Approaching Convertibility in Eastern Europe and the Soviet Union

By Medvec, Stephen E.; Stone, Carla S. | Review of Business, Winter 1990 | Go to article overview

Approaching Convertibility in Eastern Europe and the Soviet Union


Medvec, Stephen E., Stone, Carla S., Review of Business


Approaching Convertibility in Eastern Europe and the Soviet Union

The most important event in Europe, perhaps in

the world since World War II is what is happening

in Eastern Europe, which is unravelling

before our very eyes.

Francois Mitterrand October 24, 1989

Introduction

Eastern Europe and the Soviet Union have been in the headlines of American newspapers, magazines, and scholarly journals almost without cease since the beginning of the 1980s. The year 1989 will be remembered as the time when one Communist regime after another fell from power in a dramatic "people's revolution." What do the economic and political reforms occurring in Eastern Europe and the Soviet Union mean for U.S. business people? What do the prospects for convertibility of Eastern European and Soviet currencies mean for U.S. exporters and multinational corporations? In particular, they mean: (1) a de-emphasis on counter-trade, a form of bartering to exchange product for product and (2) an assurance that letters of credit will be paid upon submittal without having to be subjected to unusual delays.

Problems associated with black market currency transactions would be eliminated through the eventual full convertibility of Eastern European and Soviet currencies. The devaluation of these currencies to real market levels most likely will make U.S. exports to these countries more expensive in the short term until the convertibility situation stabilizes and the currencies reach their unsubsidized market level.

Joint ventures may be a means superior to direct exports to penetrate the markets of Eastern Europe and the Soviet Union. United States firms simply are not successful in competing for their fair share in these markets, dominated by Austria, Switzerland, the United Kingdom, and West Germany. In fact, West Germany, with its exceptionally strong deutsche mark, its reunification and currency union with East Germany, and its historical and commercial ties in the East, may benefit the most from the long term economic potential in Eastern Europe.

Hungary

Hungary has been at the forefront of economic reforms in Eastern Europe since the early 1970s. Since the arrival of Mikhail Gorbachev on the scene in 1985, the Hungarians have increased their economic overtures by encouraging private entrepreneurs and a small but energetic stock market. For a truly dynamic indication of the willingness of the Hungarians to reform their system, one had to look only at the faces of 18,000 East Germans who used Hungary as a conduit to freedom in the West during one week in September 1989, when Hungary dismantled its Iron Curtain bordering Austria. Also in 1989, the Hungarian Communist Party became the Hungarian Socialist Party; Hungary was declared a republic; and the Hungarian parliament authorized the formation of independent political parties that competed in parliamentary elections in March 1990. However, Hungary's foreign indebtedness of $20 billion is the highest per capita in Eastern Europe, and this debt could act as a long term, negative drag on Hungary's economic reforms.

The principal aims of the Hungarian economic reforms are the creation of additional performance incentives, the adaptation of domestic prices to world market conditions, and a greater decentralization of economic decision making. At the beginning of 1987, Hungary reformed her banking system. The National Bank of Hungary is now to concentrate on central banking, having previously combined these functions with commercial operations. It has at its disposal the monetary instruments used in Western countries, including powers of refinancing, the setting of interest rates, minimum reserve ratios, and open market operations. It also remains responsible for controlling foreign exchange movements.

Since January 1988, all economic enterprises in Hungary have been permitted to carry out foreign trade in convertible currencies after having registered with the Ministry of Trade. …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Approaching Convertibility in Eastern Europe and the Soviet Union
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.