The United States stopped the Russian government from paying holders of its sovereign debt more than $600 million from reserves held at US banks. This increases the risk of default.
Russian central bankʼs foreign currency reserves in US financial institutions have been frozen, but the Treasury Department had been allowing the Russian government to use those funds to make coupon payments on dollar-denominated sovereign debt on a case-by-case basis.
On Monday, as the largest of the payments came due, including a $552.4 million principal payment on a maturing bond, the US government decided to cut off Moscowʼs access to the frozen funds, according to a US Treasury spokesperson. An $84 million coupon payment was also due on Monday on a 2042 sovereign dollar bond.
According to the Treasury Department, this move was meant to force Moscow to make the difficult decision of whether it would use dollars that it has access to for payments on its debt or for other purposes, including supporting its war effort. The country has a 30-day grace period to make the payment, or it faces a historic default.