Gorbachev voids 50-ruble, 100-ruble notes

January 23, 1991|By Scott Shane | Scott Shane,Moscow Bureau of The Sun

MOSCOW -- In a dramatic move to shore up the enfeebled ruble and undercut the shadow economy, Soviet President Mikhail S. Gorbachev last night declared 50-ruble and 100-ruble bank notes invalid as of midnight.

He also ordered a limit of 500 rubles per month per person on cash withdrawals from personal savings accounts. Larger purchases will be permitted only by using checks or direct bank transfers.

Citizens flocked to savings banks after the presidential decree HTC was announced on the 9 p.m. news to deposit big bills before the midnight deadline. In some places, stores stayed open late and were mobbed by customers trying to dispose of their 50s and 100s before they become worthless.

Working people will be permitted to exchange up to the amount of their average monthly pay, to a maximum of 1,000 rubles, with no questions asked. For pensioners the limit will be 200 rubles.

Above those limits, people will have to prove to special commissions being set up with the assistance of the KGB that they earned the 50- and 100-ruble notes honestly.

And in any case, the notes will be accepted for exchange only until Saturday.

"We don't have the goal of confiscating the savings of the mass of the population," Prime Minister Valentin Pavlov said in a television interview.

"People should report to their work collectives in order to explain just where this money came from," Mr. Pavlov said. "If your pay is 150 [rubles a month] and you try to exchange 150,000 [rubles], then naturally a question arises."

He said the two largest Soviet denominations have been targeted specifically because they are "one of the most important elements of the shadow economy."

There are various exchange rates for the ruble, ranging from about $1.80 per ruble at the official rate to 18 cents per ruble at the tourist rate.

On the black market, the ruble is worth about five cents. The average monthly wage is about 260 rubles.

The partial money reform, designed by Prime Minister Pavlov and his staff, was a long-awaited step that many economists say is necessary to restore credibility to the "wooden ruble," as Soviet citizens refer to their increasingly worthless currency.

A huge quantity of money, variously estimated at 200 to 500 billion rubles, has been accumulated by the Soviet population in savings accounts and cash. Mr. Pavlov said that 50- and 100-ruble notes account for about a third of the population's savings.

The result of the so-called "ruble overhang" is shortages of everything, since the amount of money in circulation far exceeds the value of the goods available. Any desirable product that appears in the stores is immediately swept away.

But the move is bound to be extremely controversial. On the one hand, it suits traditional Soviet egalitarian thinking, and will be viewed by many ordinary workers as a blow against "unearned income" and organized crime.

On the other hand, Soviet laws are so anti-market that they ban many transactions considered perfectly normal in most of the world. Selling something for significantly more than you bought it for is considered not a shrewd deal but "speculation," punishable by a labor camp term.

Hence, in addition to organized crime figures who have accumulated stacks of big bank notes, the reform is likely to catch a large number of Soviet entrepreneurs who have earned large sums in ways that are technically illegal.

Moonlighting in the shadow economy is extremely common, and a jocular Soviet curse is "May you live on your salary."

In addition, if a pensioner has a large amount of 50- or 100-ruble bank notes, it may prove difficult or impossible to prove precisely where all the money originated over several decades. Hence some Soviet retirees already were complaining last night that they fear they could lose their lifetime's savings before a jealous or resentful "commission."

Mr. Pavlov said another goal of the money reform is to render worthless a huge quantity of rubles believed to be in the hands of foreigners, even though by law rubles cannot be exported. The foreigners allegedly acquired the rubles in anticipation of privatization laws that would allow them to purchase land, factories, shops and other assets.

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