State Duma reaction
The new US sanctions, which prohibit Russia from paying dollars on government debt, caused a limited reaction from State Duma lawmakers.
“The U.S. Treasury has banned our country from paying off its national debt from reserves frozen due to sanctions. At the same time, Psaki said, “Russia must choose between depletion of foreign exchange reserves and default. Our country has funds in its accounts that can fully fulfill its obligations, even under sanctions. The situation created by the USA is hurting them and their citizens. It is no accident that the International Monetary Fund has concluded that anti-Russian sanctions have undermined confidence in the dollar. Its share in world settlements is declining,” he said. Wrote Speaker of the Parliament Vyacheslav Volodin on the Telegram channel.
Four scenarios to circumvent the ban
The State Duma identified four options for Russia’s actions in response to the US ban. According to Anatoly Aksakov, Chairman of the State Duma Committee on Financial Markets, Mr. Volodin spoke in his report about foreign currency accounts of Russian banks that are not subject to Western sanctions. And, according to the attorney, this is the first route Russia can resort to in response to the US ban. The Russian Federation may use funds of non-sanctioned banks. In effect, using these financial institutions’ money to pay off public debt by transferring their dollars to US banks.
“Everyone in the West knows very well that Russia is a solvent country.
About 50% of our gold and foreign currency reserves are in Western banks. The rest is Russian. In matters of paying the public debt, I would point my finger at the American authorities to make the American Eurobond holders pay themselves. It is a matter of principle,” Aksakov explained.
Alexei Chepa, First Vice-President of the State Duma for International Relations, explained a number of other ways to circumvent American financial restrictions, in addition to using the accounts of Russian banks that are not subject to sanctions.
According to Chepa, the second option Russia can use is to use foreign currency accounts of non-sanctioned Russian entities to pay off its government debt. This method is similar to the first option. The money will eventually be converted to dollars.
“A number of non-sanctioned Russian commercial and state-owned companies also have foreign currency accounts (cells) that we can use. We can use Gazprombank accounts, but this is quite risky. So we need to make sure that the currency is in their account. It stays in Russia, not abroad,” said Chepa.
He added that this measure would protect the third-largest Russian commercial bank from possible blocking of foreign accounts by “hostile” countries. At the same time, the negative impact of the Central Bank assets freezing could have been avoided.
The third way, according to Chepa, is to use oil and gas revenues to pay off public debt: that is, to transfer conditional Gazprom’s dollars to US banks. The fourth, according to the deputy, is to pay the public debt in rubles.
“Measures are now being taken to create a financial buffer. Russia, for example, could benefit from foreign exchange earnings from oil and other exports. “The Ministry of Finance should continue to pay eurobonds in rubles,” he said.
Which option did the Ministry of Finance choose?
The Ministry of Finance has chosen the fourth option from the options currently voiced by the MPs. According to the head of the ministry, Anton Siluanov, Eurobond payments issued since 2018 are currently possible in rubles. course The central bank. On April 6, the Ministry of Finance made the first payments of a total of $649.2 million under this program for the Russia-2022 and Russia-2042 issuances.
A source familiar with the situation told socialbites.ca that special C-type accounts will be used to pay foreign Eurobond holders. It is designed to carry out foreign exchange buying and selling transactions of a non-resident person. Now, according to him, it will not be possible to convert rubles to dollars. The reporter stated that this will only be possible after Russia’s access to frozen money accounts in the West is restored.
Economist Tatyana Kulikova said that such a decision of the Ministry of Finance is too risky for American owners of Russian securities. According to him, investors from the US will lose their large dollar payouts.
“US authorities, by continuing to pressure Russia to pay its government debt, are first and foremost establishing American Eurobond holders. They won’t even get a ruble.
“American investors will lose tens of billions of dollars in the face value of securities and pay a few billion more interest on them,” he said.
The exception is the rule
Candidate of Economic Sciences Mikhail Belyaev noted that the precedent factor has a dominant place in the Anglo-Saxon legal system. In mid-March, the Russian Ministry of Finance paid a total of 117.2 million rubles to bonds.
“On March 15 we transferred funds in rubles to the USA, marked them for further conversion to dollars in the USA. The Americans first threatened a technical default, saying such a trick would not work. But then influential Eurobond holders intervened and demanded immediate payment. As a result, the incident was closed after only two days.”
He suggested that in the future the practice of paying Eurobonds in rubles may become the rule, not the exception. Otherwise, the dissatisfaction of the US owners could cost US President Joe Biden dearly.
“One of the key holders of Russian Eurobonds in the US is local pension funds. This is far from an ordinary financial structure, behind them are hundreds of thousands of ordinary American citizens who do not want to receive payments in rubles for securities. Therefore, Russia’s artificial technical default could continue to haunt Biden in the 2024 election,” he said.