This paper surveys some of the principal monetary policy issues facing countries of the former U.S.S.R., emphasizing their immediate problem of imposing financial discipline to bring down inflation quickly and decisively. It considers possible options for the essential nominal anchor, together with the problems of selecting the appropriate targets and instruments of monetary policy to make the anchor effective. It is suggested that, in most of these countries, a floating exchange rate regime will be appropriate in the early stages of stabilization, which in turn requires that a monetary aggregate be identified as an intermediate target.
The paper also considers some factors that affect the relative stability of different monetary aggregates and concludes that a flexible and somewhat eclectic approach will be necessary in practice. As regards policy implementation, the paper argues for greater central bank independence in the former Soviet republics, particularly from parliamentary interference. It advocates the liberalization of interest rates, uniform interest-bearing reserve requirements, and quantitative controls on central bank credit. It also discusses a possible role for temporary bank-by-bank credit ceilings, which should be freely transferable between banks. Finally, the paper argues that, if these countries are to sustain the stabilization effort, they must impose discipline at the micro as well as the macro level, and it suggests a possible transitional arrangement for allocating credit in the absence of well-functioning credit markets.