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The rapid pace of
recent political change in the former Soviet Union has distracted
attention from the economic implications of dcentralizing power to the
republican level. In Discussion Paper No. 604, Research Fellow Peter
Bofinger considers the future monetary order in the territory of the
Soviet Union. He first presents four blueprints for its economic and
monetary union. First, the Yavlinsky Treaty would have left the Soviet
Central Bank (SCB) with unlimited discretion over credit policy but
unable to impose adequate financial constraints on republican
governments or the state-owned enterprise sector. Second, a framework
modelled on the European System of Central Banks would place a complete
ban on the SCB's financing of republics' deficits; the absence of
efficient money markets and genuine private debt would then force the
SCB's Council to determine the allocation of credit among the individual
republics' commercial banks, leading to serious conflict within the
Council. Third, a currency board would eliminate all discretion since
the current account would then fully determine the money supply; such
stringency could lead to abrupt credit rationing and to widespread
bankruptcies in the enterprise sector. Fourth, allowing representatives
of international institutions (including the EBRD, European Commission,
IMF, OECD and the World Bank) to form a majority of the SCB Council
would reduce the republics' influence and provide both flexibility and
effective financial constraints with which to operate monetary policy
with the relatively high degree of discretion required during the
transition. |