Russia has condemned the United States and its allies of attempting to orchestrate a false default, despite the fact that the nation has the funds to pay its bills. This might ultimately lead to many countries cutting dollar holdings after Russian reserves were frozen, according to the IMF.
The deputy chief of the International Monetary Fund, Gita Gopinath, said on Tuesday that worldwide economies would reconsider how safe it is to depend on the US dollar in their foreign currency reserves.
The declaration comes after foreign financial institutions essentially seized half of Russia’s forex reserves as a result of sanctions imposed on Moscow after the start of its military operation in Ukraine.
“We are likely to see some countries reconsidering how much they hold of certain currencies in their reserves,” she stated in an interview with Foreign Policy magazine.
According to Gopinath, one of the repercussions of current affairs is “increasing fragmentation” in global financial networks. She did say, though, that the US dollar, which has long been regarded as the world’s reserve currency, is unlikely to face “imminent demise.”
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Still, based on how long the Ukrainian issue seems to last, Gopinath believes there could be more significant consequences.
When asked about the possibility of Russia defaulting on its sovereign debt, the senior IMF official stated the impact on the world economy would be minimal and that there would be no “systemic risk” because the “numbers that we’re looking at are relatively small from a global perspective.” A default, on the other hand, would also have long-term ramifications for Russia, according to Gopinath.
“When you’ve defaulted, reentry into the market is not easy. And that can take a long time.”
Russia’s connections to the Western banking system have been essentially severed in the last month, with most transactions restricted save for debt repayment and oil imports, at least for the time being.
The sanctions also froze about $300 billion in foreign currency reserves held by Russia. Russia’s credit rating was downgraded to pre-default status earlier this month by international credit rating agencies, indicating that Moscow will be unable to meet its commitments to foreign creditors. Last week, Russia avoided default by paying $117 million in interest on two dollar-denominated bonds. According to media sources, Russia paid a $66 million debt payment in US currency on Tuesday.
Moscow has frequently claimed that it is completely capable of fulfilling its debts, and that if all other alternatives have been explored, transfers might be made in the national currency, the ruble.
According to Moody’s Investors Services, however, there is still a risk of payment default because the reprieve from sanctions on Russia’s debt activities concludes on May 25, and Moscow still owes $100 million in payments due on May 27. Moody’s said that after that date, Russia’s creditors “will require a specific license to continue to receive debt repayments, which will further impair investors’ ability” to receive their funds.
Russia has condemned the United States and its allies of attempting to orchestrate a false default, despite the fact that the nation has the funds to pay its bills. Moscow claims that Western financial institutions are in default because they have failed to meet their duties by freezing the country’s resources.