Monetary Integration: Pros and Cons

Single currency may be introduced only if it meets the interests of both parties
The Belarusian government has confirmed in its recent address that the introduction of the Russian ruble as the single legal tender in the Union State of Belarus and Russia was postponed until relevant guarantees were received from Russia. Minsk is trying hard to weigh all pros and cons of this fundamental move and believes it is too early to give up the national currency and the national financial policies.

Belarus indeed is short of natural resources and has no access to sea of its own, besides, the political environment around the country cannot be called really friendly. Nevertheless, the country managed to preserve and augment its industrial and scientific complex. Raw materials are equally important for the national economy as an independent and well-balanced financial system.
The Belarusian financial system does not depend much on the world monetary and commodity fluctuations owing to the priority of state interests in the economic policy and efficient state regulation of the social and economic processes. Another essential point here is that Belarus does not stake on exports of raw materials and intermediate products.

The money-issuing policy and the commodity fleshing out of the national currency are guided by the real social and economic requirements of the country rather than by the directives of the IMF and its “antiinflationary” standards. It is Belarus that have the tiniest debt to the IMF in the post-Soviet space, and as for the USSR debt to the Paris or London clubs, Belarus owes them nothing. With these achievements any country of the world would be entitled to pursue independent financial and economic policies without waiting for cues from the outside.

Chairman of the Grodno Region Administration Vladimir Savchenko once told me:

— We have comparatively low salaries and wages in agribusiness now, about $200 a month, but we calculate this wage level on the basis of outputs, and secondly, the paying and purchasing power of the Belarusian ruble is higher than elsewhere in the CIS owing to the state regulation of price formation.

According to expert with the Schiller Institute, an international political and economic think-tank, Wilhelm Endahl, “a fast switch to the Russian currency and renunciation of the national socio-economic model would facilitate the spread of the Russian model all over Belarus, especially its monetarist criteria and outcomes, which are very likely to collapse the Belarusian economy and the social sector.”

Belarus demands preferential loan guarantees from Russia. Minsk believes the loan security must be calculated on the basis of comparable paying and purchasing power of the Russian rubles and its Belarusian counterpart, whereas Russia prefers being guided by credit time and conditions. At the same time, one should bear in mind that the Belarusian ruble is not pegged to the U.S. dollar or the euro, but to a whole basket of currencies. Poland, Ukraine, Latvia and Lithuania account for almost a quarter of Belarus’ foreign trade turnover and about a third of all foreign investments in this country. This policy helps avoid dependence on one or two foreign currencies and thereafter Belarus is not affected by the issuing and credit policies of the countries that use these almighty currencies (the dollar and euro).

The key results of Minsk’s financial and economic policy are the following:

— the paying and purchasing power of the Belarusian ruble, or the ratio of prices to salaries and wages, is one of the highest in the former Soviet Union;

— the state subsidizes nearly all sectors of the national economy either directly or indirectly, thus preventing unemployment and social tensions;

— the state independently uses its credit resources and export revenues to encourage the national economy and support the social sector.

According to Prime Minister Sergey Sidorsky, “as for the monetary policy and its indicators, we are mostly interested in how much you can buy or pay for having this specific sum in your hands.” The Belarusian government believes the “antiinflationary” records and artificial pumping out of money from production or the social sector might result in grave problems, as it happened in many countries of the world, and these problems will not remain exclusively economic.

Belarus and Russia originally agreed to introduce the Union ruble with a single money-printing center either in Minsk or in Moscow and harmonize financial policies. These documents were signed in 1996-2001. However, later these talks transformed into a campaign to change Belarus to the Russian ruble and the Russian financial and economic strategies. Analysts are alarmed that this imitation might turn this country into yet another subdivision of the Russian Federation that expects subsidies from the headquarters.

The Belarusian side offers other integration options, among them the creation of a cashless monetary unit for mutual settlements in the Union State and the establishment of a supranational central bank on the basis of the Central Bank of Russia and the National bank of Belarus, just like the European Central Bank. This supranational institution will perform the functions of the single center to issue the Union currency. Belarus insists on including this structure of the Union financial system in the Constitution Act of the Union State.

The chairman of the National Bank of Belarus, Petr Prokopovich, told reporters the other day that the two countries need to create “a unified and equal customs and economic space, which will be crowned by the introduction of the Russian ruble as the single currency. This space is an essential condition to launch the single currency.”

The world knows plenty of examples of economic unions that envisage no mandatory merger of economic and financial systems. The customs and currency union of Switzerland and Liechtenstein of 1921 has it that Switzerland issues the franc for Lichtenstein, which pursues an independent financial and economic strategy that looks different from the policies of its neighbor. At the same time, these two countries have coordinated loan rates, taxes, prices, foreign export and import tariffs — not the rates themselves, but the range of rates. The minute issuing requirements of the principality and additional payments for additional money issues are the key grounds for the currency union between the monarchy and the confederation. This is an equal union of two independent countries with territories that can hardly be compared.

Yurij Akulov
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