Foreign Exchange Markets in Russia: Understanding the Reforms

This paper analyzes and interprets the changes that took place in Russia's exchange rate system during 1992. The multiple exchange rate regime that existed in Russia prior to July 3, 1992, created strong incentives for exporters to refrain from repatriating foreign exchange earnings, induced both importers and exporters to participate in unofficial markets for foreign exchange, and encouraged international barter transactions. Efforts to manage the exchange rate through heavy foreign exchange intervention were unsuccessful. The July 3, 1992, unification of the multiple exchange rate system provides important and general lessons for rectifying undesirable conditions caused by poorly implemented exchange rate policy.