Install

Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

Emission Plan Tops Duma Gall

There are all sorts of deputies in the State Duma: those who spend a lot of their time in the districts, those we see fairly often on television, those who quietly haggle over the federal budget for themselves and their voters, and then others who, along with the government, take up the reins of the reform process.


There really aren't too many odious deputies -- two or three out of total of 450. But Viktor Ilyukhin is foremost among them.


Head of the Duma Security Committee, Ilyukhin has an interest in nearly every issue. But he has taken a special interest in the economy, and his ideas are always dramatic.


If a law to restore private savings squandered by commercial banks were to be drafted, he would make sure to include every single bank -- even those with the smallest deposits and whose existence was never justifiable.


If he were to reform the Russian payments system, he would turn the entire thing upside down and produce a bill with language so unintelligible that even specialists couldn't make sense of it.


His latest idea is to demand new cash emissions totaling 330 trillion rubles ($56 billion) -- enough to send any economy into a coma.The nation's financial authorities are constantly having to fight off the obvious nonsense of knee-jerk reactionaries whose proposals sometimes border on crimes against the state. Ilyukhin is a Duma deputy, however, and as such he has the authority to introduce legislative initiatives.


Furthermore, his Duma colleagues the communists and agrarians have offered their support. They are saying: "Print a little money and all the problems will be over."


If you do, then for God's sake at least don't print as much as Ilyukhin has proposed, or the problems really will end -- once and for all.


Addressing the Duma two weeks ago, Prime Minister Viktor Chernomyrdin said Ilyukhin's supposed oxygen for the economy is really a dose of carbon monoxide -- one deep breath and it's all over.


But there are more than just rhetorical estimates of what will happen if the sky does fall and Ilyukhin's emissions bill becomes law. If just 200 trillion rubles, rather than the total 330 trillion suggested by Ilyukhin, are issued all at once or over the course of six months, then the following scenario is inevitable.


First of all, such a huge cash emission would lead directly to increased prices -- money circulating faster in the economy would trigger reduced ruble demand expressed in prices climbing more rapidly than the actual growth in money supply.


Central Bank chairman Sergei Dubinin considers it an extremely positive phenomenon that money supply has recently been increasing at a rate faster than inflation. In the first quarter of this year, money supply and inflation increased by 11 and 6 percent respectively.


With Ilyukhin's trimmed-back 200-trillion-ruble emission, annual inflation would reach 180 to 270 percent in 1997 -- a monthly rate of 35 to 40 percent if emitted all at once, 17 to 20 percent if emitted over the course of six months.


It would be too much for the Central Bank to come up with enough money to support such a saturated economy.


Having forgotten the socialist lines leading to empty store shelves, our citizens have irresponsibly forgotten what it means to try to spend their salaries as fast as they can before they become devalued by inflation. They have quickly forgotten how the prices for basic necessities used to change daily.


And it wasn't all that long ago. In 1992 Russia had 2,600 percent annual inflation. The last big jump was in January 1995 when monthly price increases registered 17 percent. Cash was pouring into the economy, but there was never any cause to believe that these emissions might resuscitate it, as the communists are now so often heard to say.


Central Bank First Deputy Chairman Sergei Aleksashenko has pointed out that it is the bank's constitutional duty to watch over the ruble's stability. In this sense, the ruble is a standard.


You have to agree that it would be absurd to go to a tailor's and demand that he increase the size of a meter only because you don't like how wide your hips are. In the same way, it would be just as foolish to demand that the ruble's value be altered. An emission will only lead to a loss of the standard.


Right now the Central Bank, in its capacity as an emission center, is selling rubles at firmly established rates. To vote to demand that the bank sell rubles cheaper -- even if the vote is unanimous -- would be as foolish as walking into any Moscow store and demanding they sell you something for less than the listed price.


In addition, any "extra" money will inevitably be converted into hard currency. Once the amount of cash in the economy exceeds several hundred trillion rubles, hard-currency markets and exchange points in cities throughout Russia will witness noticeable invigoration.


The Central Bank chairman has stated that any demand for large-scale emissions would be a violation of the constitution, which states that the bank is supposed to guarantee the stability of the national currency.


The Central Bank itself is not allowed to take cases to the Constitutional Court. However, any citizen may do so -- anyone who has a bank account and is angry that the situation has changed so drastically that interest rates aren't keeping up with inflation.


The question of the Central Bank turning to the Constitutional Court came up exactly a year ago when, in a touching display of unity, the government and the Duma forced the bank to turn over 5 trillion rubles of its profits to the federal budget.


Of course, it wasn't the bank's chairman who brought up the idea at that time. I hope the Central Bank will be more decisive this year.