Monetary integration in the ex-Soviet Union: A 'union of four'? *

The governments of four ex-Soviet countries recently discussed forming a currency union. To examine the economic feasibility of this proposition, we use conventional techniques and show that the arrangement is likely to find it difficult to handle the lack of structural symmetry, the asymmetric pattern of shocks, and the lack of market flexibility among the potential participants. Moreover, the union would be a unilateral one. It would require an unusual degree of political commitment to survive. Nonetheless, there are some subtleties in the timing and pattern of mutual dependence between Russia and Kazakhstan, and to a lesser extent in Belarus, which may reduce the strain from a currency union in those countries. Otherwise, the black market will have to provide the necessary market flexibility. Copyright (c) The European Bank for Reconstruction and Development, 2006.