Russia plans bond payment system like rubles-for-gas system to circumvent sanctions

Russia’s finance chief says Moscow is planning a new foreign bond payment system similar to the rubles-for-gas program in a bid to prevent a historic sovereign default after Washington ended a key sanctions waiver that increased Russia’s chances of defaulting on its debt.

Anton Siluanov, Russia’s finance minister, was quoted by Vedomosti on May 30 as saying that the new system being developed would essentially mirror the one in place that allows foreign buyers of Russian natural gas to settle transactions without falling under the blow of sanctions.

In March, Russian President Vladimir Putin said Moscow would require “unfriendly” countries to pay for natural gas in rubles by opening multiple accounts at Gazprombank and then make payments in euros or dollars, which the settlement infrastructure Russian converts to Russian currency.

Siluanov told Vedomosti that the new bond settlement system would work much the same way, but “in reverse” and in a way that bypasses Western payment infrastructure.

Under the proposed new system, investors would be required to open a foreign currency account and a ruble account in a Russian bank. Russia would then make the bond payments in roubles, which would be converted into foreign currencies through Russia’s settlement infrastructure – the National Settlement Depository (NSD) – and transferred to the foreign currency account that bondholders can access. .

“Now that we are finalizing this mechanism, we will discuss it in the government. After that, we will make an offer to our investors,” Siluanov said, according to the outlet.

Siluanov told Russia-24 TV on Friday that the new bond payment system would be in place for Russia to make its next coupon payments on bonds due June 23-24.

It comes as the United States brought Russia closer to a historic default by not extending a sanctions waiver against Russia’s central bank that allowed it to process payments to bondholders in dollars through the intermediary of American and international banks.

Russia has about $2 billion in foreign currency bond payments due by the end of the year, with experts predicting some of them will be impossible to settle without the US waiver.

Some experts have said a possible Russian debt default would be largely symbolic, as sanctions prevent Russia from borrowing internationally anyway when budget surpluses mean it doesn’t need it. .

“Major sovereign defaults tend to have lasting consequences and economic hardship. One thing is different in this default: the sanctions have already greatly isolated the Russian economy. So in some ways the implications could be largely symbolic,” Tim Samples, an associate professor of legal studies at the University of Georgia’s Terry College of Business, told Russian news outlet Tass.

The White House said last week that it expects little impact on the U.S. and global economy from a potential Russian debt default following the Office of Foreign Treasury Department’s Assets Control (OFAC) that it would not renew the waiver.

“We expect the impact on the United States and the global economy to be minimal, given that Russia is already financially isolated,” White House spokeswoman Karine Jean-Pierre said. during a press briefing on May 26.

“That being said, the Treasury Department continues to monitor and have conversations with the global financial community,” she added.

The Russian Finance Ministry and lawmakers said following the Treasury’s decision not to extend the exemption that Moscow would continue to service its foreign debt, with payments to be made in rubles.

“By artificially prohibiting payments in dollars, Washington is trying to create problems for Russia,” said Russian State Duma Speaker Vyacheslav Volodin, according to Russian news agency Interfax.

“Our country has a solution to this challenge,” he continued. “We will pay in rubles.”

From The Epoch Times

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Elaine R. Knight