Russian economic crisis: Putin's foreign exchange reserves are being depleted, warning of default

Russian economic crisis: Putin's foreign exchange reserves are being depleted, warning of default US President Joe Biden cut the Kremlin off payments to its bondholders after allowing a waiver allowing Moscow to make payments to international creditors to lapse. Russia defaulted on its debt for the first time in more than a century. This happened during the first dramatic fall in the value of the ruble and Western sanctions excluded Russia from the interbank payment system. Russia fell into default when it had to pay its international debt in rubles. In practice, that means US banks and individuals are prohibited from receiving bond payments from Russia. Regardless of the decision, Moscow will need to pay around $1 billion (£808 million) by Friday of this week. The Office of Foreign Assets Control on Wednesday said it "will not renew" the terms that allow Moscow to continue to meet certain financial obligations. On Thursday, the Kremlin announced that it would repay its dollar debt in rubles, an option previously rejected by international lenders. Meaning that the clock is now ticking on the possibility of Russia defaulting on its foreign debt for the first time since the Bolshevik Revolution of 1918. Russian Finance Minister Anton Siluanov said the current situation "has nothing in common" with 1998 when Russia defaulted on $40 billion (£32 million) of its domestic debts due to a lack of "enough money". Moscow will make coupon payments for the three bonds this Friday. He said Russia was facing a "fake situation created by an unfriendly state", adding: "We have the money and are ready to pay." However, most creditors outside the United States can hardly accept this for fear of sanctions from the US. For a long time now, the world is taking the dollar as a standard for international payments and as a strategic reserve currency for countries. There is a possibility that European banks may stop trading due to fears of US retaliation. Next month, Russia will pay off the bonds, mostly held by the United States. If payment is not made then Moscow will enter a 30-day grace period. It will be assessed as defaulted if payment has not yet been made after the end of this period. Timothy Ash, emerging markets strategist at BlueBay Asset Management, told The Telegraph that a Russian default was "just a matter of time". “Russia will lose almost all market access – even to China – because of this default,” he said. "It means no capital, no investment and no growth." “That means no financing to Russia [and Russian companies] except at exorbitant interest rates. If this happens, it will further reduce Russia's status as a borrower, and the international investors who bought the bonds will also have to pocket millions of dollars. It seems that Putin's only option is to sell gold and use dollars. That would push the price of gold down and could be seen as a way to entice Western investors while giving the Kremlin access to US dollars. However, it would ruin his chances of setting the ruble on the gold standard over time.

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