New currencies in the Former Soviet Union: a Recipe for Hyperinflation or the Path to Price Stability?

Working papers set out research in progress by our staff, with the aim of encouraging comments and debate.
Published on 01 September 1994

Working Paper No. 26
By C L Melliss and M Cornelius

By December 1993 most republics of the former Soviet Union (FSU) had introduced independent currencies. The paper traces the reasons behind the break-up of the rouble zone. For the early leavers (the Baltic states) the opportunity to pursue rapid stabilisation and a market economy was paramount. Other republics abandoned a common currency only after the failure to negotiate a new rouble zone with Russia.

The policy choices facing governments introducing new currencies against a background of high inflation are discussed. In the transition economies of the FSU, institution building and reform are needed alongside commitment to tighter fiscal and monetary policies. These requirements have not been fully embraced in all republics. As case studies show, independent currencies can be highly successful, but there are also risks of hyperinflation. 

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