Moscow will no longer be able to pay its debts in dollars with American banks By

© Reuters.

By Alessandro Albano – Russia will no longer be able to use accounts held at U.S. banks to redeem coupons on dollar-denominated bonds. This was decided by the US Treasury Department which, after freezing the foreign exchange reserves of the Russian central bank due to the invasion in Ukraine, prevented the Kremlin from paying the interest on its foreign debt due on Monday. .

Moscow was able to meet its commitments on dollar-denominated bonds thanks to Washington’s concession to its banks, such as JPMorgan (NYSE:), avoiding the possibility of an external debt default. Today, the decision of the US Treasury could corner the Kremlin, which will have to choose between using the foreign exchange reserves held in the country to meet its economic commitments or finance the protracted conflict in Ukraine.

“This is a reversal from what the US government authorized on March 17, when Russia paid a $117 million coupon,” Carl Wong, head of fixed income at Avenue Asset, told Bloomberg. Management. A US Treasury spokesman told Reuters: “Russia must choose between depleting its remaining dollar reserves, tapping into new revenue or defaulting.”

This measure comes at a delicate time for Russia. As Europe considers a total embargo on Russian oil and crude (possibly a double-edged sword), Moscow faces the payment of $552.4 million in principal on a bond that expired yesterday, and an $84 million coupon on a dollar bond with a maturity of 2042 (Reuters data).

Bonds and coupons have a 30-day “grace period” during which the account can be settled, but once that threshold is exceeded, Russia’s external debt will be considered insolvent. To head off that eventuality, the Kremlin has signaled in recent weeks that foreign debt payments will be settled in rubles, before backtracking and tapping into its US accounts to pay investors in dollars, as per the contract. A default on foreign debt payments would prohibit Moscow from accessing international markets until creditors have been paid in full, including the legal consequences of a default.

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