The United States stopped the Russian government on Monday from paying holders of its sovereign debt more than $600 million from reserves held at American banks, in a move meant to ratchet up pressure on Moscow and eat into its holdings of U.S. dollars.
Under sanctions put in place after Russia invaded Ukraine on Feb. 24, foreign currency reserves held by the Russian central bank at U.S. financial institutions were frozen.
But the Treasury Department had been allowing the Russian government to use those funds to make coupon payments on dollar-denominated sovereign debt on a case-by-case basis.
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, according to a U.S. Treasury spokesperson.
An $84 million coupon payment was also due on Monday on a 2042 sovereign dollar bond.
JPMorgan Chase & Co, which had been processing payments as a correspondent bank so far, was stopped by the Treasury, a source familiar with the matter said.
The correspondent bank processes the coupon payments from Russia, sending them to the payment agent to distribute to overseas bondholders.
The country has a 30-day grace period to make the payment, the source said.
Russia, which has a total of 15 international bonds outstanding with a face value of around $40 billion, has managed to avoid defaulting on its international debt so far despite unprecedented Western sanctions.
Russia was last allowed to make a $447 million coupon payment on a 2030 sovereign dollar bond, due last Thursday, at least the fifth such payment since the war began.