The U.S. Expected to Begin Blocking Russian Bond Payments to Americans

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The US Expected to Begin Blocking Russian Bond Payments to Americans

The Treasury Department is expected to allow a sanctions carve-out to lapse next week, raising prospects of a Russian default. Next week, the Obama administration is expected to block Russia from paying American bond holders, increasing the likelihood of a first default of Russia’s financial debt in more than a hundred years.

Russia’s debt has been paid off since February. A decision was made not to renew an exemption allowing Russia to continue paying its debts. This means that Russia’s debt will be repaid by May 25th.

Russia is trying to pay off its debts using other currencies than dollars. This means that Russia doesn’t want to default because it would be seen as a loss of face. Russia is also threatening to sue if it does default because it wants to continue making payments using the ruble.

Russia has bond payments due in two months. It is unclear if it has any other options besides paying back the money.

U.S. Capitol Building, Washington D.C. Original image from Carol M. Highsmith’s America, Library of Congress collection. Digitally enhanced by rawpixel.

Treasurys are considered safe investments. The government doesn’t need to worry about default because there are enough dollars in circulation. The treasury department is evaluating the risk of not renewing the Russian bonds.

A default by Russia would cause a global economic crisis. Russia’s economy depends heavily on oil exports. Oil prices have fallen dramatically over the last year. This has caused a major drop in Russian revenues. In addition, Russia’s government borrowed money from private banks to finance its budget deficit. Now these loans must be repaid. Russia’s central bank has already started selling off some of its foreign currency reserves to pay down its debts. However, this action may not be enough to prevent a default.

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