The Development of Commodity Exchanges in the Former Soviet Union, Eastern Europe, and China

The virtual collapse of the centrally planned economies of the countries of the former Soviet Union (FSU) and the more gradual transition from central planning to a market-oriented economy in China were both accompanied by the opening of hundreds of exchanges trading many agricultural, resource, and other physical commodities. Although many viewed them as harbingers of full-fledged market-based economies, most of the new exchanges in fact have since closed either for lack of activity or by government intervention, a history that this paper documents. New exchanges faced numerous obstacles in sustaining interest, from developing standardised contract terms to establishing effective self-regulation and state regulatory oversight. In several countries, the transparency of transactions on exchanges attracted governments interested in collecting taxes and customs duties which only drove trade away from the exchanges or turned them into little more than state agencies. In China, regulators struggled with duplicative exchanges and products, price volatility, large speculative interest, and several manipulations and have recently reduced the number of exchanges to just three and severely limited the commodities traded. There have been some successes too, including (at least prospectively) the three remaining exchanges in China, the Budapest Commodity Exchange in Hungary, and the Poznan Commodity Exchange in Poland. For all, identifying the terms to create standardised contracts has been (and continues to be) a major challenge.