From Hard Currency to No Currency

What a difference two decades makes:

Predicting the imminent collapse of the U.S. dollar, a Russian lawmaker submitted a bill to his country’s parliament Wednesday that would ban the use or possession of the American currency.

Mikhail Degtyarev, the lawmaker who proposed the bill, compared the dollar to a Ponzi scheme. He warned that the government would have to bail out Russians holding the U.S. currency if it collapses.

The old Soviet Union had what we called a “state-controlled” currency, i.e., the Soviet rouble was what the government said it was worth.  Prices and wages were likewise fixed by the state, as was the exchange rate.  As long as the Soviet economy was isolated, the system held together, although living under it wasn’t always pleasant.

Given that, Russians differentiated between their own currency (a “soft currency”) and Western currencies, especially the U.S. Dollar, as “hard currencies”, with the latter very much desired.  Although the legal status of holding same varied from prohibited to tolerated, that didn’t stop people from trying to get same.

When the country and its system came apart, the currency followed suit, resulting in tragic/hilarious situations such as the one I describe in Half a Million Roubles.  Is it Enough?  But the distinction between internal soft and external hard currencies remained.

Now we see things reversed, with the Russians obviously considering their own currency a hard currency and ours as the soft one.  My take is that they are correct but I would observe the following:

  1. The U.S. Dollar has become a soft currency (that being a relative term) because it, like its old Soviet counterpart, is a creation of the state.  The big difference is that it is freely traded and backed by a strong economy with a long history of stability, which means that people have faith in it.  It’s also subject to manipulation by same state, and that’s certainly the case, especially these last five years.
  2. I think that, sooner or later, the Fed will run out of bullets in their easing gun, and we will have inflation and a general loss of the faith that holds things up.
  3. I think that the wisdom of holding U.S. Dollars should be left to the Russian people and not be the subject of legislation.  Predicting dates like this can be problematic, and in any case the Russians have shown a great deal of ingenuity in dealing with the ups and downs of their “coin of the realm”.  I doubt that Americans are anywhere as near ready for such an event here.

2 Replies to “From Hard Currency to No Currency”

  1. RUB (and CNY, for that matter) are not easily convertible to other currencies, although that’s slowly, slowly changing… These rumblings have gone on for some time and strike me as the kind of thing that will happen very slowly until it happens all at once… but until then, the USD is the least ugly contestant in the beauty pageant.


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