When Russia Made Paper Currency Worthless to Its Citizens

The failures of government currencies are the rule.  They are not the exception.  There are more paper and other government money failures than we could possibly cover, but we’ve taken a close-up look at many of them over the years including the big ones like the German inflation a hundred years ago.  Or the Zimbabwe inflation.  That was one for the record books, too.

But there’s one currency failure that we haven’t written about.  The one in Russia that took place after the collapse of the Soviet Union.  One of our favorite journalists, Matt Taibbi was there, a working reporter on the scene, when it happened.

Here are some of his memories from his Substack newsletter:

In Moscow on the morning of July 24th, 1993 I fixed a cup of tea, rubbed the hangover out of my eyes, and walked out to look for breakfast. I was living then above the Metro station at VDNKh, the ex-Soviet equivalent maybe of New York’s World’s Fair grounds, and saw right away something was wrong. Old women on the street were bawling, a group of men was shouting at a beat cop, and sidewalks were full of people walking in a daze, as if a neutron bomb had gone off.

The government of Boris Yeltsin had decreed it was withdrawing all old rubles from circulation. Russians who’d stuffed rubles in mattresses for decades would be wiped out, unless they could fight through huge bank lines to exchange bills. Worse, the maximum amount was 35,000 rubles, or roughly $30-$35, about 60% of a Russian’s average monthly salary of 58,700 rubles. Those who exchanged the full 35,000 had passports stamped barring all future exchanges. I’ll never forget seeing a burly woman yelling, to no one in particular: “Vori, blyad!” (“F…ing thieves!”).

“Black Saturday” is remembered as a breaking point in the arc of post-Soviet history, the moment when many Russians stopped believing a glorious new democratic future was just around the corner, if it was coming at all. A week or so after the event, on August 6th, 1993, then-Prime Minister Viktor Chernomyrdin burned his name in the nation’s history books. An aphorism-spewing figure whose unique place in Russian lore is like a cross of Yogi Berra and Spiro Agnew, Chernomyrdin said one of the most purely Russian things of all time: “Hoped for better, turned out as always.”

It’s always the same basic scene.  It happens when people seem least to expect it, although the signs of trouble are everywhere.  People in panic.  Crowding into banks and official offices.  Flooding into store to buy goods with currency no one wants because it has no intrinsic value.  Angry mobs with no direction.  Crime lords getting rich on sweetheart deals from their government cronies.  Old people and young alike, crying at the betrayal, wondering how they will make ends meet.

Taibbi:

With inflation above 2500% the previous year of 1992, Russia was beginning a long period of economic suffering that wouldn’t hit climax until 1998, when the country defaulted and plunged into a crisis presaging the rise of Vladimir Putin. It’s hard to describe the disaster of the nineties in terms that will make sense to Americans. Life expectancy for men dropped seven years almost overnight, from 64 in 1990 to 57 in 1994. Deaths from disease doubled. An already heavy-drinking country saw alcoholism rise by 60%. The Lancet estimated Russia that decade saw seven million “excess deaths,” whatever that means. I know what it looked like: mass poverty, spiraling crime, and sharply rising levels of fury toward the West, largely seen as a primary culprit in designing Russia’s crony-capitalist hellscape.

The Western press, like the New York Times, called it a transition to capitalism.  But it was mostly designed by a handful of liberal Harvard academics, most of whom knew little if anything about the functioning of markets and capitalism.  How could they?  Most of them learned economics from clowns like Paul Samuelson, a central planning socialist and author of the establishment’s preferred textbook on the subject.  Samuelson is the bozo that told the students using his textbook, Economics – ubiquitous on America’s college campuses for decades – that the Soviet’s economy was going to bypass the US economy.  

Right!  

And did I mention he was a Nobel prize winner?

As we say, most of them understood nothing about markets and capitalism.

Taibbi writes that he didn’t see any capitalism; what he saw was cronyism, the creation of Russia’s famous oligarchs.  They stole everything that wasn’t nailed down.  And they tried to steal everything that was nailed down, too.

It’s cronyism by another name.  It may have been called privatization by the American lapdog press, but the Russian people had another name for it: prikhvatizatsia, or “grabitization.”

“I saw nothing that resembled capitalism or democracy in my travels,” says Taibbi.  “Competition was managed by politicians who doled out zones of commercial operation like racketeers…. This was a mafia state.”

Taibbi is older and wiser now than he was in 1993.  Today he says, “After witnessing a historic financial collapse in the former Soviet Union, I thought bad advice from Western economists was a root cause. Now I think failure was the plan.”

Yep.  The Deep State wanted Russia as a perpetual enemy even then.  And the Deep State never sleeps.

There are a million stories in the world of currency collapses.  This was just one of them.