Ruble Or Rubble?

Moscow had recently been touting distinct signs of improved economic performance: inflation had slowed from a monthly rate of 25% last year to 4%, and the much battered ruble had been holding steady for about a month and had become something of a hard currency again in most of the former Soviet republics.

Then last week the ruble, which had begun to slip in September, nose-dived in three hours of panicky trading, from 3,081 to the dollar to 3,900, as money dealers rushed to rid themselves of the currency. Ordinary folk joined the traders in bailing out, queuing up in front of street-corner exchange offices to offer bundles of rubles for dollars or deutsche marks. Shopkeepers shuttered their premises to mark up prices on par with the currency slump, and lines formed at gas stations as motorists tried to fill up their tanks before prices rose. By nightfall the ruble had lost 25% of its value -- the largest single-day decline since free-floating exchange rates were introduced in 1992.

President Boris Yeltsin, calling the currency crash "a threat to our national security," fired acting Finance Minister Sergei Dubinin, a critic of easing monetary policy, and asked parliament to dismiss central bank chairman Victor Gerashenko -- who resigned, but only after a personal meeting with Yeltsin. Considered by many an obstacle to reform, Gerashenko had balked at spending scarce hard-currency reserves to prop up the ruble as it went into free fall.

The following day, after the central bank intervened, the ruble rebounded, and by week's end had climbed back to 2,988 to the dollar. To some extent the panic-fueled plunge reflected the gap between the Yeltsin government's promise of radical economic reform and its performance, as well as its persistence in printing rubles to subsidize ailing state industries and farms.

In the next few weeks parliament must still consider the fate of Gerashenko and vote on the economic stewardship of Prime Minister Victor Chernomyrdin. In the meantime, the Russian public has already made its views known: as of last week, half the population is thought to be holding savings in U.S. dollars rather than rubles.