When I lived in the USSR as a kid, and saw the various incarnations of the local currency, I asked my father about them. He gave me my first glimpse into the principles of arbitrage, explaining how black markets worked, and showed me why, despite whatever I might have been taught at my local school about the excellence of the Soviet way of life, the Russians were desperate to escape it.
In the whole of the Eastern Bloc, local currencies were non-convertible. For matters of Communist pride, the governments would announce official exchange rates versus the hard currencies favourable to themselves. The Russian rouble, for example, was worth about $1.50, while the Ostmark was pegged at parity with the Deutsche Mark. Naturally, these were nothing like the fair values of the currencies, as any Third World diplomat worth his salt and the locals were aware.
In Moscow, at least, there used to be frequent shortages of common goods, such as fresh vegetables, shoes, fruit. More frivolous items like chewing gum were unavailable. As for perfumes, high quality skis, fine alcohol (other than vodka and kvass), electronics and other luxury items, these were pretty much impossible to find in shops open to the general public. To stock these high-end items, the Soviets introduced shops called Beriozkas, where most diplomats and Russians with connections could make their purchases.
But these were imported goods, so what did they pay with? They used a hard-currency, or coupon rouble, whose notional worth was approximately the same as the standard rouble (unavailable to the masses), but whose real worth was much, much more.
Under the terms of the Vienna Convention, foreign embassies are financed by hard-currency transfers (even in the pre-liberalisation period in India when our foreign reserves were minuscule). For instance, in Moscow, the Indian Embassy personnel were paid out of the convertible currency account of the Embassy, by transferring the sum into their convertible individual account. Then, one could draw local non-convertible roubles or the convertible coupon roubles which were legal tender only in Beryozkas, for buying either essential goods or luxury goods - of course, when they were available.
The local people had lot of roubles to spare but they could not get any imported goods or food items or toiletries. Indians, being a thrifty and business-minded sort, saw an opportunity to provide these items to the locals. A black market was thus tapped into. Some of our people would liaise with Indian students at various universities. Whenever sought-after goods were available at the Beryozkas, the person in the embassy in touch with the students would go and buy these items and hand them over to the student contacts. They, in turn, would sell them to the local contacts who would pay in roubles at the rate of one convertible rouble equivalent to say, eight or ten, nonconvertible rouble. The student would take his cut, say 10%, and hand over the balance to the contact at the embassy, who would retain the balance. Usually, the owner of the coupon roubles who initiated this transaction would end up with four to six nonconvertible roubles for each convertible coupon rouble he had started with. Sometimes, depending upon the availability of goods or eagerness of the local people to possess something special, the ratio used to be 1:6 or 1:8 at the hands of the person handing over the coupon rouble. In essence, the desi's salary could thus be multiplied fourfold in local currency terms.
Some of our people used to go to West Berlin and buy music records and items of scarcity in Moscow, and sell them in Moscow for a sizeable profit. People used to say that they could cover their costs of travel (whether by own car or by train) and other expenses as well as make a profit at the end of it all.
These transactions were known to the local governments who frequently ignored it. Occasionally, though, some students or some other middle-men would be caught or charged for these illegal transactions.
I had often wondered how it was many of my father's colleagues managed to buy cars (VW Beetles for the chota log, Mercedes Benzes for the senior diplomats) when they all complained about the laughable salaries. I guess the black market was the solution to their problem.
Here's a poem by Felix Chuyev which renders some of the bitterness of the time.
In the whole of the Eastern Bloc, local currencies were non-convertible. For matters of Communist pride, the governments would announce official exchange rates versus the hard currencies favourable to themselves. The Russian rouble, for example, was worth about $1.50, while the Ostmark was pegged at parity with the Deutsche Mark. Naturally, these were nothing like the fair values of the currencies, as any Third World diplomat worth his salt and the locals were aware.
In Moscow, at least, there used to be frequent shortages of common goods, such as fresh vegetables, shoes, fruit. More frivolous items like chewing gum were unavailable. As for perfumes, high quality skis, fine alcohol (other than vodka and kvass), electronics and other luxury items, these were pretty much impossible to find in shops open to the general public. To stock these high-end items, the Soviets introduced shops called Beriozkas, where most diplomats and Russians with connections could make their purchases.
