Preface: The Power of Trust

Abstract

W hat do democratic politics and banking have in common? While the cynics among us may guess venality, or the pursuit of power, the underlying answer is that both rely on trust to survive. A democratic political system is undermined if its citizens do not trust it to represent their political and economic interests. Likewise, if a bank loses the trust of its clients, they will withdraw their money and the bank will collapse. Money itself is an ephemeral, trust-based phenomenon, existing as a means of payment and a store of value only as long as people widely believe it to be capable of doing so. In the 1ggos, Russia faced the challenge of building public trust in its young democracy and in its newly liberalized banking system-tasks made doubly difficult by Soviet-era legacies of political prevarication and command economics. By 1gg8, Russia had failed at both of these tasks. An article in the newspaper Komsolmol'skaia pravda neatly summed up the state of the emerging Russian banking system. It told the story of an elderly pensioner who lost her entire life savings of one million rubles because she had stored the money in her basement, where it was eaten by rats. The paper observed that "the lady, having studied a variety of Russian state and commercial banks, concluded that her cash was safest in the cellar. "1