Russian Financial Crises

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Russian financial crises

The financial crisis in Russia, with the release of the ruble exchange rate on 17 August 1998 broke open, following the pattern of a large number of financial crises that occurred historically. It is built on the potential for instability, then the likelihood of a crisis from rising continuously. The timing of the outbreak of the crisis cannot be predicted unambiguously.

The Russian financial system after 1995 was always fragile. The stability of the system was directly linked to the stability of the ruble, which was then defended to the utmost point. Ordinary Russians, of course, did not know what happened in the summer of 1998 within the Central Bank of Russia and the Russian government; they can only anticipate that there is something wrong. While the country's banks cut sales of foreign currency to the population, and the week before August 17, almost stopped selling dollars (Melloni, pp. 85-93).

Financiers and economists, together with the banks, began to take steps to preserve their capital. They transferred money into dollars, some took their finances abroad, but no one really understood the essence of the problem of investors. Some people were aware of the problem, while others were not aware of the problem

On August 17th, when Russia was affected by the crisis, Government decided to take severe steps. The government rejected the unilateral act of redemption on a contractual basis of government ruble-denominated obligations (GKO-OFZ), which expires before the end of 1999. This means that the government rejected to pay its debts and obligations. The media has a new awesome word - default, a word previously unknown not only to the population, but even to some Russian economists. In the U.S, financial dictionary provides the following definition: "the debtor's inability to make timely payments of interest on the principal or to ...
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