Accessibility links

Russia: Ruble Redenomination Just Getting Started

  • Stephanie Baker

Moscow, 8 January 1998(RFE/RL) -- Yelena, a cashier at a small grocery store in Moscow, was prepared but surprised all the same.

"It's a new ruble note?" she asked an older woman trying to buy a loaf of bread. "How much is a 100 ruble note worth?" she shouted to a colleague, examining the crisp new bill with care.

The transaction took longer than usual, prompting the cashier to make a rare apology to the customer next in line. "I just wanted to make sure no one was trying to cheat me," she said.

One week after Russia's Central Bank launched its much lauded redenomination of the ruble, lopping three zeroes off old ruble notes, few people have actually seen the new bills. While Russian politicians and media have already pronounced redenomination a success, it is clear the process is just beginning.

Under the reform, 1,000 old rubles are now worth one new ruble, but the new bills will be introduced only gradually during 1998. Old notes will operate side-by-side with new notes until January 1, 1999, when old rubles will no longer be accepted as bills of exchange except at authorized banks.

With few new rubles currently in circulation, there have not been many opportunities for fraud and confusion. But as the Central Bank begins to introduce more new bills over the next few months, redenomination could hit some snags.

The government announced the decision to redenominate the ruble last fall, after pronouncing the era of runaway inflation dead. Indeed, Russia posted a record low inflation rate of 11 percent in 1997, well below the 12 to 14 percent that had been forecast and half the 1996 rate of 21 percent.

Russian authorities have been at pains to reassure a wary public that redenomination would be different from previous currency reforms. During monetary reforms in 1991 and 1993, most Russians lost their life savings due to widespread confusion and lack of information.

So far, the Russian government has showed it has learned from its past mistakes. The Central Bank has operated a hotline to respond to queries about redenomination ever since November. And state-controlled Sberbank has run aggressive television advertisements educating the public about the changeover.

Given past bungled reforms, the lack of panic alone has made the currency reform a relative success. But the real challenges of redenomination lay ahead.

Shops are now required to list prices in both old and new rubles to limit confusion and prevent shops from rounding up prices - a major concern for Russians during these difficult economic times. But many shops are not obeying the rule.

At the same time, many believe that shops will stop accepting old 100 and 500 ruble notes and small ruble coins in the coming months, which could undermine confidence in the reforms.

Kopecks have been brought back to replace smaller denominated notes that pad most Russians wallets but are worth very little. Banks ordering new money from the Central Bank will get 2 percent of the amount in coins, in an effort to force them to get accustomed to working with kopecks again. The government hopes the reintroduction of the kopeck will help save money, as coins have a longer life-span than bills.

While a mood of calm currently prevails, uncertainty over redenomination, along with concerns about the stability of the ruble, led to a dramatic increase in the amount of hard-currency purchases late last year. That trend appears to be continuing as Russians get a feel for the new system.

One taxi driver asked for payment in dollars, saying he was concerned about redenomination. As he put it: "I just don't have any faith in the authorities."