Gorbachev and ruble's exchange rate
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In January 1991, President Mikhail Gorbachev banned all 50-ruble and 100-ruble bills, while permitting Soviet citizens to change only 1,000 rubles in these large bills into smaller denominations. In addition, savings-bank accounts were frozen for six months. The object of these measures was to strip the country's powerful black marketeers of their operating capital, driving as many as possible out of business, and to reduce inflation, which has been running at about 80% a year. The official Russian news agency Tass reported that the government had "clearly decided that the confiscation version of monetary reform was the most efficient and least expensive version at its disposal."
a. Were these measures likely to achieve President Gorbachev's objectives?
b. How do you think the ruble's exchange rate responded to President Gorbachev's initiative? Explain.
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a. Were these measures likely to achieve President Gorbachev's objectives?
These measures might drive some black marketeers out of business, but they cannot reduce inflation. Although the confiscation of large bills and freezing savings accounts will reduce the ...
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