Moscow, 5 August 1997 (RFE/RL) -- Declaring an end to the era of inflation, Russian President Boris Yeltsin yesterday announced that the Central Bank will lop three zeros off the ruble next year with the introduction of a new ruble note. He also said that the bank will bring back the kopek.
Analysts said Russia's decision to issue a new ruble note was a mostly cosmetic confidence building exercise. But they say it is significant for being the first time Russia will revamp its currency without wreaking havoc and robbing the population of hard-won savings.
Starting January 1, 1998, the Central Bank is to issue new notes and coins, including a shiny new kopek, which will be used in parallel with the old bills for one year. An old 1,000 ruble note will be equal to a new 1 ruble note. By the start of 1999, the government plans to phase out use of the old notes, but old rubles can be exchanged for new notes until 2002.
Yeltsin said in a nationwide address that over the last 50 years, monetary reform had hit the "common people" particularly hard. But now the government is determined to prevent any suffering.
"Nobody is going to lose anything as a result of the reform," said Yeltsin. "Nobody's interests will be trampled on -- the reform will not amount to confiscation."
During previous currency reforms in 1991 and 1993, many Russians lost their savings when they were forced to switch old notes for new ones virtually overnight. The government hopes to avoid the characteristic chaos this time by introducing the new notes gradually.
"I want everyone to be well-prepared for it, so that there will be no haste or stress," said Yeltsin.
After weathering hyperinflation and several botched attempts at monetary reform, most Russians hold their savings in dollars. On the streets of Moscow, most people greeted the announcement calmly, noting that the exchange rate to the dollar is unlikely to fluctuate.
The reforms should slim down the average consumer's wallet by getting rid of worthless bills, such as the hated 100 ruble note. The new notes, which look almost identical to the rubles currently in circulation but minus three zeros, will be issued in five denominations: 5, 10, 50, 100, 500.
Coins will be revived with the introduction of 1, 2 and 5 ruble denominations. Kopeks will also experience a comeback with the issuing of 1, 5, 10 and 50 denominations. One ruble will be worth 100 kopeks.
Central Bank Chairman Sergei Dubinin said the new notes would help boost public confidence in what he called a "new heavy and firm ruble." He added that redenomination would not affect Russia's monetary policy next year.
Dubinin said the decision to introduce the new notes signals an end to inflation and the economic slump of years past. Once rampant inflation, which peaked in 1992, has been largely brought under control, with the government forecasting a 12 percent rate this year.
Dubinin dismissed speculation that the cost of printing new notes would drain the Central Bank's resources or put added pressure on the government's cash-strapped budget. He said there is constant demand to replace old notes with crisp new bills, spurred by the proliferation of automatic teller machines.
By announcing plans to introduce the new bills a full five months in advance, the Central Bank hopes it will have enough time to persuade Russians not to panic. It has even set up a hot-line to field inquiries.
Pavel Teplukhin, an economist at Troika Dialog said previous attempts at monetary reform had essentially amounted to a confiscation money from the population.
"This time people will not suffer," said Teplukhin.
Others said the decision to knock of three zeros from the ruble only signals that the government has the muscle and confidence to stick to a stable ruble and low inflation.
Rumors of a re-denomination first surfaced last February, but the
government waited until now to announce the reforms, apparently cheered by upbeat news on the economic front and increased political stability.
The move could give a boost to the government's economic reforms by
removing inflationary expectations and persuading Russians to choose rubles over dollars, luring some of the so-called "mattress money" into ruble bank accounts.
"It should encourage people to hold their savings in rubles," said Roland Nash, an economist at the Moscow investment bank Renaissance Capital, "which should free up some capital to invest in the real economy."