Russia moved closer to defaulting on international debts this week, prompting a move to hoard roubles to pay international bond holders that need to be repaid in dollars.
Moscow has said that this strategy will be in place until Western powers lift the sanctions on its foreign exchange reserves.
On Monday, the US stated that Russia had either to use its dollar reserves in Russia or choose defaulting. The news came after the US barred Russia from paying holders of its sovereign debt over $600 million from frozen reserves being kept in American banks.
Not since the Bolshevik Revolution of 1917 has Russia defaulted on its external debt, but presently its bonds have become a spark in the political wrangling between Moscow and the Western nations.
This week, a fund manager said that the situation “speeds up the timeline around when Russia runs out of space on willingness and ability to pay.”
The Kremlin has said it will endeavour to pay what it owes, with spokesperson Dmitry Peskov stating that Russia “has all necessary resources to service its debts.
“If this blockade continues and payments aimed for servicing debts are blocked, it (future payment) could be made in roubles,” Dmitry Peskov added.
Sanctions freezing has impacted upon around half of $640 billion of Russian reserves in gold and foreign currency, yet the country still takes in billions of dollars from its crude and gas trading. Russia’s finance ministry has said it was forced to pay holders of its dollar-value Eurobonds in roubles because an overseas bank had declined an order to pay $649 million to holders of its sovereign debt.
As well as the order to pay coupons on the two bonds being rejected, the finance ministry said that the bank refused to process a Eurobond due to mature in 2022.
Russia approaches default scenarios in the wake of broad-scale sanctions for its war against Ukraine – a war that the Kremlin will only acknowledge as a “special military operation”. Now nearly half of Russia’s reserves are frozen and its access to international payment infrastructures has been severely reduced.
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