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Russia risks default as US blocks payments from US banks

  • By Al Mayadeen Net
  • Source: Agencies
  • 5 Apr 2022 16:28
3 Min Read

In a move to increase the economic pressure on Russia, the US bars Russia from making debt payments using funds held at US banks.

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  • Russia risks default as US blocks payments from US banks
    Russia risks default as the US blocks payments from US banks.

The United States will bar Russia on Tuesday from making debt payments using funds held at US banks, increasing the economic pain on Moscow over its special operation in Ukraine, the US Treasury reported. 

The latest move increased the risk the country will not be able to pay its obligations.

"Beginning today, the US Treasury will not permit any dollar debt payments to be made from Russian government accounts at US financial institutions," a Treasury spokesperson told AFP.

"Russia must choose between draining remaining valuable dollar reserves or new revenue coming in, or default."

There are debt payments that have been exempted from the near-complete lockdown that severed Russia from the global financial system, and the country had made various payments to foreign creditors, however, the exemption expires in May. 

Read more: US oil imports from Russia increase by 43%

Moreover, the country has been allowed to receive payments for oil and gas sales, which is a key source of foreign currency, although the US has banned imports from Russia.

But the White House warned that more sanctions were to be imposed on Russian leader Vladimir Putin following the emergence of alleged atrocities in areas of Ukraine formerly seized by Moscow's troops.

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The latest US move "will further deplete the resources Putin is using to continue his war against Ukraine and will cause more uncertainty and challenges for their financial system," the Treasury official said in a statement, noting the country "is facing a recession, skyrocketing inflation, (and) shortages in essential goods."

Moscow was due to make a $84 million interest payment and pay off the remainder of a $2 billion bond, noting that if it does not pay the funds by the end of the 30-day grace period it will be in default.

JPMorgan has processed five debt payments since the Russian operation prompting Western states to impose severe financial sanctions.

Read more: Borrell: Russian ruble has shown strong resilience, new sanctions coming

A $300 billion in governmental foreign currency reserves was frozen and held abroad by the United States. 

The Treasury official referred to the sanctions targeting Russia's Central Bank as "one of the most potent actions of the 700+ sanctions we've imposed."

Read more: Russia to default in debt payment amid stifling sanctions

Earlier, after the Russian President agreed to pay foreign creditors in rubles, Russia was scheduled to make its first interest payment on its foreign debt, the first since the West imposed sanctions on Moscow over Ukraine.

Moscow was due to pay $117 million on two dollar-denominated bonds. and the country was expected to default, but it did not.

Russia's Finance Ministry said it had carried out interest payments on two foreign bonds following fears Moscow may default on its debt after facing unprecedented draconian Western sanctions over Ukraine. 

Sanctions imposed in response to Russia's special operation in Ukraine have targeted $300 billion of the country's foreign currency reserves kept overseas. 

The Finance Ministry declared earlier this week that it had sent a payment order for "a total of $117.2 million," indicating a desire to pay.

  • United States
  • Rubles
  • Russia
  • Dollar
  • Russian special military operation
  • Joe Biden
  • Vladimir Putin
Russia & NATO

Russia & NATO

As the Draconian Western-led sanctions on Russia exacerbate the economic crisis worldwide, and as Russian troops gain more ground despite the influx of military aid into Ukraine, exposing US direct involvement in bio-labs spread across Eastern Europe and the insurgence of neo-Nazi groups… How will things unfold?

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