How did Russia's “shock therapy” in 1992 affect the relationship between the official and black market exchange rates? We utilize weekly exchange rate data to gauge the impact on the parallel market premium of the schizophrenic reform efforts adopted in the first year of the transition process. Our analysis indicates that in 1992, attempts to liberalize the foreign currency market did not result in a significant narrowing of the parallel market premium nor in less exchange rate volatility. Moreover, despite declining variability in buy-sell spreads in the official and black markets, mean buy-sell spreads remained much higher in 1992 than in developed countries. We conclude that an important precondition for currency convertibility, an appropriate exchange rate, was not in place at the end of 1992, nor was it in place three years later.