Russia is set to default on its dollar debts by paying bondholders in rubles, global banking body says

• Russia is set to default on its foreign debts by paying bondholders in rubles, the top global banking body has said.
• Payment in the Russian currency on bonds without ruble payment clauses "will constitute default", the Institute of International Finance said.

Russia will default on its foreign-currency debts if it goes through with its plans to pay international bondholders in rubles, the leading global banking body has said.

The sanctions-hit country is on the brink of default, after the US Treasury blocked its government from making dollar bond payments using reserves held at American banks.

Russia failed to make $650 million of payments due on two dollar bonds Monday, and it instead sent the money in rubles through to special accounts at its National Settlement Depository.

But the Institute of International Finance told Insider that payment in rubles would constitute a default.

"If Russia attempts to transfer payment in rubles — as it has warned in the past — via a special payment procedure set up in mid-March, for bonds that do not have a ruble repayment clause, this will constitute default," Elina Ribakova, deputy chief economist at the IIF, said in an emailed statement.

The IIF is the global banking association, with 450 member institutions such as Goldman Sachs and Deutsche Bank around the world.

Some of Russia's foreign-currency denominated bonds have clauses that allow payment in rubles under special circumstances. But the bonds that had $650 million of payments due on Monday are not among them.

The US Treasury move is designed to make Russia choose between draining other sources of dollars or risking default. Western governments have cut the country's central bank off from the bulk of its roughly $600 billion of foreign-currency reserves in response to Russia's invasion of Ukraine.

Most analysts believe the government would default if it goes through with its plan to pay in rubles. Ribakova agreed, saying Russia is moving "closer to a default."

"It is largely a symbolic gesture — we are talking about a few billion dollars in repayments compared to a $250 billion current account surplus — but still an important one," she said.

It is far from clear what happens next, as analysts have said it is unlikely foreign bondholders would accept rubles.

Russia has 26 days left of a 30-day grace period in which to make the payment in dollars. Yet the government does not appear to be backing down, arguing that the US has pushed it into an "artificial default."

The last time Russia fully defaulted on its foreign-currency denominated bonds was in 1918, shortly after the Bolshevik revolution.

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