Moscow is now seeking alternative ways to trade in rubles in an attempt to bypass the US and sanctions. According to a report, Russia has been getting ever closer to default after Wall Street banks stopped interest payments on two dollar bonds, forcing it to pay in rubles instead.
On Wednesday, the Credit Derivatives Determinations Committee said the ruble payment was a potential default.
Putin’s bankers and economists are now seeking ways to reroute bond payments through homegrown institutions, yet, with sanctions affecting a wide body of Russian financial means, it is not yet clear how this can be achieved.
One potential route available for Russia to avoid the default would be using the Russian Central Bank as an intermediary and paying agent for any foreign-related payments on non-domestic debt.
This would see the Russian system avoiding US institutions.
According to Bloomberg: “A correspondent bank performs basic treasury services and manages foreign exchange for clients, while a paying agent bank handles housekeeping on bonds, collecting interest from issuers and helping distribute it to investors.
“Under this scenario, payments to bondholders would progress to the Central Bank of Russia instead of the foreign correspondent bank and paying agent.
“For Russia, relying on its own domestic clearing agent would also allow it to sidestep foreign rivals that have held up payments to Russian investors.
“Euroclear and Clearstream, which process payments as central securities depositories, have blocked accounts the national Russian depository has with them, leaving payments to local bondholders in limbo.”
It’s not clear that paying out in rubles would even help Russia or large Russian companies to avoid default. For example, when the country sovereign dollar bonds in roubles, S&P cut its credit ratings to “selective default”.
Russia’s economy in tatters as ‘Putin has destroyed the ruble’
Russia had built up more than $600bn worth of foreign currency reserves held in dollars, gold and other currencies, with about half believed to be frozen by the restrictions imposed on its central bank.
The ruble crashed in value by more than 40 percent after western governments first imposed sweeping economic sanctions, although it has recovered to pre-invasion levels over recent weeks.
Without access to half of its foreign currency reserves, the Russian central bank imposed tight capital controls and raised interest rates in an attempt to bolster the currency.
The current value of the ruble is also up against recent slumps.
According to latest figures, the ruble cleared 77 to the dollar on Wednesday.
Previous values have seen the currency sink to in excess of 100 rubles per dollar.
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According to one senior economist and former US ambassador to Russia, Michael McFaul, the true value of the ruble in terms of street value is likely to be well in excess of 200 to the dollar as pressure mounts on the Russian economy.
The country is seeing rising inflation as the impact of the sanction start to hit home on the streets of Russia, with imported items taking the heaviest toll.
In order to assist, Russia has turned east to China to help with trade, as Beijing has refused to acknowledge western imposed sanctions on Russia.