The U.S. has stopped the Russian government from paying holders of its sovereign debt more than $600 million U.S. from reserves held at U.S. banks, a move that increases the likelihood Russia will default on its payments.
Under sanctions put in place after Russia invaded Ukraine on February 24, foreign currency reserves held by the Russian central bank at U.S. financial institutions have been frozen.
But the U.S. Treasury Department had been allowing the Russian government to use those funds to make payments on U.S. dollar-denominated sovereign debt on a case-by-case basis.
Now though, as the largest of the payments came due, the U.S. government decided to cut off Moscow's access to the frozen funds, according to a statement from the U.S. Treasury Department.
The move is meant to force Moscow to make the difficult decision of whether it would use dollars that it has access to for payments on its debt or for other purposes, including supporting its war in Ukraine.
Russia faces a historic default if it chooses to not make the payment. The country has a 30-day grace period to make the payment or officially default.
JPMorgan Chase (JPM), which had been processing payments as a correspondent bank, was stopped by the U.S. Treasury Department. The correspondent bank processes the coupon payments from Russia, sending them to the payment agent to distribute to overseas bondholders.
Russia, which has a total of 15 international bonds outstanding with a value of around $40 billion U.S., has managed to avoid defaulting on its international debt despite unprecedented Western sanctions. But the payments are getting harder to make.
