Demonetisation Cost Mikhail Gorbachev People’s Trust and the USSR

The economic crisis triggered by Soviet leader Mikhail Gorbachev’s currency ban crushed his hold over the USSR.

Mikhail Gorbachev was the last leader of Soviet Russia. (Photo Courtesy: Wikimedia Commons)

Before Prime Minister Narendra Modi, a handful of other leaders from across the world implemented demonetisation of currencies to check corruption and black money.

The Soviet Union was already facing nationalist agitation in 1990 with the Communist Party losing its grip over the region. Azerbaijan was rioting, Lithuania was preparing to separate itself from the Soviet regime.

In the case of Soviet Russia, the move of demonetisation backfired and cost Mikhail Gorbachev his leadership. Some might even say that it acted as a catalyst in splitting the USSR.

From Reform to Dictatorial Tendencies

Gorbachev was granted higher executive power by the Supreme Soviet to enable more reforms and push back the forces of nationalism.

Despite his allies warning him about the consequences of turning his government into a borderline dictatorship, on 22 January 1991, the last leader of Soviet Russia, declared the demonetisation of 50 and 100 ruble currencies to tackle black money.

Unlike the case of India, where citizens were given roughly 15 days to exchange their older currencies ignoring the sheer size of the country and its population that would make the transition difficult, in Soviet people were granted only three days to exchange old currencies, beyond which they had to appear before specially-assigned commissions to have their older currencies exchanged.

Also Read: Pak, Zimbabwe, Australia: Countries that Demonetised Like India

Downward Tumble

Gorbachev’s power went swiftly downhill and the economy crumbled with the sudden demonetisation affecting the market’s functioning.

When the coup leaders defeated Gorbachev in 1991, he spent three days under house arrest, and then was restored to power, only to realise that after the economic downfall, his power over the union had weakened.

What happened after that might be uncannily similar to what we witnessed with our own government and the RBI.

As the Modi government fiddled with new limits and rules every second day to manage the panic that demonetisation had unleashed initially, the exchange limit was set at 35,000 currencies of older rubles and two days later, President Boris Yeltsin issued a newer decree where the exchange amount was increased to 100,000 rubles.

The rest is a story of how the move of unplanned demonetisation broke the trust of people and led to the downfall of a strong government.