Russia defaulted on its domestic debt in 1998. It did not have to do so because the bonds were denominated in Russian Ruble and the government could simply have printed money to pay the bonds. Why didn't Russia print money then?

  • 1
    Inflation, perhaps? Hyperinflation, which has torpedoed several economies. What is money worth if you can just print it?
    – user285
    Oct 5, 2013 at 18:26
  • @RobertHarvey Inflation usually helps those with debt that's specified in nominal terms. Of course, if there are other things with your economy and you're the sovereign, that may all go out the window, but inflation alone isn't a reason for an agent not to pay back its debt. Oct 6, 2013 at 0:03
  • When there is a central bank, couldn't we replace "print" with "borrow"? May 8, 2014 at 6:32

3 Answers 3


In 1998, inflation in Russia was 84 percent. Having inflation that high makes it difficult for businesses to have transactions or make plans, which is detrimental to producing the goods and services necessary for a functioning nation. If every dollar I get by selling goods could be worth only a few cents tomorrow, I will be unsure of what to sell my goods for and not make any long term deals. If everyone spends lots of time worrying about what inflation will be and renegotiating deals, they have less time for making goods and services.

Printing more money would have made the inflation problem much worse. The Wiemar Republic in Germany in the 1920s and Zimbabwee in the 2000s are great examples of how printing money created paralyzing and destabilizing inflation that was terrible for the citizens in those countries.

Defaulting on bonds makes a specific set of people worse off, bondholders. This can cause a shock to the economy that results in hard times as the bondholders buy fewer goods and services as they adjust to their loss of wealth. Arguably, this temporary setback from a default is less bad than hyper-inflation which can make all buying and selling extremely difficult.

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    "hard times as the bondholders buy fewer goods and services" doesn't apply in two cases - first, for non-local bondholders; second, for ultra-rich bondholders whose consumption isn't directly dependent on their short-term income. Russian bond market is not that similar to, say, USA T-bills; There is very little overlap between Russian bondholders and local middle/upper class consumers whose savings would be destroyed by printing money.
    – Peteris
    May 1, 2014 at 10:16
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    @Peteris I think your comment is important and helps explain why Russia would be more likely to choose a default over inflation than other countries. I would add though, that if the shock to lending markets were to cause a downturn abroad, that could still potentially hurt Russia through international trade, but the effect would be less than if bond ownership was mostly local.
    – lazarusL
    May 1, 2014 at 12:40

I think it was smart move to migrate this question from money.stackexchange.com into politics. It reflects another point of view on Russian default of 1998: it was not economic event rather than consequence of certain manipulation lead to IMF money being stolen via central bank actions.

To get familiar with details: http://www.themoscowtimes.com/news/article/central-bank-probed-over-use-of-imf-loan/284762.html Details about alleged stealing of IMF money: http://samvak.tripod.com/pp157.html More lengthy text: http://www.gwu.edu/~ieresgwu/assets/docs/demokratizatsiya%20archive/09-1_Hedlund.PDF, look for keyword Berezovsky


Printing more money to inflate away debt doesn't solve anything, and just makes things worse. The only way to get rid of debt without destroying a country is by spending less than you take in in taxes, it doesn't matter what country it is. If the base spending isn't addressed printing more money to get out of debt just makes the next loan even bigger at an even higher interest rate. Printing more money also makes inflation go up faster than the economy can react, prices go up faster than wages of anyone left with a job so soon no one can afford anything and the country is on the brink of chaos. Printing more money tends to destroy the country that tries it, just like Zimbabwe and the Weimar Republic like lazarusL mentioned. Also inflating away debt and just defaulting are basically the same thing to a creditor, they either get no money or worthless money, the only difference is defaulting has a better chance of not destroying the country.

  • This shows a basic misunderstanding of the causes of inflation. Printing money does not itself cause inflation, though it may (or may not) cause an increase in the money supply that, absent a similar increase in the size of the economy, causes inflation. Two obvious cases where increasing the money supply will not cause inflation are as follows.1) Labour is available but is not being purchased (due to lack of money supply or other reasons. If the government creates money and then uses it to purchase this labour that otherwise would be lost....
    – cjs
    Mar 18, 2022 at 5:55
  • ...the economy increases in size, the money supply to economy size ratio remains similar, and there is no inflation. 2) The money is given to pay coupons to bondholders who immediately reinvest it in more bonds. The money created this way is immediately removed again from the money supply via the purchase of more bonds and, again, the money supply to economy size ratio remains similar and there is no inflation.
    – cjs
    Mar 18, 2022 at 5:55

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