Foreign exchange news -- the U.S. cut off its foreign exchange reserve and forced Russia to move towards the debt collapse cliff

Russia's invasion of Ukraine and brutal killing of civilians triggered public anger, prompting the U.S. government to increase sanctions this week,

Russia is prohibited from paying its debts through its foreign exchange reserves deposited in U.S. banks, which will bring Russia to the brink of debt repayment.

In order to punish Russia for invading Ukraine, western countries have resorted to sanctions, and Russia's current foreign exchange reserves of about $315 billion have been frozen,

It accounts for about half of all foreign exchange reserves.

The US Treasury Department previously allowed Russia to use some frozen assets to repay its debts in dollars in an attempt to reduce the impact on Russian creditors.

But after the images of Russian troops slaughtering civilians in the Ukrainian town of Bucha came out, the Biden government decided to cut off Russia's access to frozen funds.

A spokesman for the US Treasury Department said, "this will further deplete the war resources of Russian President Putin and make the country's financial system face more uncertainties and challenges."

Fitch Ratings, a credit rating agency, said last month that this would force Russia to pay in rubles or not pay at all, both of which would constitute a breach of contract.

Dmitry Peskov, a Kremlin spokesman, said on Wednesday that Russia's massive foreign exchange reserves had been frozen. If this situation continued,

They will pay in roubles. Peskov admitted that in theory, there will be a breach of contract, but this is entirely an "artificial" result, not a real breach.

 

 

Russia clearly has dollars to pay its debts, but it can't use them.

The Russian government currently has 15 outstanding international bonds with a total face value of $40billion. Russia will have a 30 day grace period for the bond interest due on Wednesday, but if the Moscow authorities show no willingness to pay, the credit rating agency can announce Russia's default in advance.

Experts said that if the Russian government really defaulted, the losses of Western investors should not be too heavy, because after Russia annexed Crimea in 2014, these investors have reduced their exposure to Russia.

The last time Russia defaulted on its domestic currency debt occurred in 1998, when the sharp fall in commodity prices led to the country's economic crisis.

The latest default on foreign currency debt occurred in 1918, when Lenin, the leader, refused to pay the interest on government bonds issued by the previous government.