Russia decided to pay its 650 million dollar bond in ruble after US Treasury blocked dollar transaction but 649.2 million dollars were rejected by foreign banks.
After the imposition of sanctions by the US and its allies on Russia due to the ongoing special military operation in Ukraine, President Putin warned that Russia would be forced to pay its foreign debts in rubbles if its foreign reserves were to remain frozen.
On Wednesday, Russia’s finance minister announced that it had used rubbles to pay about 650 million in dollar-denominated debts obligations after the US government blocked access to dollars held in American banks a move that pushed a country closer to default.
This is the same way US and UK were able to steal Libya’s money and used it to pay off and conceal their debt payments during the Libya war in 2011 and I had warned of such a move against Russia before the war in Ukraine started.
Libya war happened after the global financial crisis caused by US and Libya war helped both US and UK to solve part of that crisis but not all which is why wars happened in Syria which also had significant currency reserves.
Russia is facing the same problem because countries like US and UK are in deep debt due to the after-effects of the 2008 global financial crisis which was made worse by covid-19 pandemic, so since those leaders in those countries don’t usually learn from their mistakes, they continue doing it until maybe they are stopped.
There is no doubt that freezing the national reserve of a country is like stealing which is why some countries think it’s like declaring war on that country.
Credit rating agencies have indicated that payment in a currency different from the one debt was sold would count as a default once a grace period expires.
Russia’s debt payments that were due on Monday have a 30-days grace period and had no provision for repayment in any currency other than US dollars.
The US has been waiting for Russia to default and according to credit agencies, Russia will for the first time in more than a century default on foreign debt repayment but it’s not because Russia had no money, its because its money was stolen by US banks and the use of the previous contract to back Russia into a corner. We have to wait and see what happens within this period of 30 days.
Russia’s decision to pay 650 million dollars of dollar-denominated debt in rubbles comes after on Monday, US Treasury department tightened its restrictions on Russia’s transactions which blocked Russia from making debt repayment using dollars held in US banks.
According to the US Treasury department, this move was meant to force Russia to either deplete the foreign reserve it had in the country or spend dollars from new revenue to avoid default.
Remember Russia is still selling its oil and gas in Europe but it has refused to be paid in dollars or Euros which is why the US Treasury department is restricting Russia’s access to dollars in US banks in order to force Russia to accept gas and oil payments in dollars in order to pay its foreign dollar-denominated debt.
This move is meant to help mitigate the effects of gas pricing in ruble will have on the US dollar.
Last week, Russia bought back in rubles three-quarters of the bond that matured on Monday, which is worth about 2 billion dollars but it said 552 million dollars, plus final interest payment still needed to be paid. A coupon payment for different debts was also due on Monday.
Since Russia started its special military operation in Ukraine, it had avoided default on its foreign currency government bonds by paying debts in dollars with the approval of the US government but with new accusations of war crimes against Putin, the US decided to tighten its restrictions on Russia’s access to its dollars in US banks.
JPM wasn’t given permission by the US government to process Monday’s bond payment according to some reports. This comes after the bank had been cleared to carry out five other payments after the US and its allies imposed sanctions on Russia.
Russia said on Wednesday that it had transferred payment to the country’s payment settlement depositary in rubles and considered its obligations fulfilled in full but sanctions make it for western leaders to access the rubbles held in Russian bank accounts.
According to Russia, if it was allowed to access its internationally held foreign exchange reserves, then rubles could be converted to US dollars but since there are sanctions, taking ruble is the only available solution.
One big question is whether the owners of debt will accept losing their money or whether the US and its allies will sell Russian assets abroad to settle the debt which will probably increase tensions with Russia than it already is now.