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Russia to Pay Sovereign Debt in Rubles? That’s a Dirty Trick!

Russia to Pay Sovereign Debt in Rubles? That’s a Dirty Trick!

The head of the IMF thinks Russian will default on its international debts, which are supposed to be paid in dollars or some other hard currency. The Russian ruble has lost a great deal of its value over the last couple of weeks. And moreover, with the international sanctions being levied, it may be difficult or impossible to convert.

Russian Finance Minister Anton Siluanov says that is not true, the Russian government has no problem paying its debts. Russian owes $117 million in interest payments this month.

There is talk of paying in rubles.

Hmmm, this leads to a number of interesting issues. Nobody wants rubles right now. in fact, the debt instruments specify hard currency. Rubles are apparently not a good bet in any environment, who the heck wants a currency from a country that is at war and under crippling sanctions.


But yet there are debts to settle, the government of Russia owes money, it acknowledges the debt and is willing to pay. This will likely not work out well for Putin and Russia, but they can plausibly deny any talk of bankruptcy or default.

Here are some points:

1. Since Russia is paying debts and not trying to borrow at this time, they have a certain amount of leverage.

2. Russia has been known to fix its exchange rate to whatever is advantageous. They can do it again.

3. If they pay in rubles, then people outside of the sanctions block will be holding Rubles and will have an incentive to relieve sanctions so that they can convert to hard currency.

4. If the sanctions are not relieved, then holders of Rubles may only be able to buy inside of Russia (or through China if that is indeed a corridor for trade), otherwise the rubles are worthless.

5. Russia cannot be accused of not paying its debt, since international sanctions are not their doing. They are making “good faith” efforts.

6. It times start to become difficult, they can print more rubles, since it is their sovereign currency. Modern Monetary Theory says that while inflation can go through the roof, a sovereign government can never really run out of money.

The debt holders may not like this, but they are pretty much stuck. Russia would have a legitimate claim that they made good faith efforts to pay, and if the banks refuse payment it is on them.

But holding a currency that you cannot convert, trade or use to purchase something, that is on a downward exchange rate path is not something that banks like to do.

So imagine you have just received $117 Million in rubles on the official exchange rate, but with the market exchange rate, it is really only about $50 million. And since you can’t converted it because of the sanctions, either you hold it, and hope its doesn’t devalue to $10 million, or maybe you find a speculator somewhere willing to give you $20 million. But yet, Russia has paid.

That is the dirty trick.

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  1. Tex

    Turn around with it and pay America’s debt to China with it and laugh all the way back from the bank!

    • Joe Gilbertson

      I like it! I should have picked up some rubles to pay off my car. Give the bank whatever is recognized as the exchange rate by the international community.

  2. John Hewett

    If Russia uses rubles to repay debt and values those rubles at a certain value in order to pay the debt, banks should just take the rubles, that the Russians have put a value on and use them to buy hard assets in Russia. They can’t say the ruble is worth nothing, otherwise their debt would not be paid.

    • Tony Bell

      The west’s sanctions prevent them from buying Russian goods. The western elite have effectively out smarted themselves. Or Putin has outsmarted them, which they would never admit.

    • Joe Gilbertson

      It is a quite a pickle for the west…

      • Frank stetson

        What pickle? Pay in dollars or default.

        No biggee, no one giving them new loans anyway.

        Trump is the next default. Amazingly, he wants to pay in roubles too.

        • Harvey

          Go blow trump.

          • frank stetson

            Such a mature young troll.

            I always like to think about all the dogs I’m saving by giving you a place to vent your spleen rather than kick them.

        • Joe Gilbertson

          But if the international community is not allowing you to convert, then they can make the excuse to pay in what they have, their hands are tied.

          And don’t underestimated the international banking community’s stupidity in eventually making loans again.

          • Frank stetson

            There is no doubt that when they default they will make an excuse. This one is good as anything.

            The contract calls for dollars and I’m sure it will be dollars the bank wants. The only reason not to take the ruble is that it’s in freefall so that whatever it’s worth at the time that you take it, it will be worthless probably minutes after you take it. That’s why no one will except the ruble anymore. Thank you Joe Biden.

            They will also be able to get a loan. There’s always Guido on the corner or perhaps China. But one thing is clear, they will not get a low interest loan.

            And no, I do not think it will be forgotten soon on this one in the near term or even far future. Another reason to remove Putin; it expedites the do-over restart. Otherwise, they are just another rogue nation with a pariah at the helm.

            Putin may and probably will ultimately win the battle here, but he is already lost the war. Thank you Joe Biden. Thank you brave Ukrainian people.

  3. Tony Bell

    Dirty trick? I think not. Seems the western elitist’s have effectively out witted themselves. Or will they admit that Putin outsmarted them?

    • Joe Gilbertson

      You are not wrong.

  4. Tommie