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New currencies in the Former Soviet Union: a recipe for hyperinflation or the path to price stability


  • Chris Melliss
  • Mark Cornelius


This paper describes the break-up of the rouble zone after the collapse of the Soviet Union in December 1991 and the opportunities and risks involved in establishing separate currencies in the new republics of the FSU. Fundamental disagreements about the desirable pace of economic reform, together with the need for radical changes in the pattern of economic activity, greatly weakened the case for retention of a single currency. Also, by mid-1993, the reformers in Russia had realised that continued use of the rouble by the republics weakened the authorities' ability to control monetary developments. The introduction of new currencies in countries lacking experience of economic policy making is bound to be a messy and uncertain process. The paper discusses the policy choices involved, in particular the appropriate exchange rate regime and the possible role for a currency board as a way of giving monetary policy credibility at an early stage in the transition. It concludes that bringing the fiscal position under control should be the first aim of policy for these countries. In the absence of bond markets deficits will tend to be money financed and the choice of exchange rate regime, by itself, is probably of second-order importance. The paper concludes with seven case studies, including the Baltic States and the Ukraine. When the paper was written, some republics had inflation rates of 25% a month or more, and there seemed little prospect of a rapid fall. In fact performance has generally been rather better than then seemed likely. The main reasons for this seem to have been the absence of a 'flight-from-money' typical of Latin-American hyperinflation. Fiscal deficits have been kept under reasonable control, probably as a result of external pressure.

Suggested Citation

  • Chris Melliss & Mark Cornelius, 1994. "New currencies in the Former Soviet Union: a recipe for hyperinflation or the path to price stability," Bank of England working papers 26, Bank of England.
  • Handle: RePEc:boe:boeewp:26

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    References listed on IDEAS

    1. Hans Genberg, 1991. "On the Sequencing of Reforms in Eastern Europe," IMF Working Papers 91/13, International Monetary Fund.
    2. Kent Osband & Delano Villanueva, 1993. "Independent Currency Authorities: An Analytic Primer," IMF Staff Papers, Palgrave Macmillan, vol. 40(1), pages 202-216, March.
    3. Rudiger Dornbusch, 1992. "Monetary problems of post-communism: Lessons from the end of the Austro-Hungarian empire," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 128(3), pages 391-424, September.
    4. Fry, Maxwell J & Nuti, Domenico Mario, 1992. "Monetary and Exchange-Rate Policies during Eastern Europe's Transition: Some Lessons from Further East," Oxford Review of Economic Policy, Oxford University Press, vol. 8(1), pages 27-43, Spring.
    5. Collier, Paul & Joshi, Vijay, 1989. "Exchange Rate Policy in Developing Countries," Oxford Review of Economic Policy, Oxford University Press, vol. 5(3), pages 94-113, Autumn.
    6. Bomhoff, Eduard J., 1992. "Monetary reform in Eastern Europe," European Economic Review, Elsevier, vol. 36(2-3), pages 454-458, April.
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    Cited by:

    1. Cukierman, Alex & Miller, Geoffrey P. & Neyapti, Bilin, 2002. "Central bank reform, liberalization and inflation in transition economies--an international perspective," Journal of Monetary Economics, Elsevier, vol. 49(2), pages 237-264, March.
    2. Lotz, Sebastien, 2004. "Introducing a new currency: Government policy and prices," European Economic Review, Elsevier, vol. 48(5), pages 959-982, October.

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