Under the communist regime, the currency of the Soviet Union was the ruble, and the banking system was owned and managed by the central government. Gosbank (Gosudarstvennyy bank--the State Bank) was the central bank of the country and its only commercial bank as well. It handled all significant banking transactions, including the issuance and control of currency and credit, management of the gold reserve, and oversight of all transactions among economic enterprises. Gosbank had main offices in each of the republics, and, because the banking system was highly centralized, it played an important role in managing the economy.

After independence, Belarus restructured its banks into a two-tier system consisting of the National Bank of Belarus and thirty-six commercial banks (including four specialized banks: Byelagroprombank, Byelpromstroybank, Byelvnyehsekonombank, and Sbyerbank) with a total of 525 branches in 1994. Of these banks, Sbyerbank is wholly state owned, another bank is owned by an individual, and the rest are organized as either limited liability companies or joint-stock companies.

Belarus's securities market was created at the end of 1992 and is licensed and controlled by the state inspectorate for securities and the stock exchange. The over-the-counter market dominates the securities market, with Russian corporate shares and bonds the most actively traded items. The country has three commodity and stock exchanges.

The Belarusian ruble was introduced in May 1992 in response to a shortage of Russian rubles with which to pay fuel and other debts to Russia. The zaychyk (hare), as the Belarusian ruble is known colloquially, was officially tied to the Russian ruble, but Russia would not accept the new unsecured currency in payment, forcing Belarus to dip into its hard-currency reserves. In September 1993, Belarus and five other CIS countries agreed to create a joint monetary system based on the Russian ruble.

Although Belarus and Russia continued to work at creating a monetary and economic union by signing an April 1994 treaty, only a customs union was actually realized. Moscow postponed implementation of the union itself, although it would have given Moscow significant control over the Belarusian economy, for fear of jeopardizing its own fragile economic reforms. Belarus's completely unreformed economy and accompanying high rate of inflation would have forced Russia to print large amounts of money to keep the Belarusian economy going, thereby fueling inflation in Russia.

In early 1995, Belarus's monetary policy was so loose that the National Bank of Belarus came under fire from the International Monetary Fund when it lowered the country's key financing rate despite the country's high level of inflation. Belarus was in danger of jeopardizing other IMF loans by its actions. Despite the logic of the IMF's reasoning, President Lukashyenka's view of these difficulties is that they were the result of the IMF's dislike of Belarus's close relationship with Russia.

In November 1994, the Supreme Soviet declared that the country's sole legal tender would be the Belarusian ruble as of January 1, 1995, when the Russian ruble could no longer be circulated. Although the zaychyk was convertible, the National Bank of Belarus used multiple exchange rates that depended on the nature of the transaction, thus setting limits on the convertibility of the zaychyk.

The government's lax monetary policy failed to support financial discipline, which caused the average monthly inflation rate in 1993 to increase to 45 percent in the last quarter. Even though monthly inflation was down to 10 percent by March 1994, it rose again in 1994 and frightened off investments from abroad, including Russia. The consumer price index rose by 1,070 percent in 1992, by 1,290 percent in 1993, and by 2,221 percent in 1994. In 1995 inflation seemed to abate somewhat, with the monthly inflation rate of "only" 22 percent through April.

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Source: U.S. Library of Congress