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The 'Ruble Zone' Collapsed in the 1990s, and It Was Bad

Boris Yeltsin (L) with Mikhail Gorbachev

Photograph by Sasha Stone//Time Life Pictures/Getty Images

Boris Yeltsin (L) with Mikhail Gorbachev

Bloomberg News’ Catherine Hickley in Berlin has an excellent story up today on the early 1990s collapse of the “ruble zone,” a group of 15 countries that shared a currency.

Hickley covers culture for Bloomberg, not economics, and she brings that unique perspective to an important article. She quotes Harold James, a Princeton University economic historian whom I’ve interviewed for several stories. The Soviet experience tells us “an exit like this is messy and leads to loss of income and inflation, and people are right to be scared of it,” says James, who wrote The End of Globalization: Lessons From the Great Depression.

The ruble zone was an attempt to preserve economic integration of the former Soviet Union states after they attained political independence. Although the Russian central bank was the only one of the 15 national banks with a license to print rubles, all of them could issue credit. Sounds a lot like the relationship between the European Central Bank and national fiscal authorities.

The Soviet Union was formed after World War I, the European Union after World War II. Both came under stress when the generations that built them began to die off.

Hickley elicits a smart take from Mark Mazower, director of the Center for International History at Columbia University in New York and the author of Dark Continent: Europe’s Twentieth Century.

“The EU was driven by an ideological vision of the elite,” says Mazower, who has also written books about Greece’s economic crisis between the wars and the Nazi occupation of the country. “Once a certain ideological vision of the future is belied by events, you have a problem. Such a loss of confidence in its ideology was devastating for the Soviet Union,” he says.

To date, inflation is one big difference between the ruble zone’s crackup and the stresses on the euro zone. Ukraine had an average quarterly inflation rate of about 100 percent from the second quarter of 1992 through the third quarter of 1993, according to Patrick Conway, a professor of economics at the University of North Carolina. In contrast, inflation is low across the 17-nation euro zone. The problem instead is deep recession.

In hindsight, it’s amazing that the planners of the euro currency didn’t think more about the failure of the ruble zone when they were building their own grand architecture.

Coy is Bloomberg Businessweek's economics editor. His Twitter handle is @petercoy.

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