Russia is on the brink of defaulting on its debt for the first time in over 100 years as Standard and Poor downgraded Russia's credit rating from 'junk' to 'selective default'. The move came after Moscow tried to make foreign bond payments in roubles this week. The payments were due in dollars.
The Russian government is not able to make dollar payments from accounts held in US banks after the US imposed the latest sanctions on Moscow for invading Ukraine.
S&P's decision was based on the analysis that sanctions are set to widen against Russia in the coming days which could hamper its obligations to foreign debtholders.
Meanwhile, Moscow pointed out that it would pay its loan in roubles until its overseas accounts are not unfrozen.
What Options Does Russia Have?
Despite various sanctions imposed on Russia, Moscow still has a 30-day grace period to pay the debts. During the period, Russia has options to convert the rouble into dollars or could explore other options to avoid officially going to default.
If it happens, it would mark the first default on Russia's international debt since the Bolshevik Revolution in 1917. Experts have warned that the default will severely worsen Moscow's financial downturn.
Recently, US Treasury imposed the latest sanctions against Russia after killings in Bucha suggested the level of war crimes.
The sanctions were aimed at forcing Russia to choose three options -- draining dollar reserves held in its own country, spending new revenue, or going into default.
Russia's Payment Rejected in US Bank?
Meanwhile, the Russian finance ministry this week maintained that it tried to make a $649 million (Â£498 million) payment toward two bonds to an unnamed US bank, previously reported as JPMorgan Chase, but that the tightened sanctions prevented the payment from being accepted, according to the Daily Mail.
Therefore, Russia paid in roubles, triggering Moscow's first possible sovereign default since WWI.
Moscow has been pointing out that western countries are making every possible way to make Moscow declare default and Russia has vowed to use other mechanisms to make payments.