Russias Debt in Rubles Due to Sanctions

Russia is preparing to service some of its foreign currency debt on Wednesday; hence, the finance ministry warned on Monday that if sanctions prevent banks from honoring obligations in the currency of issue, such payments will be in rubles.

Is that the default setting? From Russia’s perspective, we are meeting our obligations. Finance Minister Anton Siluanov stated this in a Monday interview with state television.

In fact, Western sanctions imposed in response to the events in Ukraine have cut Russia off from critical global financial markets; it froze nearly half of the country’s $640 billion gold and foreign exchange reserves; this caused the worst economic crisis since the Soviet Union’s demise in 1991.

According to Siluanov, Russia must pay the coupons on its Eurobonds on March 16; hence, he has already asked Western banks to handle the transaction.

However, if a significant portion of Russia’s reserves is frozen, the payment may face “special challenges,” as the possibility of those payments going through is dependent on sanctions.

Russia has the funds to meet its external obligations. If necessary, it may use a yuan portion of its gold and forex reserves.

The freezing of the central bank’s and the government’s foreign currency accounts can interpret as a desire by several Western countries to stage a simulated default.

In June 2021, the Chinese currency accounted for 13.1 percent of the Russian central bank’s foreign currency reserves, up from 0.1 percent in June 2017; Moscow’s dollar holdings fell to 16.4 percent from 46.3 percent in the same period.

After the European Union, China is Russia’s largest export market. According to China’s customs agency, Russian exports to China were worth $79.3 billion in 2021; oil and gas accounted for 56% of that total.