April 7 April 6, 2022: -The prospect of Russian debt default has been brought to the fore with the U.S. Treasury blocking dollar-denominated debt payments from Moscow through U.S. banks.

On Monday, the move prevents the Kremlin from paying holders of its sovereign debt with the over $600 million of dollar reserves held with U.S. financial institutions and aims to force Russia to either use up more of its stockpile of dollar reserves or accept a first debt default in decades.

Sanctions that were imposed following Russia’s invasion of Ukraine on February 24 had frozen all foreign currency reserves held by the Central Bank of Russia with U.S. banks. Still, the Treasury Department had allowed Moscow to use those funds to fulfill coupon payment obligations on its dollar-denominated debt on a case-by-case basis.

“Russia faces a recession, skyrocketing inflation, shortages in essential goods, and a currency that no more works in much of the world,” a U.S. Treasury spokesperson told CNBC.

The spokesperson further said that one of the “most potent” actions of the 700+ sanctions the U.S. has imposed had been those levied on the CBR with “unprecedented multilateral coordination, speed, and impact.”

A $552.4 million principal payment on a bond maturing in 2022 and an $84 million coupon payment on a 2042 sovereign dollar bond came on Monday after allegations emerged that Russian forces had massacred civilians in towns near the Ukrainian capital of Kyiv.

“Today is the deadline for Russia to make one more debt payment. Starting today, the U.S. Treasury will not permit any dollar debt payments from Russian government accounts at U.S. financial institutions,” the Treasury Department spokesperson said.

The spokesperson also said that the drawdown on dollars would deplete the resources available to Russian President Vladimir Putin’s war effort and trigger more significant uncertainty in the Russian financial system.