GKO (or _ru. Gosudarstvennoe Kratkosrochnoe Obyazatelstvo, Государственное краткосрочное обязательство) and OFZ ( _ru. Obligatsyi Federal'nogo Zaima, Облигации федерального займа) (Federal Loan Bonds) are acronyms for domestic short-term government bond issued by the state of Russia since February 1993.

GKOs are short-term zero-coupon Russian Government Treasury Bills. OFZs are coupon-bearing Federal Loan Bonds. Both are issued by the Russian Finance Ministry and traded on the Moscow Inter Bank Currency Exchange (MICEX), as well as on five other currency exchanges connected with the MICEX located in large regional cities. GKOs were introduced in May 1993 as non-inflationary instruments for financing the budget deficit. OFZs were introduced in June 1995 to complement the GKO market as an instrument with medium and long-term standing.

The acronym became synonymous with the Russian financial crisis in 1998 when the state defaulted on its "GKO obligations" (bonds). The GKO crisis was a most significant financial crisis in post-independence Russia and caused frenzy among foreign and domestic investors and creditors. The crisis lead to abrupt devaluation of the Russian ruble more than twice. (In fact, the ruble first fell about four times, then after some oscillations stopped at that level.) The crisis severely undermined confidence in the ruble's stability, although such dramatic drops have not happened again.

Prior to the crisis, the GKO issuance policy closely resembled those of pyramid schemes or Ponzi schemes, with the interest on matured obligations being paid off using the proceeds of newly issued obligations.

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 RF Finance Ministry’s policy of substituting the external debt for the internal debt and developing a liquid internal government securities market, which must give market participants effective instruments to manage liquidity and form benchmarks for risk-free ruble interest rates for all economic entities.

External links

* [http://english.mn.ru/english/issue.php?2003-32-7 Overturned Pyramid] , a "Moscow News" article
* [http://www.cbr.ru/eng/hd_base/main.asp Current volume of GKO-OFZ market] at the Bank of Russia website (in English)

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