“Significant amounts of our reserves are blocked in foreign countries, so if this blockage continues and these transfers are blocked from the blocked amounts, then they will be served in rubles,” the Kremlin spokesman said on Wednesday, Dmitry Peskov at a press conference. “If that’s not possible, then in theory, of course, a default situation can be arranged.”
Peskov argued that a default would be “artificial” because he has the dollars to pay – he just can’t access them.
“There’s no reason for a real default,” Peskov said. “Not even close.”
Cut Russia off its dollars
But the images of dead civilians on the streets in Bucha have led Western countries to impose more sanctions and to tighten the screws even more on Moscow.
“This will further drain the resources Putin is using to continue his war against Ukraine and cause more uncertainty and challenges for their financial system,” a US Treasury Department spokesperson told CNN in a statement Monday.
This somewhat isolated the Russian economy from Western sanctions. But cutting Russia off its dollars will almost certainly force it to default. This could force Russia to pay higher interest on its debt, if it chooses to pay.
Russia last defaulted on its domestic debt when the country was thrown into a financial crisis by a collapse in commodity prices in 1998. Its last foreign currency default came in 1918 when Bolshevik leader Vladimir Lenin repudiated the bonds issued by the Tsarist government.
If the Russian government defaults, investor losses could start to pile up, although Western investors will have less exposure to Russia than before. Sanctions following the annexation of Crimea in 2014 already encouraged them to reduce their exposure. But international banks owe about $121 billion to Russian entities, according to the Bank for International Settlements.
Interest payments due Wednesday have a 30-day grace period. But the rating agencies could declare Russia in default before the end of this period if Moscow makes it clear that it does not intend to pay.
– CNN’s Chris Liakos and Matt Egan contributed to this report