-note exchange program under Soviet president Mikhail Gorbachev in 1991.
But the government has made little effort to explain the decree to the public, and many reform-resistant politicians and workaday Russians alike blamed the bank's action on Yeltsin, who was secluded at a forest vacation retreat when the new ruble policy was announced.
"I support Yeltsin's program, but this shows contempt for the ordinary people of Russia," said Valeri Konstantin, a Moscow bureaucrat trying to use up some of his old rubles. "It's unbelievable that he should let it happen. I am buying food and a monthly Metro pass. My wife and I will sit in line at a bank tomorrow, and I hope we can exchange it all."
The Central Bank decree allows Russians to change up to 35,000 rubles -- roughly $35 -- during the next two weeks. Anyone with cash holdings greater than that will have to deposit them in savings accounts for six months before exchanging them. Such savings draw interest at much less than the inflation rate -- which has been running between 17 and 20 percent a month recently -- and are likely to lose much or all of their value. As usual, many commentators here noted, the poor and elderly are likely to suffer most.
The policy is "a thoughtless action and a strong blow to the confidence of the people" in the government, free-market economist Yevgeniy Yasin said. On the streets today, many harried Muscovites agreed.
Most Russians distrust banks, preferring to hide cash savings at home, but inflation already has devalued such savings or persuaded people to spend what they have before prices rise yet again.
The Central Bank's deputy chairman, Arnold Voilukov, was quoted on state television tonight as saying few Russians have more than 35,000 rubles readily available. Nonetheless, some people feel they have been victimized, and many more are fearful. One economist quoted in the press pointed out that many Russians take out loans at this time of year to renovate their beloved dachas, or summer homes, and that they will be caught with piles of worthless rubles.
Analysts said the aim of the decree is to curb the money supply, and thus inflation, by separating Russian currency from a sea of rubles in the economies of at least seven former Soviet republics that also use the ruble. One of them, Georgia, announced it would abandon the ruble within a week, and the finance minister of another, Armenia, accused Russia of a "gross violation" of monetary agreements among the former Soviet states. Belarus, Kazakhstan and Uzbekistan announced, however, that they will continue to use rubles, even though the Russian bank move seems sure to force them to establish their own currencies.
Russia's Central Bank is technically under the control of parliament, but it is supervised by a stubbornly independent director, Viktor Gerashchenko, whose actions have drawn complaints from both Yeltsin's reform-minded cabinet and the president's reactionary rivals in the legislature.
Gerashchenko and Fyodorov forged a monetary policy jointly in May, but Saturday's announcement caught Fyodorov and other top government figures by surprise, according to the Sunday night television news program "Itogi." The program reported that cabinet ministers met late into Saturday night with "no full accord" on the Central Bank's move.
Another Moscow television program quoted Fyodorov as saying in the United States that the bank's action was "economically senseless, harmful to the people and bearing unpredictable political consequences.
The host of "Itogi," pro-Yeltsin commentator Yevgeni Kiselyov, said the decree "may end up being the biggest political crisis since 1991," when the Soviet Union collapsed. Advancing a theory that Yeltsin may have been uninvolved in the decision, Kiselyov said, "the president has been grievously framed." Kiselyov cited a recommendation by free-market economist Gregori Yavlinski that the government quickly roll back all limits on people's ability to exchange the old bills for new ones.