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Russia stokes fears of first foreign currency default in more than a century as it attempts payment

A view of the Moscow Kremlin and St Basil’s Cathedral.
Mikhail Japaridze | TASS | Getty Images

Russian Finance Minister Anton Siluanov said Wednesday it is up to the U.S. to decide whether crucial interest payments on two dollar-denominated eurobonds go through, stoking fears of Moscow’s first foreign currency debt default in over a century.

“The possibility or impossibility of fulfilling our obligations in foreign currency does not depend on us, we have the money, we paid the payment, now the ball is on the side, first of all, of the American authorities,” Siluanov said in an interview with RT Arabic, according to Russian news agency RIA.

“The Russian Federation has the necessary money in foreign currency accounts, it is possible to pay in ruble settlements.”

Siluanov claimed Russia had the necessary funds to fulfill its obligations and pay $117 million in interest on two sovereign eurobonds due on Wednesday. However, the U.S. should first clarify whether the settlements are possible. CNBC has contacted the U.S. Treasury Department’s Office of Foreign Assets Control, which administers sanctions, for comment. It was not immediately available to respond.

It is thought Russia could attempt to deliver payment in rubles if a settlement in dollars is rejected.

Credit ratings agency Fitch has warned, however, that payment to bondholders in a currency other than dollars would constitute a default.

The prospect of non-payment would kickstart a 30-day grace period before Russia falls into technical default, but the Kremlin will likely contend that Western sanctions prevented it from completing the payment.

If confirmed following the grace period, the non-payment would mark Russia’s first sovereign default since 1998, when it defaulted on domestic debt, and the first sovereign default on foreign currency debt since the Bolshevik Revolution in 1918.

Economists had been unsure as to how Russia’s Ministry of Finance would approach the payment in light of sanctions on the Central Bank of Russia that rendered much of its foreign exchange reserves inaccessible, prompting a sweep of credit downgrades from the major global ratings agencies.

Russia’s Siluanov indicated on Monday that Russia would use its reserves of Chinese yuan to make some of its payments, with euros and dollars now inaccessible due to sanctions, and also suggested that creditors from “hostile” countries may be paid in rubles.

–CNBC’s Elliot Smith contributed to this article.

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