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The disintegration of the ruble zone: Driving forces and proposals for policy change

  • Orlowski, Lucjan T.

This paper examines the irreversible process of the ruble zone disintegration. Theoretical fundamentals of a common currency area, with modifications incorporating a mechanism of transition from central planning, are discussed. The key reason for the ruble zone break-up is the discontinuation of indirect transfers that were provided mainly by Russia via underpricing energy exports to other republics. Being cut-off from such transfers and unable to finance rising trade deficits with Russia, the independent stales wish to disconnect their economies from the ruble /.one. Among other economic arguments for leaving the ruble zone presented by the former Soviet republics are: a desire to insulate their economies from the ruble zone inflation, and a willingness to collect seigniorage revenues from printing their own currencies. The paper critically evaluates these and several other arguments. The abrupt break-up of the ruble zone causes interruptions in supplies of essential materials and consumer goods, and an income downfall among the republics. The foundation for a new inter-state payments mechanism is proposed in order to cushion these negative effects. A system of independently traded currencies with flexible exchange rates is viewed as a reasonable, yet distant solution.

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Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 585.

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Date of creation: 1993
Handle: RePEc:kie:kieliw:585
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  1. Alessandra Casella, 1990. "Participation in a Currency Union," NBER Working Papers 3220, National Bureau of Economic Research, Inc.
  2. Tarr, David G., 1993. "How moving to world prices affects the terms of trade in 15 countries of the former Soviet Union," Policy Research Working Paper Series 1074, The World Bank.
  3. Orlowski, Lucjan T., 1992. "Direct transfers between the former Soviet Union central budget and the republics: Past evidence and current implications," Kiel Working Papers 543, Kiel Institute for the World Economy.
  4. Dornbusch, Rudiger, 1992. "Lessons from Experiences with High Inflation," World Bank Economic Review, World Bank Group, vol. 6(1), pages 13-31, January.
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