Russia is pushed to the edge of default by the US

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Russia is being cut off from its dollars

The Treasury had been which allowed Russia to use some foreign reserves to reduce the damage to its creditors. JPMorgan estimates that Russia held about $40 billion in foreign currency debt as of the end of 2013. About half of this was held by foreign investors.

However, the pictures of dead civilians in Bucha prompted the West to increase sanctions and tighten their grip on Moscow.

“This will further deplete Putin’s resources to continue his war on Ukraine and will cause more uncertainty, challenges for their financial systems,” a spokesperson from the US Treasury Department told CNN late Monday.

Russia has been able to maintain the ruble’s artificially high value by increasing interest rates, forcing foreign currency exporters to exchange for Russian money, and requiring energy importers to pay in rubles.

This has helped to protect Russia’s economy from Western sanctions. However, Russia will likely default if it is cut off from its dollars. If Russia chooses to pay higher interest, it could be forced to pay more.

Russia defaulted last on its domestic debt in 1998, when it was hit hard by the collapse of commodity prices. The country’s most recent foreign currency default occurred in 1918, when Vladimir Lenin, a Bolshevik leader, renounced bonds issued by the Tsarist government.

Investors could suffer if the Russian government defaults. However, Western investors are less exposed to Russia now than they were in the past. The sanctions imposed on Russia after the 2014 annexation have already motivated them to decrease their exposure. According to the Bank for International Settlements, $121 billion is owed by Russian entities to international banks.

There is a 30-day grace period for interest payments due Wednesday. If Moscow does not pay, credit rating agencies could declare Russia in default.