The United States have blocked the Russian government from paying holders of its sovereign debt more than $600 million from reserves held by American banks on Monday, in a step aimed at increasing pressure on Moscow and reducing its dollar holdings.
Foreign currency reserves held by the Russian central bank at U.S. financial institutions were frozen as a result of sanctions imposed after Russia invaded Ukraine on February 24.
However, the Treasury Department had been permitting the Russian government to use such money on a case-by-case basis to make coupon payments on dollar-denominated sovereign debt.
According to a US Treasury spokesperson, the US administration decided to shut off Moscow’s access to the frozen cash on Monday, as the largest of the instalments, including a $552.4 million principal payment on a maturing bond, came due.
On Monday, a $84 million coupon payment on a 2042 sovereign dollar bond was due.
According to the spokesman, the measure was intended to force Moscow to make the difficult decision of whether to utilise cash it has access to for debt payments or for other purposes, such as aiding its war effort.
If Russia does not comply, it will face a historic default.
“Russia must choose between depleting its last valued dollar reserves or bringing in fresh revenue, or default,” added the official.
According to a source familiar with the situation, JPMorgan Chase & Co, which has been processing payments as a correspondent bank until now, was suspended by the Treasury.
The correspondent bank receives the coupon payments from Russia and forwards them to the payment agent, who distributes them to the bondholders in other countries.
According to the source, the country has a 30-day grace period to make the payment.
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