A quarter of a century ago, a foreign exchange market appeared in Russia. Nikita Aronov, Maria Portnyagina and Alexander Trushin - about what this led to

A quarter of a century ago, on October 26, 1990, USSR President Mikhail Gorbachev signed a historic decree “On the introduction of a commercial exchange rate for the ruble to foreign currencies.” The ruble entered the thorny path of exchange for other currencies, changing our economy, life and even consciousness

People still remember that the ruble was once “wooden”
Photo: Anatoly Zhdanov, Kommersant / buy photo

Material prepared by Nikita Aronov, Maria Portnyagina, Alexander Trushin

For those who have not seen the times when they had not yet invented the electronic display that now decorates all banks and exchange offices: well, in the USSR there was no free conversion of the ruble. To purchase foreign equipment, the government granted the enterprise permission to exchange a strictly fixed amount of rubles for currency for a specific purchase. Such rubles were called foreign currency. All the others were cheerfully nicknamed “wooden”, and this word has not yet been erased from people’s memory.

“Gorbachev’s decision to introduce a commercial exchange rate for the ruble was inevitable,” says Russian Financial Ombudsman Pavel Medvedev (at that time he was preparing Russian laws on the Central Bank and banking activities, which were adopted in December 1990). “Especially since back in 1987 year, the state abandoned its monopoly on foreign trade. Enterprises were given the opportunity to buy goods abroad and sell them on the territory of the USSR. Then there was simply no alternative to this solution.

According to this decree, the official exchange rate of the ruble against foreign currencies was set based on the ratio of 1.8 rubles per US dollar (before this, the rate was approximately 60 kopecks per dollar). The calculation was as follows: a threefold devaluation of the national currency would limit imports and stimulate demand in the domestic market. However, in conditions of total shortages, fixed prices and planned import purchases, this measure did not help.

— There was simply no such thing as the purchasing power of the ruble under Soviet rule. It appeared precisely in the 90s, and it was a huge progress,” notes Pavel Medvedev. “The effect appeared only a few years later. Products appeared in stores. Yes, prices were steep, but there were goods, and only prices limited and still limit the consumer’s options. It is often said that previously one could live well for a whole month on a salary of 120 rubles, but now it is barely enough for a carton of milk. But then a person, coming to the store, could not buy much. And it would be fine in the 90s! There has always been a shortage of food and consumer goods, as they said then. It is impossible to compare 120 rubles then and now. Life changed radically.

But Gorbachev’s decree was still a half-measure. “The new commercial exchange rate of the ruble remains extremely overvalued in relation to the real purchasing power of the Soviet currency. It will be possible to talk about the establishment of a real exchange rate of the ruble only if the free exchange of rubles is allowed in the USSR. In the meantime, an idea of the real exchange rate of the ruble gives Soviet black currency market,” wrote Kommersant in the fall of 1990. Let us remind you: on the foreign exchange market a dollar could be bought for 15-20 rubles.

It took another two years for citizens to be able to freely buy currency.

“Then, over the course of two decades, the ruble became an increasingly valuable currency. This process proceeded very slowly, with failures and retreats,” continues Pavel Medvedev. “The most significant disruption was in 1993, when inflation for the year amounted to three and a half thousand percent. Money turned into cut paper, they were even called “candy wrappers” at the Goznak factory, they were issued without protection, and they were printed using the offset method. This was a symbol of the depreciation of the ruble. Counterfeits were more expensive than genuine bills.

In 1993, the ruble exchange rate rose to 3,000 rubles per dollar. The next stage in the fall of the Russian currency was “Black Tuesday” in 1994: the ruble exchange rate dropped by 25-30 percent, to 3,900 rubles per dollar. Accordingly, the purchasing power of the ruble has also fallen. It was possible to balance inflation only by 1995, when it dropped to 24-25 percent. But financial stabilization did not work out then. The country's leadership did not agree with the Central Bank's arguments that you need to spend as much as you receive in income. The result was the crisis of 1998: the ruble lost almost 40 percent of its value.

The “zeros” passed under the sign of dedollarization. It was possible to restore the population's trust in the national currency, more and more Russians preferred to keep their savings in rubles (for example, according to the FOM, in 2004 a quarter of Russians had savings in foreign currency, now only every tenth has). However, experts emphasize that the ruble exchange rate turned out to be greatly overvalued - due to the influx of petrodollars, which were then exchanged for rubles.

“The question of how much you can buy with a ruble is important,” says Pavel Medvedev. “But it is adjusted by the growth of household incomes.” As long as they grow, people's well-being increases. Moreover, from 2000 to 2011, the well-being of not only the very rich, but also the low-income segments of the population grew. Since 2012, income growth has stopped. Inflation has risen sharply in the last year, and all this together has hit the purchasing power of the ruble.

Falling oil prices plus sanctions led to a sharp drop in the ruble at the end of 2014. Economists even started talking about new dollarization. The share of deposits in foreign currency rose from 20 percent to 31.5 percent.

— As for the prospects, I have very serious concerns about the state of our economy. We have exhausted the reserves that would ensure an increase in the value of the ruble. For new growth, serious reforms are needed, Medvedev concludes.

And 25 years ago, the most serious reform was the decree on the commercial exchange rate of the ruble, which opened the door to capitalism. Not only to the state and newborn businesses (the Moscow Interbank Currency Exchange opened in 1992), but also to the most “ordinary” citizens, who surprisingly quickly mastered the science of the exchange rate and learned to relate it to the price of a barrel of oil. Carpets and crystal as means of saving and accumulation were replaced by foreign currency deposits, investments in real estate and trading on the stock exchange. They are threatening to introduce financial literacy as a school discipline. And currency speculation, for which there were criminal penalties in the 1970s and 80s, is now just business.

Short ruble exchange rate