Introduction

One of the striking features of Russia's economic transition has been the enormous growth in the use of barter. What was a passing phase of transition in Central Europe has become an endemic feature of the Russian situation. The Russian economy has experienced redemonetisation (Ickes, Murrell and Ryterman, 1997): in 1992 barter accounted for some 5 per cent of enterprise transactions, but by 1997 this had increased to at least 47 per cent. Estimates of barter turnover vary from 30 per cent to 80 per cent of inter-enterprise transactions (Aukutsionek, 1998; Commander and Mumssen, 1998). Barter is also used in paying taxes to local, regional and even federal governments. Even wages are occasionally paid in kind (Friebel and Guriev, 1999).

The emergence of barter as a stable institution of exchange is a challenge to modern economic theory. Introductory textbooks in economics point out that barter is inferior to monetary exchange in terms of transaction costs. This is why barter is so rare in modern economies. Russian reality, however, is diametrically opposed to the conventional wisdom. As we argue below, Russian enterprises prefer to use barter even when they have a choice to pay in cash. Why is the Russian economy demonetised? Is it good or bad? Is it possible to remonetise it – and if ‘yes’, how? Is Russia especially vulnerable to barter or can its demonetisation disease spread over to other countries? Such are the questions we are going to address in this chapter.