But these were imported goods, so what did they pay with? They used a hard-currency, or coupon rouble, whose notional worth was approximately the same as the standard rouble (unavailable to the masses), but whose real worth was much, much more.
Under the terms of the Vienna Convention, foreign embassies are financed by hard-currency transfers (even in the pre-liberalisation period in India when our foreign reserves were minuscule). For instance, in Moscow, the Indian Embassy personnel were paid out of the convertible currency account of the Embassy, by transferring the sum into their convertible individual account. Then, one could draw local non-convertible roubles or the convertible coupon roubles which were legal tender only in Beryozkas, for buying either essential goods or luxury goods - of course, when they were available.
The local people had lot of roubles to spare but they could not get any imported goods or food items or toiletries. Indians, being a thrifty and business-minded sort, saw an opportunity to provide these items to the locals. A black market was thus tapped into. Some of our people would liaise with Indian students at various universities. Whenever sought-after goods were available at the Beryozkas, the person in the embassy in touch with the students would go and buy these items and hand them over to the student contacts. They, in turn, would sell them to the local contacts who would pay in roubles at the rate of one convertible rouble equivalent to say, eight or ten, nonconvertible rouble. The student would take his cut, say 10%, and hand over the balance to the contact at the embassy, who would retain the balance. Usually, the owner of the coupon roubles who initiated this transaction would end up with four to six nonconvertible roubles for each convertible coupon rouble he had started with. Sometimes, depending upon the availability of goods or eagerness of the local people to possess something special, the ratio used to be 1:6 or 1:8 at the hands of the person handing over the coupon rouble. In essence, the desi's salary could thus be multiplied fourfold in local currency terms.
Some of our people used to go to West Berlin and buy music records and items of scarcity in Moscow, and sell them in Moscow for a sizeable profit. People used to say that they could cover their costs of travel (whether by own car or by train) and other expenses as well as make a profit at the end of it all.
These transactions were known to the local governments who frequently ignored it. Occasionally, though, some students or some other middle-men would be caught or charged for these illegal transactions.
I had often wondered how it was many of my father's colleagues managed to buy cars (VW Beetles for the chota log, Mercedes Benzes for the senior diplomats) when they all complained about the laughable salaries. I guess the black market was the solution to their problem.
Here's a poem by Felix Chuyev which renders some of the bitterness of the time.
Perestroika
The people are milling around
The kiosk and getting angry.
And the saleswoman shouts coarsely:
– What sort of vegetables
Are these ?
The rabble of perestroika,
Gor-ba-chev-shchi-na!
I recognise you at once
By your mug, Veteran?!
On which front, in one blow,
Did your feeling of fellowship wear out?
.... And in the 'Beryozka' shop without coupons.
The boor smiles
At foreigners and bows,
Like a hippopotamus.
I will not be sorry one whit
For any one of us,
Who have wasted at these counters
All of the gold reserves.
Cigarettes are rationed by coupons,
Life is controlled by passports,
Everything - governed by the rationing rules,
As if in a cell.
If only you may reduce yourself to a particle
For a long period so that you would be
Well-provisioned with commodities
From head to toe.
The people are milling around
The kiosk and getting angry.
And the saleswoman shouts coarsely:
– What sort of vegetables
Are these ?
The rabble of perestroika,
Gor-ba-chev-shchi-na!
I recognise you at once
By your mug, Veteran?!
On which front, in one blow,
Did your feeling of fellowship wear out?
.... And in the 'Beryozka' shop without coupons.
The boor smiles
At foreigners and bows,
Like a hippopotamus.
I will not be sorry one whit
For any one of us,
Who have wasted at these counters
All of the gold reserves.
Cigarettes are rationed by coupons,
Life is controlled by passports,
Everything - governed by the rationing rules,
As if in a cell.
If only you may reduce yourself to a particle
For a long period so that you would be
Well-provisioned with commodities
From head to toe.
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