To date, the Russian government needs to make payments on debt obligations in dollars in the amount of $117 million dollars. Despite the fact that a significant part of the country's gold and foreign exchange reserves is frozen, for Russia this is not such serious debt. But because of the sanctions, it is problematic to do this in foreign currency.
If it is impossible to repay the debt in foreign currency, the Ministry of Finance will make the payment in the national currency. For some bonds, payment is possible in national currency, but not in this case. The settlement in rubles for these obligations will mean default (failure to fulfill the obligation to pay the debt, including interest and principal sum).
In August 1998, Russia defaulted on short-term bonds. After that, a crisis erupted in the country: the ruble depreciated three times by the end of the year, the standard of living of the population fell sharply, the banking system was paralyzed for several months. But the cheap ruble helped the industry. The devaluation made Russian goods more competitive. Export volumes increased, and already in 1999 economic growth began and a rise in oil prices has accelerated this process.
This default occurred against the backdrop of the financial crisis in Asia. Investors began withdrawing their money from emerging markets, including Russia. Russia at the time was filling budget gaps with high-yield short-term bonds. Over time, the funds raised from the new bonds began to be used to pay off the resulting debt on the old ones. Oil, one of the main export products of the Russian economy, has also become cheaper.
The current crisis has nothing to do with the processes taking place in the global economy. It is the result of the US and its allies’ sanctions against Russia that have no parallel in the history of the financial system, in response to the war unleashed by Russia against Ukraine. The first blow, as expected, took the ruble and today has lost 60% in value. The devaluation of the national currency accelerated inflationary processes.
The US ban on the supply of dollar bills to Russia exacerbates the situation. This ban applies not only to the Russian government but also to any individual in the country. A similar ban was introduced by the European Union on cash euros. Last year, Russian banks brought more than $16 billion in cash into the country. Therefore, the ban on the supply of dollars may increase the currency shock. This will lead to further depreciation of the national currency and, as a result, an increase in the cost of imports.
The government is trying to intervene in the current situation mainly with the help of administrative prohibition tools since the freezing of a significant part of gold and foreign exchange reserves reduces the possibility of conducting an effective monetary policy.
Immediately after the sanctions, the Bank of Russia decided to prohibit brokers from selling securities if foreign companies or individuals gave them the appropriate instructions.
The regulator also introduced a new procedure for operations with foreign currency in cash for individuals: it will not be possible to buy it in the next six months, and it will be possible to withdraw a maximum of 10,000 dollars from a foreign currency account or deposit in one bank.
This can be done all at once or in several steps. If you approach the issue through a broader prism, then the default in Russia is already underway. Evasion from the fulfillment of previously assumed obligations by unilaterally intervening in the deposit agreement means the default of banks. Even if the payment is made today, there is no doubt that the default will occur when the next payment is due on April 4. Because with each passing day, sanctions will deal an increasingly crushing blow to the Russian economy.