Russia is now faced with another possible huge devaluation of the ruble.

While some still say that nothing has changed, the crisis is evidently imminent, and whether it is going to be a major fall in the value of the ruble or just a small percentage downslide, either way, it is going to spell doom for the already cringing economy.

The early years
In the initial years there were very few Soviet people who had dollars – in fact, possessing foreign currency was illegal.

All the Soviet diplomats, scientists, actors, etc who traveled abroad and earned foreign currency had to exchange it upon their return.

And the exchange is not for rubles!

Dollars had to be exchanged for "cheky" – special checks that were accepted only at stores belonging to the Beryozka chain, which offered foreign foodstuffs and goods.

The going rate for a "Cheky" in the black market used to be two rubles.

After the Iron Curtain went down, Russia experienced a mini currency crisis in the early years of its transition and inflation was rapidly climbing up the 2-digit ladder.

In order to bring down inflation to a single digit figure, to ensure financial stability and growth of the economy Russia implemented a ruble-dollar exchange rate in consultation with the International Monetary Fund.

Further management of this exchange rate from 1995 to 1998 combined with a tighter monetary stance helped Russia maintain low prices.

The low inflation rate, high interest rates and relatively stable oil prices in 1997 helped to escalate the demand for ruble.

With the demand for the ruble came the assurance of a stable economy, which opened the way for 'euphoric' capital inflows during 1996-97.

All this was suddenly over turned with the successive devaluations in a number of East Asian economies in the second half of 1997 and the sharp decline in oil prices from January 1998 onwards.

Though the Central Bank of Russia was initially able to address the resulting outflows from the economy, it was ultimately forced to finance the ever increasing budget deficit by redeeming maturing treasury bills on behalf of the government.

As oil prices fell from $17 per barrel in the first two months of 1998 to less than $12 per barrel by the second financial quarter, outflows further accelerated and lead to the ruble crisis in August 1998.

The Ruble Crisis of 1998!
What would you do when you know that an item that's a necessity for you is going to very soon run out of stock in the market? You would go out and buy more of it, stock it, if possible, right?

Well, that's what the Russians also did – sensing the downfall of the economy due to huge outflows of capital and investments, assuming that the only way to safeguard their earnings would be to convert them into foreign currency, many Russians bought dollars in unimaginable volumes.

But later, the government couldn't pay back the burdensome foreign debt that ran into almost $40 billion and decided to devaluate the ruble.

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