The ruble devaluation and bank moratorium turned Russia’s default into a cascading loss event

Evidence

In the days that followed, however, it became increasingly clear that Russia’s default had triggered what Kaplanis calls an “avalanche.” The default was combined with a de facto devaluation of the ruble of 25 percent and a threemonth moratorium on the “foreign obligations” of Russian banks (Marshall 2001, p. 4). Since Western investors used foreign-exchange forward contracts with these banks to hedge against the declining value of the ruble, widespread losses were incurred. — Donald MacKenzie, An Engine, Not a Camera, 1038

Categorization

• XREF: connects to: Russia’s August 1998 default triggered a global flight to quality in financial markets. — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 1013; Russia’s exceptional default on its own-currency debt triggered the 1998 crisis — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 1035; Severe financial crises trigger a loss of trust in markets

Broader Connections

• Severe financial crises trigger a loss of trust in markets #expands (0.75)