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US blocks Russia's access to dollars, increasing risk of default: Report
Ukraine War
Image Credit: Pixabay

US blocks Russia's access to dollars, increasing risk of default: Report

| @indiablooms | 06 Apr 2022, 03:47 pm

The United States has started blocking Russia from making debt payments using dollars held in U.S. banks, media reports said.

This move is aimed at depleting its international currency reserves and making it difficult for Russia to pay its first foreign currency debt and default for the first time in a century, New York Times reported.

Since Russia invaded Ukraine in late February and sanctions were imposed.

Russia has been able to pay investors using American banks with the approval of the US government, the report said.

In March, the US Treasury Department created an exemption from its sanctions that allowed Americans to accept debt payments from Russia until May 25 to avoid destabilizing the broader financial system, the report said.

On Monday, a $2 billion bond became due for payment along with an $84 million coupon payment. But last week, Russia acquired back about three-fourths of the bond that reached maturity Monday in exchange for roubles, the NYT report said.

Though it was an unusual move but reduced Russia's dollar obligations, leaving about $552 million to be paid, it said.

The US Treasury's action Monday has stopped these payments, but Russia still has a 30-day grace period to fulfill the transaction before it can be declared a defaulter, according to the report.

Going against expectations, Russia surprised the Western countries by averting the risk of imminent default after its invasion of Ukraine and the sweeping sanctions by the United States and Europe on its central bank, blocking access to the greater part of its foreign exchange reserves.

It issued payments and replenished some of its reserves with the help of money from energy exports.

The Treasury spokesperson said the new curbs imposed this week would further restrict Russia's financial system and pose fresh challenges.

The Russian government has already imposed capital controls restricting the flow of money in and out of the country.

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