Xinhua News Agency, Beijing, May 1 (international observation) Russia is expected to avoid “debt default”, and the “credit default” of the United States may have no solution
Xinhua News Agency reporter Deng Qian Xu Chao
The Russian Ministry of Finance recently confirmed that it paid the debt due on April 4 in US dollars, and did not repay the debt in the national currency ruble as previously announced. This means that Russia is expected to fulfill foreign debt contracts before the expiration of the 30-day grace period on May 4, thus avoiding the country’s first sovereign debt default in decades.
International observers believe that the United States continues to squeeze Russia’s financial resources, preventing Russia from repaying its debts through the foreign exchange of US financial institutions, and “artificially creating” the risk of Russia’s debt default, highlighting the dangerous nature of its financial hegemony. In this political game, the United States seems to have achieved a “victory”, but this “financial weaponization” is increasingly regarded as a “credit default” by the outside world, which is damaging the national credit of the United States and the world‘s interest in the financial system dominated by the United States. confidence.
Russia strives to avoid ‘sanctions-style’ debt default
After the Russian-Ukrainian conflict broke out, the United States announced that it would freeze the assets of the Russian Central Bank in the United States, prohibiting most of its transactions except for debt payments and oil and gas trade. To further pressure, the U.S. Treasury Department banned Russia from using its foreign exchange reserves stored in U.S. financial institutions to pay sovereign debt payments to foreign creditors from April 4. A U.S. bank is subject to U.S. sanctions and is unable to process debt repayments totaling about $649 million from Russia.
A Treasury Department spokesman said the sanctions were intended to force Russia to use its domestic dollar reserves to pay down debt, rather than use those reserves for purposes such as military operations. “Russia must make a choice, either deplete its precious dollar reserves, add new sources of funding, or default.”
The Russian side immediately announced that the above-mentioned payment should be paid in rubles, but there was a dispute between the parties. The international rating agency said Russia has a 30-day grace period to pay the debt in U.S. dollars, during which if the U.S. dollar is not transferred to the bondholders’ accounts, paying the debt in rubles would constitute a default because “the bond contract does not stipulate that the debt be in a currency other than the U.S. dollar.” repay”.
To this end, Russian Finance Minister Siluanov warned that if the West forces Russia to default on its debt, Russia will take legal action. “The policy deliberately adopted by Western countries is to artificially create defaults by all possible means.”
As the 30-day grace period draws to a close, Russia’s attitude has changed. The British “Financial Times” quoted the Russian Ministry of Finance’s statement a few days ago, saying that the total amount of 649 million US dollars, originally due on April 4, has been paid in US dollars to the payment agency Citigroup. A U.S. official said the debt repayments announced were in Russian dollars.
The US and the West drop the “Financial Iron Curtain” against Russia
Russia’s gold and foreign exchange reserves are about $640 billion, of which about $300 billion is frozen by sanctions. Analysts believe that Russia has the ability to repay related debts, and the default dispute is essentially a political game between the United States and the West and Russia. If other subsequent debts are repaid according to the latest method, Russia will face the risk of “sit and eat” by the foreign reserve.
Taking advantage of its financial hegemony, the United States has continued to impose sanctions and lowered the “financial iron curtain” against Russia. So far, it has frozen foreign reserves, imposed an energy embargo, sanctioned major banks, and excluded most Russian banks from the Society for Worldwide Interbank Financial Communications (SWIFT). Measures outside the system, such as “locking the source”, “broken chain” and “decoupling” against Russia, tried to cut off Russia’s economic and financial ties with the rest of the world, and consumed the resources at Russia’s disposal.
Paul McNamara, an emerging-markets bond fund manager at Global Asset Management (GAM), said Russia’s last-minute repayment of its debt with scarce dollars marked the fruits of U.S. pressure.
Lee Buchheit, an honorary professor at the University of Edinburgh Law School and a senior legal expert on sovereign debt issues, believes that the risk of debt default faced by Russia is “not a financial issue, but a political issue.”
IMF First Deputy Managing Director Kita Gopinath has said that if Russia defaults on its debt, the immediate impact on the world will be relatively limited, but it will have serious implications for Russia because re-entering credit markets is “not that easy” .
Abuse of hegemony highlights US “credit deficit”
International observers believe that the United States used financial hegemony to freeze Russia’s foreign exchange reserves overseas, “cut off” Russia’s debt repayment channel by suspending correspondent bank-related businesses, and sacrificed bondholders to “drain” Russia’s “capital”. and the interests of international investors will eventually make the world increasingly question the national credit of the United States and the credit of the U.S. dollar.
The “Wall Street Journal” recently published an article pointing out that the United States and European countries have imposed restrictions on the Russian central bank to prevent it from weakening the impact of sanctions by allocating international reserves. This “weaponization” of the international monetary system will have a lasting impact. At present, 78% of the international reserves of developing countries are foreign exchange assets. Western sanctions against Russia under the Russia-Ukraine conflict show that the foreign exchange reserves accumulated by central banks may be “snatched” at any time.
Russian financial analyst Alexei Vyazovsky believes that the US financial sanctions against Russia have seriously damaged the global financial system. By freezing foreign reserves, it creates the risk of Russian debt default, which will lead to the collapse of the US government’s credit.
In recent years, many countries have promoted the diversification of cross-border payments and foreign exchange reserves. Even the European Union, a U.S. ally, established a suite of special-purpose payment facilities in 2019 to facilitate non-dollar transactions with Iran and circumvent U.S. sanctions.
The US “Newsweek” believes that the US dollar has always been regarded as one of the most influential tools of the United States, but the frequent use of financial sanctions by the United States not only weakens the effectiveness of the sanctions themselves, but may also erode the dominance of the US dollar. (Participating reporters: Huang He, Fan Yu)
(Responsible editor: Fu Zhongming)