Ruble vs. dollar

Issue Number: 
Alexander Kondorsky

The history of the dollar's purchasing power in Russia is truly exciting.

Contrary to what is commonly believed, the Soviet era's official exchange rate of 0.7 ruble for one U.S. dollar was quite reasonable and was effective in comparing the dollar's and the average salary's purchasing power both back then and now. It suffices to look at the dollar-per-loaf-of-bread ratio dynamics.

Of course, very few Soviet people ever had dollars. After all, keeping foreign currency was illegal, and dealing in foreign currency was punishable by up to seven years in prison under the Criminal Code. Those Soviet people (diplomats, scientists, actors, etc.) who traveled abroad and earned foreign currency were obliged to exchange it upon their return. And not for rubles! I must admit that the Soviet authorities were generous enough to appreciate those who earned real money for the state. In exchange for dollars or other foreign currency, they were given "cheky" – special checks that were accepted in payment only at stores belonging to the Beryozka chain, which offered foreign foodstuffs and goods. "Cheky" were traded on the black market, and the rate was one check per two rubles.

Now, we have grown very familiar with foreign currency, particularly with the dollar. Incidentally, for many Russians, at least residents of the big cities, the ruble/dollar exchange rate is as important as the weather forecast. It is broadcast many times a day on the radio and television, sent free to pagers, mobile phones and e-mail boxes and is available at numerous Web sites on the Russian Internet.

Dollars held in cash are one of the most popular savings instruments in modern Russia, and, according to different estimates, from $10 billion to $50 billion reposes in people's private coffers throughout Russia. A popular Russian joke goes: "A New Russian returns from a trip to the United States and tells his friend: ‘What shocked me most there is their money. Can you imagine, their dollars are absolutely identical to our bucks!'"

Unlike many other economic indicators, such as gross domestic product, stock market index, etc., the ruble/dollar exchange rate directly affects the financial situation of a considerable percentage of the Russian population, particularly those who keep their savings in dollars and people employed in the dollar-dependent sectors, for example, in foreign companies, joint ventures, the oil and metals industries and so on.

It is easy to calculate that the purchasing power of 0.7 Soviet rubles in terms of bread, metro rides or other staples was roughly equal to the purchasing power of the dollar in Russia after the August 1998 financial crisis.

Many economists maintained that the crisis brought the ruble to its "proper" value in relation to the dollar. Deviations from this ratio, which were especially strong in the early 1990s, led to a lot of ugly phenomena in Russian business and the economy. Suffice it to recall how small companies purchased empty bottles from the population and exported them as scrap glass, while in 1996-1997 the country was literally flooded with imports that suffocated domestic production.

Since 1998, the ruble has grown stronger relative to the dollar but buys fewer staples than 0.7 Soviet rubles. This has caused a downturn in the gross domestic product's dynamics and drastically slashed the real incomes of those who earn hard currency.