ruble will then be, so to speak, the dollar in
to use the euro, yen, and other foreign cur-
Russian dress. If Russia establishes a cur-
rencies beside the dollar).
rency board, it should not on that account
To acknowledge that Russia is not a good
restrict use of the dollar. Giving the dollar
producer of monetary policy need not be
full recognition as legal tender will induce
shameful or imply a violation of national sov-
the currency board to keep the ruble as
ereignty or pride. Money, after all, is a
good as the dollar.15
resource that should be subject to the laws of
competition. A country does not surrender
its sovereignty by allowing its citizens to use a
Will These Reforms Work?
foreign currency, any more than it surrenders
it by respecting internationally recognized
human rights. In both cases, the aim is to
The big questions about the reforms we
protect citizens from arbitrary encroach-
propose are whether they will work and
ments by the government. Sovereignty
whether they are better than other
should not be viewed as a license for a gov-
approaches. For answers, we can draw on
ernment to do whatever it wants in monetary
something more solid than mere assertions,
policy, human rights, or other areas.
namely, the experience of other former
Other former
Forcing Russians to use rubles instead of
socialist countries.
socialist countries
dollars is not something in which to take
Other former socialist countries have
pride. It is rather like forcing them to fly
already undertaken some of the reforms we
have already
Aeroflot instead of safer airlines. And, as
suggest and have enjoyed success. The experi-
undertaken some
the situation stands now, forcing Russians
ence of Estonia, Lithuania, and Bulgaria is
of the reforms we
to use Russian banks amounts to depriving
particularly relevant. Like Russia, Estonia
them of banks altogether--again, hardly
and Lithuania were among the 15 republics
suggest and have
something of which to be proud. Rather
of the Soviet Union. Although Bulgaria was
enjoyed success.
than stake its pride on the particular mon-
not a Soviet state, it was so closely linked to
etary arrangements that exist in Russia
the Soviet Union politically, economically,
today, if the Russian government really
and culturally that it was dubbed "the 16th
wants something to be proud of, let it
Soviet republic." Before undertaking their
establish an open monetary system that
monetary reforms, all three countries had
allows Russians unfettered access to the
even higher inflation than Russia now does,
best currencies and the best banks in the
depreciating currencies, shaky banking sys-
world, and the prosperity that such a sys-
tems, and shrinking economies. Estonia
tem will foster.
established a currency boardlike system on
If Russia wishes to preserve a role for the
June 20, 1992, to issue a new national curren-
ruble for the sake of national pride, the best
cy in place of the ruble; Lithuania replaced its
way to do so is to replace the Central Bank
central bank with a currency boardlike sys-
of Russia with an orthodox currency board.
tem on April 1, 1994; and Bulgaria did like-
The currency board should back the entire
wise on July 1, 1997.
ruble monetary base (notes plus deposits at
As Table 1 indicates, the results have been
the Central Bank of Russia) 100 percent or
striking. Year -1 is the year before the curren-
slightly more with high-quality dollar
cy boardlike system was introduced in each
assets, such as U.S. Treasury securities. The
country, year 0 is the year of introduction,
exchange rate of the ruble against the dollar
and subsequent years are labeled +1, +2, and
should be fixed, and all exchange controls
so on. Estonia, Lithuania, and Bulgaria have
on the ruble should be removed. A currency
all maintained fixed exchange rates with the
board will ensure that the ruble becomes a
foreign currencies to which their currencies
good currency and that the supply of rubles
are anchored (the German mark for Estonia
is determined entirely by market forces. The
and Bulgaria, the dollar for Lithuania).
12