THE VOICE OF INTERNATIONAL LITHUANIA
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Wed, 17th August, 2011 - Posted by
Text: Vincas Karnila, Associate editor
OK folks, the shoes will be 120
So that will be 80 Canadian Dollars and 80 Pound Sterling
How would you like to hear that from the cashier at you local shoe store the next time you are buying a pair of shoes? Could be a little confusing could it not? Believe it or not the people of Lithuania were hearing something similar to that in stores in the early 90s during the early days of their regained independence.
An interesting question pops up once a country gains, or in the case of Lithuania regains, its independence – What do you use for money???
With Soviet Russia’s forced annexation of Lithuania into the control of the Soviet Union, the currency of the country of course was then changed to the Soviet Ruble. Then On 11 March 1990 the re-establishment of Lithuanian independence was proclaimed and after fifty years of occupation, Lithuania was once again a free and independent republic. Obviously to be once again a free nation is a good thing but there was one factor that needed to be addressed – There was no “Lithuanian” currency!
Now of course it would be rather difficult to create a currency in one day so this could turn into a big problem in a short amount of time. So what did Lithuania do 12 March 1990? They continued to use the Soviet Ruble as there day to day currency. Now in some instances, for a country that just regained their independence to continue to use the country’s currency they just proclaimed their independence from would possibly work out OK and not present too many problems. This would be the case if the regaining of independence had taken place in a rather friendly way and as a part of a mutual agreement.
This was not the case between Lithuania and Moscow. Moscow was ticked off big time about this so every day that went by that Lithuania continued to use Moscow’s Ruble for its day to day buying and selling of things put Lithuania in a position of potential extreme financial disaster.
While the Soviet Ruble continued to be used, in early August 1991, as a response to public complaints about inflation, the Lithuanian government introduced the Talonas (Talon in English). It should be noted that the word “Talonas” is in the singular and is best translated to “coupon”. In the plural form it is “Talonai”. Prime Minister Gediminas Vagnorius spearheaded this action hoping it would work as a quick repair until a formal currency could be established.
Prime Minister Gediminas Vagnorius
At first, it worked very similar to ration coupons. Every person received 20% of their salary in Talonai, up to a maximum of 200 Talonai. In order to buy goods other than food, a person must have paid the same price in rubles and in Talonai. For example, if a pair of shoes cost 50 rubles, a person must pay 50 Rubles and 50 Talonai to buy them. Sound a little confusing? It was. Please keep in mind that people’s wages were still being paid in Soviet Rubles at this time and you were still paying for things in stores with Soviet Rubles.
This system was widely criticized. First of all, in no way it addressed the reasons why there were shortages of goods in that it did nothing to increase the supply. What it also did was make it more difficult to buy many items. As an example, the purchase of expensive goods such as home appliances dropped sharply because people needed a lot of time to accumulate the necessary amount of Talonai to buy them.
Remember you were paid 20% of your salary, up to a maximum of 200 Talonai but when you bought something, 50% had to be paid in Rubles and 50% in Talonai.
This caused bottlenecks in the supply chain and further damaged already troubled production. In addition, this scheme could not prevent the hyperinflation of the Ruble because the Talonai was not an independent currency - It was a supplementary currency with a fixed exchange rate to the Ruble. The system tried to encourage Lithuanians to save 80% of their salaries. But people accumulated their Rubles and had nowhere to spend them. It led to the inflation of goods that did not require the Talonas like food or goods on the black market.
I am told that this also created a Talonas/Ruble Black Market. Let’s say that you had a stack of Rubles sitting on the table that you could not use to buy a TV or washing machine because you didn’t have enough Talonai. So what you would do is find a person that would exchange your Rubles for Talonai. Now the exchange rate was absolutely absurd but the Rubles were doing you no good what so ever and were effectively worthless for what you wanted to use them for so the exchange rate was not a point of consideration. You were very happy to dump the effectively worthless Rubles for the amount of Talonai you needed to buy your TV, washing machine or refrigerator. Apparently the Black Market agents had a way to dispose of the Rubles outside of Lithuania in exchange for things of value.
From all this you can kind of get the idea that the “First Talonas Reform” wasn’t working out as some people had hoped it would – Please notice that I’m being very kind in my choice of words. So what would you say if I told you that even though an official Lithuanian currency was now in position to be introduced that would cure all this, the decision was made instead to enact a “Second Talonas Reform”. That’s right folks it just keeps getting better.
