In early August 1991 we visited Lithuania at the invitation of Prime Minister Gediminas Vagnorius. George Selgin and Kurt Schuler had previously visited Lithuania in October 1990 at the invitation of the Lithuanian Bank of Industry and Construction. They met with the president and prime minister and suggested ideas for monetary reform in a memorandum to the Lithuanian government that has since been translated into Lithuanian.[1]

This paper extends those ideas in light of what we observed on our recent visit and what has happened since the failed Soviet coup. Lithuania has achieved independence but remains linked to the Soviet economy and to the Soviet ruble. The ruble is becoming less and less acceptable in trade, and as a result, parts of the Soviet economy have reverted to barter. The need for a stable, convertible currency in Lithuania is more urgent than ever. However, the actions the Bank of Lithuania and the Lithuanian government have taken so far will not produce such a currency. This paper explains how Lithuania can successfully establish a sound currency to replace the ruble.