First of a two-part series. Part two will appear next week

As recently as a decade ago, the Russian banking sector was an antique monstrosity, a huge system of paper-based transactions inherited from the former Soviet Union.

Businessmen in the fledgling capitalist economy were forced to carry suitcases of cash -- typically American dollars -- in order to make business deals. There wasn't even a system of paper checks. People paid for utilities, bought groceries, paid rent and received their salaries in cash.

However, within the past few years, and particularly since the 1998 collapse of the ruble, an avalanche of technological changes has swept through the Russian banking system.

Today, paychecks are directly deposited into bank accounts, and residents of major cities can use their debit cards to pay for everything from groceries to gas. Money can be moved electronically and from bank to bank -- no suitcases required. Transactions take from one to three days to settle instead of weeks.

Among the agents of this surprising transformation were the technologists and their supporters at the Central Bank of Russia, a quasi-independent, quasi-governmental behemoth that inherited its functions from its Soviet predecessor. The bank had to replace a paper-based payment processing system with modern technology and, at the same time, build a communications system to span 11 time zones and 79 banking regions.

"It wasn't easy," said Tatiana Paramonova, the Central Bank's first deputy chairwoman, who supported the bank's investments in communications technology and processing power.

After the fall of the Soviet Union, the state banking system was split into two parts: the Central Bank of the Russian Federation, which is responsible for interbank transfers and the money supply; and the private banking sector, which includes Sberbank, the descendant of the old state-controlled savings bank.

After a failed attempt to introduce paper checks in 1992 (the physical infrastructure simply wasn't there to handle them) the Russian banking system moved directly to electronic fund transfers.

That required a combination of satellites, radio relays and fiber-optic lines. The bank won't say how much it cost to build that infrastructure.

But some critics are concerned that by focusing on technology, the Central Bank and the Russian government as a whole are diverting attention from a more serious issue.

"Overall, the Russian banking system is not at all healthy," said Kim Iskyan, an analyst at Moscow-based Renaissance Capital. "There is poor supervision from the Central Bank, poor management on a bank-by-bank basis. Regulations aren't enforced particularly well. There's little understanding of how to manage risk. Technology is a sideshow to all that; the best technology in the world isn't going to matter if they don't have people who can manage well."

Iskyan pointed to the Russian economic crash of August 1998 as evidence that the banks don't have adequate oversight. "The banks were simply not prepared for the ruble to devalue, and they had risks and exposures such that they were caught in the worst position possible," Iskyan said. As a result, the investments

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