Kremlin nurtures rouble with ban on the mighty dollar: Curbs designed to bolster local currency and cut inflation

WHEN shops in Russia reopen tomorrow, customers will find they can no longer spend 'green' but only 'wooden' money. A law designed to strengthen the rouble bans cash transactions in the US dollar, which used to be held only by black-marketeers but which, because of inflation, has become practically a parallel currency.

'What shall I do?' said Igor. 'I've earned 500 dollars painting walls for foreigners. It's useless to me now.' In fact, Igor can save the money, perhaps for some foreign trip, as Russians may now legally possess dollars. Or he can change it at the bank at a rate of one dollar to 1,250 roubles. The Central Bank hopes Russians will do the latter, making the rouble more valuable. But another possibility is that the law's rouble-enhancing effects will be cancelled by shops encouraging more credit-card purchases to help them pay for goods they import for hard currency. Credit-card bills will still be in dollars.

Once Russians realise there is no cause for panic, they may welcome the new law. The Soviet Union operated a system whereby only foreigners could escape the inferior Russian shops by using hard-

currency stores. Then Russians with dollars were allowed in but this offended the estimated 40 per cent of the population who did not and still do not have foreign money.

Recently Russians have been allowed to use roubles in hard-currency shops but because the local money has been so weak, they have needed a suitcase-full of cash to buy a can of cola and a packet of cornflakes. Now large-denomination rouble notes have been printed and rouble shopping in stores with Western goods becomes realistic for the first time.

Internal rouble convertibility (the currency is still not accepted abroad) has been made possible by the relative success of the reformist government's tight monetary policy. According to the Finance Minister, Boris Fyodorov, there was only a ninefold increase in prices last year compared with 1992, when costs rose 26 times. But hyperinflation still threatens, he says, if the government, in panic at the success of the far-right in December's elections, starts spending more than the country can afford on the state sector.

Yesterday there were hints the government might be about to do just that. Rossiiskiye Vesti newspaper said it had heard President Boris Yeltsin, who has said the reformers will stay, was preparing to reduce their influence and promote men more sympathetic to the ideas of financing industry to stimulate local production and of strengthening social welfare. Mr Fyodorov, now a deputy prime minister, would be demoted, and the radical economist Yegor Gaidar, while keeping his title of deputy prime minister, would have to report to Oleg Soskovets, an industrialist who improved his political standing by bringing a hijack drama to an end without loss of life over Christmas. Mr Fyodorov has said he will quit if reforms are watered down. Yesterday he was quoted as saying Russia could end up like Ukraine, which is in economic chaos, if it did not keep taking its monetarist medicine.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Recruitment Genius: Account Manager

£20000 - £35000 per annum: Recruitment Genius: This full service social media ...

Recruitment Genius: Data Analyst - Online Marketing

£24000 - £35000 per annum: Recruitment Genius: We are 'Changemakers in retail'...

Austen Lloyd: Senior Residential Conveyancer

Very Competitive: Austen Lloyd: Senior Conveyancer - South West We are see...

Austen Lloyd: Residential / Commercial Property Solicitor

Excellent Salary: Austen Lloyd: DORSET MARKET TOWN - SENIOR PROPERTY SOLICITOR...

Day In a Page

Isis in Iraq: Yazidi girls killing themselves to escape rape and imprisonment by militants

'Jilan killed herself in the bathroom. She cut her wrists and hanged herself'

Yazidi girls killing themselves to escape rape and imprisonment
Ed Balls interview: 'If I think about the deficit when I'm playing the piano, it all goes wrong'

Ed Balls interview

'If I think about the deficit when I'm playing the piano, it all goes wrong'
He's behind you, dude!

US stars in UK panto

From David Hasselhoff to Jerry Hall
Grace Dent's Christmas Quiz: What are you – a festive curmudgeon or top of the tree?

Grace Dent's Christmas Quiz

What are you – a festive curmudgeon or top of the tree?
Nasa planning to build cloud cities in airships above Venus

Nasa planning to build cloud cities in airships above Venus

Planet’s surface is inhospitable to humans but 30 miles above it is almost perfect
Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

Clocks, rifles, swords, frogmen’s uniforms

Surrounded by high-rise flats is a little house filled with Lebanon’s history
Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

Four months after the bombardment, Gaza’s wounds are yet to heal

Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
Gastric surgery: Is it really the answer to the UK's obesity epidemic?

Is gastric surgery really the answer to the UK's obesity epidemic?

Critics argue that it’s crazy to operate on healthy people just to stop them eating
Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

Homeless Veterans appeal: Christmas charity auction

Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
Pantomime rings the changes to welcome autistic theatre-goers

Autism-friendly theatre

Pantomime leads the pack in quest to welcome all
The week Hollywood got scared and had to grow up a bit

The week Hollywood got scared and had to grow up a bit

Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

Panto dames: before and after

From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
Thirties murder mystery novel is surprise runaway Christmas hit

Thirties murder mystery novel is surprise runaway Christmas hit

Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

Anne-Marie Huby: 'Charities deserve the best'

Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
The botanist who hunts for giant trees at Kew Gardens

The man who hunts giants

A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there