Currency Crisis Theories - Some Explanations for the Russian Case

Abstract

This paper studies the currency crisis theories, and with the help of them it finds out the main reasons for the Russian crisis. It goes through the exchange rate determination, first and second generation theories and, particularly, the recent theories for the Asian crisis. The basic weaknesses of the Russian economy rendered the country inefficient for growth and inclined to crisis. The main reason for the crisis were the long-time federal budget deficits, which were mostly financed through short-term domestic debt. This created expectations of central bank financing. The Asian crisis was a trigger for the Russian crisis. Inadequate financial regulations and lack of information are some explanations for this contagion -effect. But the main mistakes, which led to the crisis, are Russians own - the long-time federal budget deficits. Thus, the repairs should also start from there.