07 Feb 2017
post communist transition, monetary policy

Post-Communist Transition and Monetary Disintegration

From the Introduction:

"Political and economic changes in Central and Eastern Europe (CEE) and the former Soviet Union (FSU) at the end of 1980s and early 1990s resulted in just two episodes of monetary disintegration. Firstly, the end of Soviet geopolitical control over CEE led to the demise of the Council for Mutual Economic Assistance (CMEA or Comecon) and its quasi-currency – the transferable ruble (TR). Shortly afterwards, the political disintegration of the Union of Soviet Socialist Republics (USSR), Yugoslavia, and Czecho-Slovakia also caused monetary disintegrations. The newly independent successor states adopted their own currencies, however only the separation of the Czecho-Slovak crown (koruna) into two new currencies was conducted in and orderly manner, and without major macroeconomic turbulences and trade disruption. This was reminiscent of the monetary disintegration of the former Austro-Hungarian Empire after the World War I when Czechoslovakia was the only successor country thatavoided hyperinflation (Garber and Spencer 1994).

This essay aims to summarise the experiences of the two monetary disintegration episodes, i.e. termination of settlements in TR since 1 January 1991 and the gradual collapse of the Soviet ruble area in 1990–1993. The second section of this paper is devoted to demise of CMEA and TR. The third section describes the collapse of the ruble area in the former USSR based on my earlier publication (Dabrowski 1995). The fourth section analyses macroeconomic consequences of monetary disintegration in the former USSR; and the fifth section examines the policy lessons that can be drawn from both episodes."

The essay has been published in the Winter 2016  issue of CESifo Forum 4/2016