Currency Reform Designed to Punish Business Success : Russia: The Central Bank’s attempt to “confiscate” rubles is yet another gasp of the old guard trying to head off a reviving economy.

At first glance, the drastic changes in the Russian currency proposed last week by the Russian Central Bank appear unneeded. The bank’s initial proposal was to remove from circulation all ruble notes printed before 1993. Citizens would be given only a few days to trade in their old ruble notes for new ones, and even then they would only be allowed to change a relatively small number--35,000, or roughly $35 at current rates of exchange. Any rubles they held over that amount would either be declared invalid or placed in savings accounts that would pay interest well below the rate of inflation.

Ostensibly, this “reform” was intended to combat inflation, but its timing raises several troubling questions. To be sure, inflation, which is clipping along at a monthly rate of about 20%, is a great problem in Russia. During the past months, however, the Russian economy has begun to show signs of new life for the first time since the fall of communism. Credit belongs to President Boris N. Yeltsin’s program of industrial privatization. The inflation rate during the past month had actually fallen by one-third, and the ruble began to gain on the dollar in open exchange.

If the timing of the currency reform--more accurately, a confiscation--is suspect, so, too, is the method. Simply seizing privately held rubles over a certain arbitrarily chosen limit smacks of the policies of the old communist regime. Much the same thing was done by Josef Stalin, in 1947, and Mikhail S. Gorbachev, in the late 1980s. In these instances, the policy was highly unpopular, but the people had little choice but to submit to the authoritarian state.

Invalidating currency and confiscating private savings cuts right through the heart of the social contract between citizen and state; it makes economic life both unpredictable and capricious, and it sends the unmistakable signal to the average citizen that the government regards money as state property. It punishes most effectively precisely those citizens who have obeyed post-communist laws and made legal profits.

This seems to have been the intent. The director of the Russian Central Bank, Viktor V. Gerashchenko, was appointed by the anti-Yeltsin Congress of People’s Deputies. This body has suffered one political reversal after another, most notably during the nationwide referendum, when Russian voters showed their support for Yeltsin and their distrust of the Parliament. The majority of its delegates are holdovers from the communist gime; their political and economic ties are to the old-style heavy industrial combines that have been the principal losers in the advent of a market economy. During most of the last year, they have attempted to force Yeltsin to slow, or even reverse, the march toward the market.

Last December, the Parliament forced Yeltsin to dismiss his prime minister, Yegor T. Gaidar, a strong advocate of the free market, and replace him with the much more conservative Viktor S. Chernomyrdin. Chernomyrdin’s first promise was to attack widespread “speculation” and economic corruption. Significantly, he was the only member of Yeltsin’s government to speak out unambiguously in favor of the proposed currency changes. By contrast, Yeltsin’s finance minister, Boris G. Fyodorov, called the plan “criminal” and a “pointless, economically illiterate action.”

On the surface, though, Chernomyrdin would seem to have a point. Even the casual visitor to Moscow is struck by the Wild West nature of budding Russian capitalism. There are few rules governing commerce and contracts. Prices are unpredictable; corruption is pervasive, as is the influence of organized crime.

If the enemy is corruption, however, the blunt instrument of currency reform is a dubious weapon. Seizing ruble savings is calculated to harm those people who make their profits in rubles, not those who, like the Russian mafia and speculators, traffic almost exclusively in American dollars or deutsche marks. Instead, the people most hurt will be the restaurateur or the hairdresser who has set up a private business to serve Russian clients who pay in rubles.

The currency “reform” is thus a direct attack on the market economy. Russian entrepreneurs, who have overcome the bureaucratic, economic and social hurdles to set up profitable businesses, now face the prospect of being deprived of their reward at the last minute.

Ruslan I. Khasbulatov, the speaker of the Parliament, has, late in the day, come out against the Central Bank’s action. He is trying to blame Yeltsin for the fiasco, even though the latter was out of the country when the director of the bank announced the new policy, and even though the bank’s director is an appointee of the Parliament, not Yeltsin.

In short, like so many other political disputes in Moscow, the whole financial crisis is the product of the still-unresolved constitutional order in post-communist Russia. Although the referendum in April would seem to have given Yeltsin the authority and prestige he would need to direct the Russian state, in fact the remnants of the old order have simply denied the validity of the president’s electoral victory. This is not hard to do for people who have no great love of democratic norms in the first place.

Russia’s moribund communists and authoritarians find much not to like in the current drift of affairs. Internationally, they object to what they see as a U.S.-led drive against the “brother Slav” nation Serbia. Closer to home, they lament the loss of the Soviet empire, the Soviet Union itself. One object of the abortive currency reform may have been to send a shot across the bows of the former Soviet republics, many of which still use the old Soviet ruble as a means of exchange. It may have been an attempt to show that the more powerful Russian nation still has the capacity to interfere in the economic systems of these new states.

Whatever the intentions of Russia’s anti-reformers--and these are bound to remain shadowy--this crisis has further shaken the confidence of those thinking of investing in Russia. It has also reminded legitimate Russian business people that the climate of reform is highly changeable. The crisis demonstrates yet again that until the new Russian constitution is finalized and enacted, and almost certainly even after that time, post-revolutionary Russian politics are destined to remain tumultuous.