Case Study-The Russian Ruble Crisis and Its Aftermath - Essay Example

The Russian government wanted to create a dynamic economy, but there where inherent constraint that did not allowed their wishes to occur. Once price controls were removed prices for goods went wild because the people had a surplus of money to spend and there were no goods available to be purchased due an overall shortage of merchandise. One of reasons inflation took over the economy was that prior to the governmental move of unfreezing prices the government had been running an economy in which good were sold at artificially low levels.

The government could have done thing differently in order to prevent prices to go out of control. For example the government central planning could have realized that there was a shortage of goods, and imports could have been increased prior to opening the economy. Another policy that would have helped was to increase the prices point of all good prior to the 1992 policy change. Another mistake the government made was investing too much money in state own companies which diminished the amount of money the Russian government had to spend on policies to bring social economic reform to the nation.

The Russian economic situation between 1992 and 1998 showed us that there is an inverse relationship between currency value and interest rates. As the overall interest rates of the Rumble continue to climb which was directly reflected on the daily basis in the rise in unitary value of the currency, the actual value of the currency in comparison with other currency worldwide went down tremendously. In situations in which a country faces hyperinflation of its internal monetary policies and the international community loses faith is such currency which devalues the monetary unit (Moyer, McGuigan, Kretlow, 1992).

When a country falls out of grace and stops being an attractive site for international