Russia pays dollar-denominated debt in rubles after US blocks payment

Russia’s Finance Ministry said on Wednesday it used rubles to pay for about $650 million in dollar-denominated debt securities after the US government blocked access to dollars held in US banks. This move brought the country closer to default.

Rating agencies have indicated that payments in a currency different from that in which the debt was sold would be considered a default once the grace period expires. Russia’s debt payments that were due Monday had a 30-day grace period and had no provision for repayment in any currency other than the dollar. It would be Russia’s first default on its foreign currency debt in more than a century.

On Monday, the US Treasury Department tightened its restrictions on Russian financial transactions and said it had blocked Russia from making debt payments using dollars held in US banks. The department said it wanted to force Russia to either deplete the foreign exchange reserves it has in the country or spend dollars from new revenue to avoid a default.

Last week, Russia bought back in rubles three-quarters of the bond that matured on Monday, which was worth about $2 billion. But he said $552 million, plus the final interest payment, still had to be paid. A coupon payment for a different bond was also due on Monday.

Russia had previously warned that if foreign banks failed to comply with its orders to pay bonds due to sanctions, the debts would then be repaid in roubles. On Wednesday, the Treasury said that was what happened “due to the hostile actions of the US Treasury.”

Since Russia invaded Ukraine in late February and imposed sanctions, routine debt payments have come under scrutiny. Russia had avoided default on its foreign currency government bonds by paying the debt in dollars with the approval of the US government. But amid growing calls for President Vladimir V. Putin to face a “war crimes trial”, the United States has tightened its sanctions.

JPMorgan Chase has not been cleared by US authorities to process Monday’s bail payment, according to a person familiar with the situation who spoke on condition of anonymity due to the sensitivity of the situation. He had already been cleared to handle five more payments after sanctions were imposed last month, the person said.

On Wednesday, Russia said it had transferred payments to the country’s national settlement depository in rubles and considered its obligations fulfilled “in full”. But the sanctions make it difficult for Western lenders to access rubles held in Russian bank accounts. The Finance Ministry added that if Russia were allowed access to its internationally held foreign exchange reserves, rubles could be converted into dollars.