GKO (abbreviation for russian: Государственное Краткосрочное Обязательство, Gosudarstvennoye Kratkosrochnoye Obyazatyelstvo, Government Short-Term Commitments) are short-term
zero-coupon government bonds
A government bond or sovereign bond is a form of bond issued by a government to support public spending. It generally includes a commitment to pay periodic interest, called coupon payments'','' and to repay the face value on the maturity date ...
issued by the
Russian Finance Ministry and trade on the Moscow Inter Bank Currency Exchange (MICEX), as well as on five other currency exchanges connected with the MICEX and located in large regional cities. The last GKO auction was held in February 2004.
History
The issuance of a short-term, ruble-denominated bond was approved by the
Supreme Soviet of Russia
The Supreme Soviet of the Russian Soviet Federative Socialist Republic, Russian SFSR (russian: Верховный Совет РСФСР, ''Verkhovny Sovet RSFSR''), later Supreme Soviet of the Russia, Russian Federation (russian: Верховны ...
in February 1993. The first GKO auction was held on 18 May 1993.
Foreign investors were allowed into the trade from 1996.
1998 default
The initials became synonymous with the
1998 Russian financial crisis
The Russian financial crisis (also called the ruble crisis or the Russian flu) began in Russia on 17 August 1998. It resulted in the Russian government and the Russian Central Bank devaluing the ruble and defaulting on its debt. The crisis had s ...
when the state
defaulted on its "GKO obligations" (bonds). The GKO crisis, the most significant financial crisis in post-Soviet Russia,
caused turmoil amongst both foreign and domestic
investors
An investor is a person who allocates financial capital with the expectation of a future return (profit) or to gain an advantage (interest). Through this allocated capital most of the time the investor purchases some species of property. Type ...
and
creditors
A creditor or lender is a party (e.g., person, organization, company, or government) that has a claim on the services of a second party. It is a person or institution to whom money is owed. The first party, in general, has provided some property ...
. The crisis led to the abrupt
devaluation
In macroeconomics and modern monetary policy, a devaluation is an official lowering of the value of a country's currency within a fixed exchange-rate system, in which a monetary authority formally sets a lower exchange rate of the national curren ...
of the
Russian ruble
''hum''; cv, тенкĕ ''tenke''; kv, шайт ''shayt''; Lak: къуруш ''k'urush''; Mari: теҥге ''tenge''; os, сом ''som''; tt-Cyrl, сум ''sum''; udm, манет ''manet''; sah, солкуобай ''solkuobay''
, name_ab ...
in several steps in August and September 1998. (The result of the ruble's value after the fall and some oscillations was the ruble's exchange rate against other nations' currencies was approximately 1/4 of its previous value .) The crisis severely undermined confidence in the ruble's stability, although such dramatic drops did not happen again until 2014.
After 1998 a new series of state bonds was issued. On 1 November 2006, the volume of the GKO-OFZ market reached 850.7 billion rubles at face value, having exceeded by 17.9% the volume reached at the beginning of the year. The market volume is growing as a result of the implementation of the Russian Finance Ministry's policy of substituting the external debt for the internal debt and developing a liquid internal government-securities market, which was intended to give market participants sufficient instruments to manage liquidity and form benchmarks for risk-free ruble interest-rates for all economic entities.
See also
*
OFZ (bond) OFZ (abbreviation for russian: Облигации Федерального Займа, Obligatsyi Federal'novo Zaima, Federal Loan Obligations) are coupon-bearing federal loan bonds issued by the Russian government. The Ministry of Finance auctions ...
References
External links
Overturned Pyramid a
Moscow News
''The Moscow News'', which began publication in 1930, was Russia's oldest English-language newspaper. Many of its feature articles used to be translated from the Russian language ''Moskovskiye Novosti.''
History Soviet Union
In 1930 ''The Mo ...
article
Current volume of GKO-OFZ marketat the
Bank of Russia
The Central Bank of the Russian Federation (CBR; ), doing business as the Bank of Russia (russian: Банк России}), is the central bank of the Russian Federation. The bank was established on July 13, 1990. The predecessor of the bank can ...
website (in English)
Economy of Russia
Government bonds
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