Russia Pays $650 Million in Rubles For Bond After US Treasury Blocks Dollar Transfers

(Photo : Photo by NATALIA KOLESNIKOVA / AFP) (Photo by NATALIA KOLESNIKOVA/AFP via Getty Images)
Russia's foreign ministry said that it paid $650 million to the United States government using rubles for its debt obligations. However, the situation could cause Moscow to go into default as the U.S. Treasury Department blocked the European country's access to dollars in American banks.

The Russian Finance Ministry on Wednesday said that it paid the United States government $650 million in rubles for dollar-denominated debt obligations after the U.S. Treasury blocked Moscow's access to dollars held in American banks.

Several credit rating agencies have indicated that payments made in a currency that was different from the one that the debt was sold in would count as default after the end of the grace period. Moscow's debt payments, which were due on Monday, have a 30-day grace period.

$650 Million in Rubles Payment

Furthermore, they had no provision for repayment in any other currency except dollars which could cause Russia's first default on foreign currency debt in more than a century. The Treasury Department on Monday tightened its restrictions on Russian financial transactions.

Authorities said that the agency blocked Russia from making debt payments using dollars held in American banks. They added that they wanted to force the European nation to either deplete the foreign currency reserves it has in its territory or spend dollars from new revenue to avoid a default, as per the New York Times.

Russia bought back three-quarters of the bond that matured on Monday, using rubles as payment, in a transaction last week. The bond was worth roughly $2 billion, but officials said that $552 million, including the final interest payment, was still pending.

In March, credit ratings agency Fitch said that a "forced redenomination of payment obligations" suggested that a default or default-like process had started. The situation has forced the company to withdraw all of its Russian ratings.

According to Yahoo Finance, analysts have expressed their concerns on whether or not foreign holders of Russian dollar-denominated bonds would accept rubles as payment. The U.S. Treasury's decision on Monday is only one among its efforts of pressuring Russia amid the latter's invasion of Ukraine.

Russia's Potential Default

The situation comes after Western countries imposed sanctions on Russia that affected its foreign reserves, equating to roughly $315 billion. In a press conference on Wednesday, Kremlin spokesman Dmitry Peskov said that significant amounts of Moscow's reserves were being blocked in many foreign countries.

The official said that Russia would be forced to pay debts in rubles, its national currency, if the blocking continues. Peskov said that if rubles were not an acceptable form of payment, the country would be forced into a default situation.

The spokesman argued that a default would only be "artificial" and not official because Russia has enough funds to pay the debts; it is just unable to gain access to them. Peskov noted that there were no grounds for an official default, "not even close."

The United States federal government issued new sanctions on Russia in the aftermath of Moscow's attack in Bucha, Ukraine. The incident left dead bodies strewn in the streets, with some having signs of being tortured and raped before being killed.

On Wednesday, United States President Joe Biden's administration announced new sanctions on Russian financial institutions and individuals, including Russian President Vladimir Putin's two daughters, Katerina Tikhonova and Mariya Vorontsova, CNN reported.