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5 Apr 2022

U.S. stops payment of Sovereign Debt to Russia to raise pressure on Moscow

The Index Today

The United States stopped the Russian government on Monday from paying holders of its sovereign debt. According to a U.S. Treasury spokesperson on Monday, as the largest of the payments came due, including a $552.4 million principal payment on a maturing bond, the U.S. government decided to cut off Moscow's access to the frozen funds.

Foreign currency reserves held by the Russian central bank at U.S. financial institutions were frozen because it is under sanctions put in place after Russia invaded Ukraine on Feb. 24.

An $84 million coupon payment was also due on Monday on a 2042 sovereign dollar bond.

The spokesperson also mentioned that the move was meant to force Moscow to make the difficult decision of whether it would use dollars that it has access to for payments on its debt or for other purposes, including supporting its war effort.

Russia faces a historic default if it chooses to not do so.

"Russia must choose between draining remaining valuable dollar reserves or new revenue coming in, or default," the spokesperson said.

The country has a 30-day grace period to make the payment, the source said.

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