Russian President Boris Yeltsin shakes hands with the chairman of the Rossiysky Kredit Bank Vitaly Malkin , as Most Media Holding President Vladimir Gusinsky , the head of the Rosprom-YUKOS Group Mikhail Khodorkovsky and Vladimir Potanin of the Interros Group look on during their meeting in the Kremlin on how to restore confidence in Russia ’ s ailing financial markets , June 2 , 1998 .
YURI KADOBNOV the financial turmoil , leading to contagion which soon thereafter engulfed multiple economies in the region — even those whose currencies had been spared .
It remains uncertain whether the 1997 – 1998 campaign against a wide swath of national currencies was a coordinated endeavor , orchestrated by a significant economic syndicate , or whether it unfolded spontaneously as initial successes attracted the involvement of other previously uninterested parties . What is clear , however , is that whether collectively or through a disorganized but growing consortium , as the wave of global currency assaults progressed , it did so with sharpened skills and growing ambitions .
In late 1997 , the speculators turned their attention to Russia , leading the Russian central bank to expend over $ 5 billion ( USD equivalent ) protecting the ruble . As the earlier-targeted Asian economies grappled with elevated interest rates and declining economic conditions , the decreased demand for oil ( and commodities more broadly ) led to falling prices .
Given Russia ’ s central role as a global commodity exporter , its economy was struck especially hard by sliding oil prices .
The initial defense of the ruble in the final two months of 1997 yielded success , but the speculators returned in force in June of 1998 . While it is not clear why the ruble bears withdrew only to return six months later , one explanation is the emergence of a series of political crises within the Yeltsin government . Political instability , real or perceived , is likely to reduce the confidence of lenders and investors , potentially making a national currency a more lucrative target .
By early August 1998 , Russia ’ s foreign exchange reserves were nearly depleted . After enduring a significant 66 % devaluation during the initial three weeks of that month , the Russian central bank conceded , officially devaluing the ruble on August 17 , 1998 . A 90-day moratorium was imposed on certain debt payments , while ruble-denominated debt remained frozen pending unannounced restructurings . That same day , the Russian government announced that various sovereign obligations , including securities held by foreign banks and financial institutions , would have to be reconfigured .
After losing two-thirds of its value during the initial three weeks of the month , the Russian central bank announced a devaluation of the ruble ’ s pegged rate on August 17 , 1998 . Several major Russian financial institutions failed as the reverberations spread globally . Bankers Trust , an American financial institution , found itself compelled to sell to Deutsche Bank due to catastrophic losses incurred on Russian bonds . A stampede into US Treasuries , the dollar and gold ensued .
Yet the most significant consequence , one which far surpassed all others , was the implosion of Long-Term Capital Management ( LTCM ). The revered relative value fund founded and managed by Wall Street luminaries and several Nobel laureates was pushed close to insolvency due to the widening spreads triggered by the worldwide rush into safe haven assets . Concerned about the potential
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