James d. Gwartney

Video:
Too much money
Poor monetary policy is what is at least partially responsible for economic success or
failure as countries transitioned from communism in the 1990s. All of the economies suffered
from an apparent huge drop in reported production and struggled to form market economies. In
Ukraine, between 1990 and 1994, the reported GDP fell by more than 48 percent.
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The
government of Ukraine responded to this shock by issuing massive ruble credits, thereby
financing subsidies in industry and agriculture. Huge budget deficits
(?)
were monetized,
meaning they were paid for by having the National Bank of Ukraine (NBU) simply create
money to pay the government’s bills. In February and March 1992, the monetary base was
increased monthly by 50 percent. Hyperinflation reached 2,730 percent in 1992, and 10,155
percent in 1993. In total, ten of the fourteen countries created by the breakup of the former
Soviet Union recorded hyperinflation at some point (due to similar excessive money supply
policies), as did Poland, Yugoslavia, and Bulgaria. Only war-ridden Armenia had higher

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inflation than Ukraine according to the EBRD.
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Ukraine’s NBU, which was literarily
subordinated by the Parliament, realized its mistake and halted the issuing of credits. Monthly
inflation fell to 2.1 percent in July 1994. Parliament was unhappy with the NBU’s decision and
in August 1994 the NBU was forced to again issue large credits (i.e. implemented
expansionary monetary policy), and these credits boosted inflation to 23 percent in October
1994. Recessions caused by the process of collapse of the Soviet economy were further
deepened by the monetary policy of that era.
Video:
Who Wants to be a Trillionaire?

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