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This blog post is an excerpt from my article “How Russian crisis could be like 1998—but worse” published on CNBC, December 17, 2014. Read the full article on CNBC.

The fall of the Russian ruble portends rough seas ahead for multinational corporates. It is the kind of crisis that will separate the effective risk managers from the rest – rewarding those corporates that can manage through intense volatility, and punishing those that can’t.

The Russian ruble has been on a downward trend for years, but that trend accelerated in July this year as the end to a cease-fire between the Ukrainian army and pro-Russian insurgents increased the risk of a new round of economic sanctions on Russia. Between July 1 and December 16, the ruble fell 45% percent against the U.S. dollar.

Sanctions have cut off Russia’s access to foreign capital at the same time that falling oil prices (down almost half from their 2014 peak) make that access even more essential – so Russia can refinance its debt.

The ruble’s slide picked up speed at the end of November and intensified this week. In response, Russia’s central bank raised interest rates from 10 percent to 17 percent on Tuesday night. Intended to mollify markets, the rate hike had the opposite effect, accelerating the run on the ruble. While the rate hike itself wasn’t particularly surprising – the central bank has been raising interest rates – its size, and its timing, did send the message “We’re in trouble.”

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Rough seas ahead for global markets as contagion spreads

The downward spiral of the Russian ruble has exacerbated global currency volatility and it has a contagion effect. For example, the combination of a falling ruble and Japanese Prime Minister Shinzo Abe’s re-election will likely re-embolden Abe’s commitment to devalue the yen. The threat of a race-to-the-bottom, beggar-thy-neighbor currency war is very real.

The contagion also exposes continuous fundamental weaknesses in global markets. Structural weaknesses in the eurozone, for instance, portend further declines for the euro. According to Deutsche Bank, the euro should be heading to 1.16 to the U.S. dollar based on the current trend in the price of oil and economic fundamentals in Europe – that is 6.5 percent lower than where the euro is today.

Implications of the ruble’s slide

The ruble’s fall will hit hard the earnings of multinationals doing business in Russia. As an example of the losses that multinational corporations could face in Russia – and the uncertainty that still remains about the future of the ruble and the Russian economy – Apple halted all online sales in Russia on Tuesday. The company attempted to keep pace with the ruble’s fall, increasing prices by 25 percent in November, but gave up the effort this week as the ruble’s fall continued to erode the value of Apple’s sales.

In talking with the CFO of a €4 billion (in revenue) multinational he knew his company lost at least €200 million as the ruble slid, but he was most worried about how much more they had lost that he didn’t yet know about. Because this CFO doesn’t have visibility into his ruble risk, he can’t manage expectations with his CEO and board around how the company should expect to be impacted by the ruble’s fall. “€200 million – or worse” is not the kind of uncertain answer that a CEO or board wants to hear.

continue reading the full article on CNBC including…

Like 1998 – but worse. What can be done?

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