Lesson 2: After Communism, Before Democracy
Turmoil
In the 1980’s and 1990’s we saw images of Russians sneaking rock music and faded jeans into their country and life. But behind the view of Russia wanting Westernization was chaos. One night you went to bed a diehard Soviet and in the morning you woke up in a different country and a different person. Talk about an identity crisis! No one had any real idea about what this change meant. It was not the most unexpected thing to happen. Gorbachev had been inching Russia toward Westernization his whole political career. During Peristrioka (the 1980’s), Russia had a greater freedom of press and freedom of speech. It still was not as much freedom as we have, but it was a vast improvement over Communism’s watchful eye. The arts flourished under Peristrioka and a cultural renaissance was beginning. Yet, the public no longer supported Gorbachev, the economy declined and the breadlines came back. People felt Gorbachev’s reforms were too slow moving and too liberal. A coup was planned to bring the Soviet party back into power. But the coup was ill conceived.
“It became obvious from the onset that the coup was curiously halfhearted and ill-planned. None of the opposition leaders were ever arrested. Gorbachev's lines were the only communications systems downed. Yeltsin was receiving calls from around the world, and even ordered food from Moscow's Pizza Hut. Yeltsin phoned Yanayev and warned him that "we don't accept your gang of bandits." At this point, Yeltsin went outside and climbed atop a tank in front of 20,000 protesters, asking for mass resistance. He denounced the coup as unconstitutional and called for a general strike, declaring himself the "Guardian of Democracy." Soon the crowds grew to well over I 00,000. Afghan war vets erected barricades in front of the White House and made Molotov cocktails. At the staircase one organizer with a megaphone cried, "all those courageous who are willing to defend the building, come forward!" The building was surrounded by people from all walks of Russian life, from students and defecting soldiers to priests and pensioners. One old babushka declared, "I have lived through a revolution, two world wars, the Siege of Leningrad, and Stalin, and I will not tolerate another takeover; let the people be in peace I" Another, 72-year-old woman cried, "Give me a Kalashnikov (semiautomatic machine gun) and I'll kill the scum myself!" Thousands of the city's babushkas headed for the front lines. By the end of the day, troops were going over to Yeltsin's side, and many of the elite commando divisions were now protecting the White House.”
(This quote was taken from an article published on Russianet.ru. There was no authorship or copyright attributed to this article. I have not been able to find an email address to contact to owners of the site. If anyone happens to know any of this information, please contact me and I will be glad to give proper credit, for in no way am I attempting to plagiarize this article. But for now, you can view the entire article at http://www.russianet.ru/~oldrn/history/c... )
And then the USSR was gone, just like that. Russia was plunged into the crazy world of the Wild West. Bandits and Mafia were out to strike at every corner, politics was turned upside down, and the economy began to fall even further. People began to take advantage of every opportunity they could to make money. I heard stories of people collecting the subway tokens that people lost and then reselling them, making a fortune doing this, only to lose this fortune within a few months because the fall of the ruble.
The Ruble
The ruble, the national currency of the Soviet Union and the Russian Federation, bounced like a yo-yo after the failed coup and Yeltsin’s take over. The confidence in the state fell almost immediately and people began cashing in their rubles for gold causing the value of the ruble to fall even further. Banks were never popular places to keep one’s savings, and now they were virtually abandoned by the general public. At first, after the coup, people would use their saving to buy things like gold, so that in the long run they couldn’t really lose their money. But within five years, Russians began to use the more stable US dollar to keep their savings. Any large amount of personal savings was converted to dollars through currency exchange booths and the local Mafia, and then stashed away.
On August 18, 1998, the ruble fell 300% in value in one day and jumped back up a day later. That day was known as Black Tuesday. The people bought electronics especially, which were very expensive before that day. Shop owners took advantage of this opportunity. Everyone knew that the next day prices would skyrocket in reflect the new value of the ruble (prices of electronics and cars are based in US dollars, and that price in dollars did not change, but the value of the ruble went from about 6 to 36 per dollar). In order to make a huge profit, the some shop owners decided to hold off on raising prices the full amount and to give consumers a chance to buy things before they could no longer afford to purchase these personal luxuries. So, some merchants decided to raise prices by only 25% of the new cost, in order to draw people in. And it worked. Consumers took their rainy day stashes of rubles and bought the things which would be worth money later on, like cars, stereos, and TVs.
The ruble fell in value because on that day, in the Russian stock market, not one US dollar was sold. All investors were holding on to their dollars and would not trade for Rubles, no matter how much the Ruble depreciated. For those of you who are economically challenged, like me, that means that the banks or trading houses who wanted to trade in rubles had to keep offering the dollar holders more and more rubles just to be able trade. On the international markets it is the banks and trading houses which set the prices for a nations currency based on the trade of the currency for the standard dollar. So, if the price of the dollar went up in the market then Russians, on a whole, would have to pay more rubles to get what they wanted.
No one really knows why no dollars were traded that day (there by causing Russian ruble holders to need more rubles). Some say it was orchestrated, some believe it was a fluke. It was crazy nonetheless. Today the ruble holds steady at about 25 to 30 rubles per dollar.
It is not that the government did not try to reform the economic situation. They did, and sometimes things got a little better for the people and sometimes, let’s just say the people were screwed. One reform started with a man named Pavlov wanting to print money for the new government, instead of using the bills left over from the USSR. He started with introducing the new 10 Ruble bill. What happened was that for a time people were using both bills, the old Lenin 10 Ruble bill and the new one from the Federation. People were collecting the old bills, instead of circulating them so the government could recollect them. At one point the Government decided to end this situation and to declare that within three months the old Lenin bills would be worthless and no longer part of the Russian economic system. That left the people time to try and cash in their stashes of Lenin bills. But at this point they could not. Once it was announced that the bills would be worthless, shops and banks no longer accepted them. The Russian people were stuck with these worthless bills. The day came when the bills officially lost their value and all people could do with that money was throw it away without ever receiving compensation for it. Needless to say, that reform got put on the backburner for a while.
