While the war between Russia and Ukraine is still in the spotlight, other problems are brewing behind the scenes. Russia was on the verge of defaulting due to US sanctions and other economic turmoil. That plan may be averted if the nation can get traction for its bond-payment mechanism.
A Bold Plan By Russia
It is very tricky to bypass US sanctions and evade a financial meltdown due to current economic conditions. Governments and banks have to get pretty creative, and it seems Russia has another card up its sleeve. Foreign investors can open Russian bank accounts in rubles and hard currency through a new bond-payment mechanism. Moreover, funds would be accessible without restrictions, although there are still some questions regarding that aspect.
For now, the bond-payment mechanism isn’t accessible yet. Russian officials are still discussing the project and its potential implications. Russia finds itself on the default countdown as $100 million in euro and dollar coupon payments are still elusive. Those payments were expected to occur on Friday, but the country is now in a 30-day grace period due to the money not being there.
Complicating matters is the US Treasury letting a sanctions loophole expire. As a result, US banks and individuals can no longer accept bond payments from Russian government officials. Additionally, the bond-payment mechanism would solve this issue by serving as a reverse system of how European nations pay for Russian gas. Dubbed the “Eurobond settlement mechanism”, it will convert rubles to foreign currency.
While this new idea has merit, there are still many unanswered questions. There is no indication banks want to get on board with this new bond-payment mechanism, and US sanctions may restrict euro payments coming from Russia. However, the EU has no restrictions on payments in its common currency. For now, the new mechanism is expected to go live in the next three weeks, assuming technical issues can be resolved.