Leading Article: The trouble with the rouble

IT IS easy to understand the fury and suspicion with which Russian citizens greeted the announcement that the central bank was to cease honouring banknotes printed before 1993. The inflation that the bank said it was trying to combat is to a large extent its own fault: the direct result of the billions of roubles it has printed since the collapse of the Soviet Union. Moreover, the financial losses and sheer inconvenience that Russians will have to face, yet again, are bound to increase political tension.

Whether the announcement is for good or ill in the longer term depends to a large extent on who authorised this drastic step, and how the bank proceeds from now on. Its position is ambiguous. On the one hand, it is still subordinate to the Russian parliament under the country's outdated constitution. On the other hand, its chairman is now a member of the government and has, since the referendum that approved further economic reform, pledged to keep the money supply under control.

If parliament approved the monetary reform - for that is what it is - then its motives are probably destructive: a last- ditch attempt to queer Boris Yeltsin's pitch at a time when the economic situation is starting to stabilise. Parliamentary decisions, however, are usually described as such, so this was probably, as the official announcement said, a measure initiated by the bank and designed to curb inflation. As such, it has much to recommend it. Sooner or later Russia had to embark on a monetary reform. Despite 18 months of its economic programme, there is still far too much money chasing too few goods, and too much money shoring up unviable state industries.

The move may have come just in time. Parliament last week voted to press for a high-spending budget that would result in a public deficit of one quarter of the country's national income. If carried through, that decision would be highly inflationary. If the bank refuses to issue the money to back this policy, however, parliament will be thwarted and the economic reforms initiated by President Yeltsin can proceed.

The question is whether the government will have the courage to persevere with curbs on the money supply in the face of vicious opposition from parliament and an unhappy public. If it does not, all remaining confidence in the currency will be lost and the trend towards a second, dollar economy will be accelerated. If the government sticks to a strict monetary policy, however, the Russian rouble may have a rosier future.

Understandably, the other former republics of the USSR are displeased. The telegram sent by Belarus to the Kremlin suggests that those which have clung to the rouble were as much in the dark as the average Russian. For all the immediate dislocation it will cause them, however, the bank's haste may prove a blessing in disguise. Russia's rouble-zone neighbours will now ask themselves whether there is anything to be gained from delaying further their own monetary independence.