In the summer of 1992, everybody was waiting for the Talonas to be soon replaced by a permanent currency, the Litas. Due to Russia tightening its monetary policy, Lithuania was desperately lacking cash. In fact it was getting so bad that some workers were paid in goods rather than in cash. Even though the Litas coins and banknotes were already produced and had been shipped to Lithuania from abroad, on May 1, 1992 it was decided to reintroduce the Talonas as an independent, temporary currency to circulate alongside the ruble in hopes to deal with inflation. Yes folks this was the “Second Talonas Reform” creating again a dual currency system. On October 1, 1992 the ruble was completely abandoned and replaced by the Talonas. Lithuania was the last of the Baltic states to abandon the ruble. The self-imposed deadlines to introduce the Litas were continuously postponed without clear explanations ever being provided to the people of Lithuania.
The Talonas had some interesting names attached to it, "Vagnorkės" or "Vagnoriukai" named after Prime Minister Gediminas Vagnorius or "zoo tickets" after various animals native to Lithuania featured on the notes. The Talonas did not gain much public trust or respect. The banknotes were small and printed on low quality paper. People were reluctant to use them. Nevertheless, the Talonas served its purpose since inflation at the time was greater in Russia than in Lithuania. Inflation in 1992 rose steadily due to an energy price spike after Russia increased oil and gasoline prices to world levels and demanded to be paid in hard currency.
Now some would ask why since the “First Talonas Reform” really didn’t work out as well as hoped for – Again please take note of my kind choice of words - and why since the Litas bank notes and coins of the new official currency of Lithuania were sitting in Lithuania, would the powers to be decide to enact the “Second Talonas Reform”. Actually there were some reasons. One reason was that the banknotes were of extremely poor quality and could be easily counterfeited with a color photo-copying machine. Another reason was rather serious. For Lithuania to introduce its own currency that would be recognized internationally they needed to have a reserve equal to 200 million U.S. Dollars. This reserve could be made up of precious metal such as gold and silver and/or the currency of another country. At this point in time they could only assemble a total reserve of 120 million so they need more time to work this out.
But as the expression goes – All “good” things must come to an end. There was no “Third Talonas Reform” and on 25 June 1993, the Litas was introduced as the official currency of the Republic of Lithuania. With the Litas now in place as the official currency of the Republic of Lithuania, the people could now exchange their Talonai for Litai. The exchange rate was 100 Talonai = 1 Litas.
With this exchange of Rubles to Talonai and then Talonai to Litai two interesting things came up. First, what happened to all the now worthless Talonai that were exchanged for Litai? They were gathered all up from all the corners of Lithuania and brought to the city of Grigiškės which is near Vilnius on the A1 Highway to Kaunas. There at the Grigiškės Paper Factory they were recycled into toilet paper. I will not further comment on this but I will just allow your imagination to go to work to get an idea of all the jokes that came about as a result of how the Talonas met its final demise.
The other situation that came about was from the exchange Rubles to Talonai and it was quite unfortunate for some people. About a year ago I was visiting with some people and the topic of the Talonas came up. It was really a light hearted conversation with much laughter about all the odd things that were going on at the time as a result of the Talonas. The man of the house, who is in his 70s got up from the table and then returned a few moments later with a stack of banknotes that was about 9 inches / 20 cm. tall. I must admit that my jaw dropped when I saw this stack of banknotes sitting on the table. Then he looked at me and with an anguished smile said “worthless, all worthless”. He further added that during “Soviet Times” this would have been enough to buy six cars but now he can’t buy a potato with it. The stack of banknotes was all Soviet Rubles.
This situation was not that uncommon. What happened was that even though the people were extremely happy to have their independence and freedom from Soviet Russia some of them thought that it was just too good to be true. They felt that the possibility of a tiny country like Lithuania being able to just walk away from a world super power like the Soviet Union without any repercussions was quite unlikely. They felt that once Russia took care of their matters back home they would be back in force and once again invade and occupy Lithuania. So what some did was hold on to as much Rubles they could justify thinking that when Russia returned the Lithuanian currency would then be worthless but still they would have stashed away Rubles that they could use. In the mean time, the exchange period of Ruble to Talonai expired and they were left with a stack of worthless paper.
So the next time you think about inflation, growing petrol prices, food prices going through the roof, education costs increasing and the ongoing climb in taxes just be thankful that you can pay for it all with the same currency. Not like what the people of Lithuania had to do in the early 90s and figure out based on what day of the week it was which percent of what to use to pay for this and what percent of what to use to pay for that and how much longer can I use this to pay for that until I need to exchange these to that to pay for those.
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