The US Treasury says it may block Russian debt payments starting next week

Although the United States and other Western governments have Almost half of Russia’s dollar reserves have been frozen, the state managed to avoid default. Russia has the money to pay its debts, but it has not been able to access its foreign reserves, which total about $315 billion.

However , Russia continued to pay its creditors without access to those frozen assets. The country’s finance ministry said in April that Russia had paid €565 million that was due this year, in addition to $84 million in international bonds that were due to mature in 2024. The finance ministry claimed both were paid in US dollars. As required by the terms of the bond contract.

But the ending cut would effectively prevent Russia from paying US bondholders, raising the risk of default. Russia has not defaulted on its foreign debt since the Bolshevik Revolution more than a century ago.

US sanctions were imposed after Russia’s invasion of Ukraine, banning dealings with the Russian Central Bank, the Ministry of Finance and the Russian National Wealth Fund. However, the Treasury Department has issued a license that allows some debt repayment related transactions.

“When we first imposed sanctions on Russia, we created an exemption that would allow a period of time for an orderly transition and to enable investors to sell securities,” Yellen said. “The expectation was that it was limited in time.”

Yellen indicated that she is not concerned about the potential fallout from the termination of the license.

“Russia is now unable to borrow from global financial markets,” Yellen said. “It does not have access to the capital markets.” “If Russia has been unable to find a legal way to make those payments and it is technically in default on its debt, I don’t think that really represents a major change in Russia’s situation. They are already cut off from global capital markets and this would have continued.”

Russia has managed to prop up the ruble despite global sanctions by raising interest rates, preventing Russian brokers from selling securities held by foreigners and requiring gas and oil deliveries to be paid in rubles, among other measures. These measures allowed Moscow to artificially manufacture the demand for the ruble, even as the country’s economy remained in tatters.

The ruble is approaching a five-year high against the euro and standing at a more than two-year high against the dollar. It is the best performing currency of 2022.

But Russia may not be able to maintain this power for much longer. The looming risk of default and wrangling with European countries over gas payments could limit Russia’s ability to prop up its currency.