Whether or not George Soros' suggestion last week that the rouble should be devalued has become a self-fulfilling prophecy, the move taken by the Russian Government yesterday is a high-risk strategy which could put the Yeltsin regime to its ultimate test.
The two-pronged move effectively slices into the value of the currency and imposes a 90-day moratorium on foreign debt. It will send yet more jitters through international markets at a time when they are in urgent need of calm.
As far as Hong Kong is concerned, this is the last thing the Hong Kong Monetary Authority needs at this point, although the effect will be felt more sharply in the markets of Eastern Europe.
The extreme measures announced by Russia were taken under perilous circumstances following the plunge in the share and debt markets last week. They carry a big political and social price since they will only increase the hardship which ordinary Russians have been suffering as the economy sank irrevocably to its knees. Russian industry is in favour of the move, expecting it to give exports a more competitive edge. But savings and pensions will shrink further. The price of imported food will rise. Banks will probably fail. The dissatisfaction with the Government's performance among ordinary Russians is likely to grow.
External factors, including concern over the yen and the drop in international oil prices, have hastened the crisis. But the key to any permanent improvement in the Russian financial system lies in sweeping reform. Without that, it is doubtful if devaluation alone can stem the tide.
With the banking system at breaking point and the risk of political instability increasing, this may be a final gamble for Boris Yeltsin's Government. But his nation's plight is such that it was one that could not be avoided.