Russia defaulted on its domestic debt and devalued the ruble during the 1998 financial crisis.
On August 17, 1998, the Russian government announced a restructuring of domestic ruble debt, a de facto default, and a widening of the ruble’s exchange-rate band. The currency soon lost much of its value. The crisis followed years of fiscal weakness, declining tax revenues, political uncertainty, and pressure from low commodity prices.
Russia had used short-term government securities to finance its budget. These instruments became increasingly difficult to roll over as investors lost confidence. The government’s inability to maintain the ruble’s exchange rate contributed to a banking crisis and disrupted payments throughout the economy.
The crisis also affected international investors and hedge funds, most famously through the failure of Long-Term Capital Management in the United States. The U.S. Federal Reserve helped arrange a private-sector rescue of that fund. Russia later benefited from higher oil prices and improved fiscal conditions, but the 1998 collapse caused severe short-term economic hardship.