Russia Says It Will Repay Debt in Rubles... Russian Default Clock 'Tick Tock' (Summary)

[Image source=Yonhap News]

[Asia Economy Reporters Hyunwoo Lee and Hyunjin Jung] As Russia is expected to face its first debt default crisis as early as the 16th, the Russian government has announced that it will repay its foreign debt in rubles, citing Western sanctions, raising concerns about massive foreign exchange losses for Western financial institutions and companies. Although Russia's share in the global financial market is not very large, making an immediate financial crisis unlikely, concerns are growing that it could trigger a chain reaction of financial instability.

On the 13th (local time), Anton Siluanov, Russia's Finance Minister, said in an interview with the state-owned Rossiya-1 TV broadcast, "About half of our total foreign exchange reserves of $640 billion (approximately 791.68 trillion KRW), around $300 billion, have been frozen due to Western sanctions and are unusable," adding, "Debts owed to unfriendly countries that restrict the use of foreign exchange reserves will naturally be repaid in rubles." Earlier, on the 7th, the Russian government designated 48 countries, including the United States, the United Kingdom, Australia, South Korea, Japan, and the European Union (EU), which joined sanctions against Russia, as unfriendly countries.

This statement is interpreted as a warning message that banks and companies investing in Russia could suffer massive foreign exchange losses as a countermeasure against Western sanctions on Russia. In the international foreign exchange market, the value of the ruble, which was 84.95 rubles per dollar on February 24, the day Russia invaded Ukraine, fell to 132.10 rubles per dollar on the day of the statement. This represents a sharp decline of 55.5% since the invasion.

Exchange Rate Trend of Russian Ruble Against US Dollar (Source: Bloomberg)

The first opportunity to confirm Russia's response is expected to be on the 16th. On that day, the maturity of $117 million (approximately 144.6 billion KRW) in interest on Russia's dollar-denominated government bonds will come due. Although there is a 30-day grace period for this interest payment, allowing additional time until March 15, it is expected to be the first case to gauge how Russia will respond to bond repayments. Subsequently, principal repayments of $359 million are scheduled for the 31st of this month, and $2 billion on the 4th of next month.

If Russia repays in rubles as announced, the financial market may consider this a default. Japan's Nihon Keizai Shimbun stated, "If repayment is made in a currency different from the contract, credit rating agencies are likely to consider it a default," adding, "They will have to choose between 'Selective Default (SD),' which regards some bond principal payments as made, and 'Default (D),' which views it as a full default."

Even if Russia declares a default, the possibility of an immediate global financial crisis is low. Foreign media reported that the amount of Russian government bonds held by foreign investors is around $20 billion, assessing that Russia's presence in the global financial market is not significant.

However, some experts warn that although the scale is not large, there could be risk contagion through the credit default swap (CDS) market, and caution is not being relaxed. CDS is a credit derivative product that protects against the risk of not receiving principal and interest payments on bonds or loans in the event of a default, and it is difficult to accurately identify the participants and scale of its trading. This means that unexpected chain financial instability could occur in unforeseen places if Russia defaults.

Furthermore, the assets related to Russia held by global financial institutions are larger in scale than Russian government bonds. According to the Bank for International Settlements (BIS), global financial institutions such as Goldman Sachs and JP Morgan hold Russian-related assets exceeding $121 billion (approximately 149.5 trillion KRW). Among these, European banks, including those from France, Italy, and Austria, hold the largest share, amounting to $84 billion, while the United States holds about $14.7 billion.

This content was produced with the assistance of AI translation services.