Reforming the Ruble: Monetary Aspects of Perestroika.

• Author: Hosseinzadeh, Esmail

Edited by Joseph C. Brada and Michael P. Claudon. New York: New York University Press, 1990. Pp. viii, 228. $35.00.

The thrust of this book is how to use external factors such as the world market and Western capital, technology and management to decentralized and marketsize the Soviet economy. Since the employment of these exogenous stimuli in the reform process of the Soviet economy requires ruble, convertibility, measures that would help make the ruble convertible are therefore the major focus of the book. Monetary and price reforms are considered key prerequisites for the full convertibility of the ruble.

The certrality of monetary reform is largely due to the fact that there is a huge disproportionality between the amount of rubles in possession of the public and the supply of goods and services in the Soviet Union, i.e., between supply and demand. The resulting inflationary overhang has made the abolition of administrative prices and institution of market prices difficult because the consequent hyperinflation could lead to economic instability and social unrest. Establishing a balance between supply and demand is therefore viewed as the first step toward the price reform and ruble convertibility.

The authors suggest a number of way to absorb the excess rubles: (a) financing the government deficit through the sale of bonds to the public; (b) selling government-owned property to the population; and (c) "importing large amounts of Western consumer goods for a period of years. The hard currency to purchase these goods would be obtained by borrowing in the West, possibly up to US$15-16 billion in the first year and US$5-6 billion a year subsequently" [p. 104].

Once the excess purchasing power is thus absorbed and a supply-demand equilibrium is established, the market can substitute "realistic" prices for "distorted" administrative prices and the stage is set to implement the plan of ruble convertibility. The plan includes a series of periodic hard currency auctions that would serve as transitional steps toward the emergence of a fully-fledged foreign exchange market by the year 2000. "By expanding the scope of hard currency auctions," so that they would increasingly encompass a greater volume of Soviet hard currency trade and permit participation of a greater number and type of buyers and sellers, "the practice of holding periodic auctions would give way, in a quite natural and evolutionary manner, to a genuine foreign exchange market" [p...