Russia stoking fears of first currency default in over a century

Russian Finance Minister Anton Siluanov said on Wednesday it was up to the United States to decide whether crucial interest payments on two dollar-denominated Eurobonds were accepted, raising fears of the first debt default in foreign currency from Moscow for more than a century.

“The possibility or impossibility of fulfilling our foreign currency obligations does not depend on us, we have the money, we have paid the payment, now the ball is on the side, above all, of the American authorities,” Siluanov said. in an interview with RT Arabic, according to Russian news agency RIA.

“The Russian Federation has the necessary money in foreign currency accounts, it is possible to pay in rubles.”

Siluanov said Russia has the funds to meet its obligations and pay $117 million in interest on two sovereign Eurobonds due Wednesday. However, he said the United States should first clarify whether settlements are possible from Russian foreign currency accounts.

CNBC has contacted the US Treasury Department’s Office of Foreign Assets Control, which administers the sanctions, for comment. He was not immediately available to respond.

The United States and its international allies imposed an unprecedented barrage of punitive economic sanctions against Russia in response to the Kremlin’s invasion of Ukraine. The sanctions sought to cut Moscow off from the global financial system.

A view of the Moscow Kremlin and St. Basil’s Cathedral.

Mikhail Japaridze | CASS | Getty Images

One of the main measures of the sanctions was to effectively freeze the approximately $630 billion in foreign exchange reserves of the Central Bank of Russia.

Economists were unsure how Russia’s finance ministry would approach the payment in light of sanctions imposed on Russia’s Central Bank that have rendered much of its foreign exchange reserves inaccessible, sparking a wave of downgrades. credit by major global rating agencies.

It is believed that Russia may attempt to pay in rubles if a dollar settlement is rejected.

Credit rating agency Fitch, however, warned that paying bondholders in a currency other than the dollar would constitute default.

A bondholder who requested anonymity told Reuters there had been no confirmation of the payment from Russia yet and it was unclear whether it would come.

The business world shuns Russia

The prospect of non-payment would trigger a 30-day grace period before Russia falls into technical default, but the Kremlin will likely argue that Western sanctions prevented it from making the payment.

If confirmed after the grace period, the non-payment would mark Russia’s first sovereign default since 1998, when it defaulted on its domestic debt, and the first sovereign default on its foreign currency debt since the Bolshevik Revolution of 1918.

Russian assets are increasingly viewed as toxic by some market participants as the Kremlin continues its assault on Ukraine.

Hundreds of the world’s largest companies have decided that their presence in Russia is no longer possible since the attack on the Kremlin on February 24.

Russian Siluanov said on Monday that Russia would use its Chinese yuan reserves to make some of its payments, as euros and dollars are now inaccessible due to sanctions, and also suggested that creditors from “hostile” countries could be paid in rubles.

—CNBC’s Elliot Smith contributed to this article.