nnounced that it would stay out of the currency market in order to preserve its foreign exchange reserves.
The scale of previous intervention was revealed on September 27, 1994, when the Bank announced that reserves had fallen below $5 billion after $2.5 billion had been spent in the preceding two months. From October 1994 to March 1995, trading in rubles was virtually halted on the world currency exchange market.
The Central Bank's unwillingness to intervene led to widespread doubt of the government's commitment to defend the ruble, boosting demand for dollars even further (Babakian, 1998, B2). On Black Tuesday, the Bank intervened only a little, and rather late, in order to halt the ruble from dropping below 4 to the dollar. The recovery two days later was partially due to renewed Central Bank intervention. The Bank also raised short-term interest rates to 170% from 130% to help curb currency market speculation.
Also exerting pressure on the ruble and escalating its drop was a 1995 Central Bank regulation in which the board of managers decided to bar foreign companies from withdrawing hard currency from Russian banks for salary payments and other purposes. Beginning in September, 1995, foreign companies could withdraw hard currency from Russian banks only with evidence that it was needed for a business trip abroad.
The result of this draconian measure was to push Russian and foreign employees of foreign companies -- formerly paid in hard currency -- to dump their ruble salaries on the currency market in exchange for more stable dollars. This was another strategy that backfired. The Bank's measure was designed to reduce the role of cash dollars in Russia's economy. It instead had the opposite effect, decreasing confidence in the ruble and increasing demand for the dollar.
Not content with this action, the Central Bank in 1995 started requiring one day advance ruble payments for dollar purchases on the Moscow...