© . FILE PHOTO: Russian ruble banknotes can be seen in this illustration photo taken on Sept. 30, 2014. REUTERS/Maxim Zmeyev/Illustration By Megan Davies and Alexandra Alper NEW YORK/WASHINGTON () – The United States on Monday stopped the Russian government from paying holders of his national debt more than $600 million from reserves at US banks, in a move designed to increase pressure on Moscow and eat up its holdings of dollars. Under sanctions imposed after Russia invaded Ukraine on February 24, foreign exchange reserves held by the Russian central bank with US financial institutions were frozen. But the Treasury Ministry had allowed the Russian government to use those funds to make coupon payments on dollar-denominated sovereign debt on a case-by-case basis. On Monday, when the largest of the payments was due, including a $552.4 million principal on a maturing bond, the US government decided to end Moscow’s access to the frozen funds, a US Treasury Department spokesman said. . On Monday, an $84 million coupon payment was also due on a $2,042 government bond. The move was intended to force Moscow to make the difficult decision whether to use dollars it has access to to pay off its debts or for other purposes, including to support its war effort, the spokesman said. Russia faces a historical flaw if it chooses not to. “Russia has to choose between running out of remaining valuable dollar reserves or bringing in new revenues, or defaulting,” the spokesman said. JPMorgan Chase & Co (NYSE:), which had previously processed payments as a correspondent bank, was stopped by the Treasury, a source familiar with the case said. The correspondent bank processes the coupon payments from Russia and sends them to the paying agent to distribute to foreign bondholders. The country has a 30-day grace period to make the payment, the source said. STANDARD CONCERNS Russia has the means to pay out of reserves as sanctions have frozen about half of about $640 billion in Russia’s gold and foreign exchange reserves. But a draw would add to the pressure, just as the United States and Europe are planning new sanctions this week to punish Moscow for civilian murders in Ukraine. Russia calls its action in Ukraine a “special military operation”. Ukraine and the West say the invasion was illegal and unjustified. Images of a mass grave and the tied-up bodies of people shot at close range sparked international protest on Monday. Russia, which has a total of 15 international bonds outstanding with a face value of about $40 billion, has managed to avoid defaulting on its international debts despite unprecedented Western sanctions. But the task is getting harder and harder. “What they really want to do is put their hands up and put even more pressure on (to deplete) the foreign exchange reserves at home,” said David Wolber, a sanctions attorney at Gibson Dunn in Hong Kong. “Of course, if they have to do that, it diminishes Russia’s ability to use those dollars for other activities, essentially financing the war.” It could also put pressure on Russia’s demands to pay rubles for gas from European customers, he added. Russia was last allowed to make a $447 million coupon payment on a government bond in 2030, due last Thursday, marking at least the fifth such payment since the start of the war. If Russia fails to make any of its pending bond payments within the predefined time frames, or pays in rubles where dollars, euros or any other currency are specified, it will be a default. While Russia will not be able to access international lending markets due to sanctions, if defaulted, Russia would not be allowed access to those markets until creditors have been repaid in full and all lawsuits arising from the default have been settled.
