Chapter III.4 The Exchange and Trade Systems
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Abstract

The exchange and trade system has continued to be largely shaped by central planning. Most trade and capital transactions are determined within the framework of the annual foreign exchange plan which has been derived from the state plan. Similarly, the policies governing external borrowing and reserves are specified in the foreign exchange plan and executed by the Vneshekonombank (VEB). In this system, the exchange rate has played only a minor role in the allocation of resources. For most products, differences between foreign and domestic prices at the prevailing exchange rate have continued to be compensated by so-called price equalization taxes or subsidies. Since 1986, however, several steps have been taken towards decentralizing trade and foreign exchange operations. Foreign trade has been partially liberalized, and enterprises have been allowed to borrow abroad against a license obtained from the VEB. So-called differentiated foreign exchange coefficients (DVKs) were established for many products in 1987 with the intention of making enterprises more sensitive to changes in foreign currency prices. Moreover, foreign exchange retention quotas were introduced in 1987, and foreign exchange auctions established in 1989.

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