Western sanctions forced Russia to draw down its valuable dollar reserves to pay its debts, US Treasury says
- Western sanctions have forced Russia to use up currency reserves to pay its debts, the US Treasury has said.
- A Treasury official said the dollars can no longer be used to fund Russia's invasion of Ukraine.
Western sanctions have forced Russia to deplete its own reserves of dollars to pay its debts, meaning the money can't go towards funding its invasion of Ukraine, the US Treasury has said.
Russia avoided default at the last minute Tuesday as payments on dollar-denominated bonds started to find their way into investors' accounts.
"Russia has made their debt payment using funds located outside the US or other partner jurisdictions," a US Treasury official told Insider in a statement.
"These valuable reserves have permanently left Russia and can no longer go towards funding their invasion of Ukraine."
Until last week, Russia had looked highly likely to default on its foreign debts after the US blocked it from making $649 million of payments using accounts at American banks in early April.
The US and its allies have frozen the bulk of Russia's roughly $600 billion of foreign currency reserves.
Until early April, the US Treasury granted Russia an exception to allow it to make bond payments using frozen funds.
But it abruptly changed its policy last month in an effort to ramp up the pressure on Vladimir Putin's government.
"Russia was forced to choose between draining their remaining valuable dollar reserves or new revenue coming in, or default," the official said.
"Forcing the use of so-called 'fresh funds' will further deplete the resources Putin is using to continue his war against Ukraine and other economic priorities."
The $649 million of bond payments is small compared with the foreign currency reserves Russia still has access to, and to the amount of money it receives from the country's energy exports.
But Russia still has to make almost $2 billion of bond payments this year. It had around $39 billion of foreign-currency denominated bonds outstanding as of January, $20 billion of which was owned by foreign investors, according to analysts at JPMorgan.