Speaking at a press conference in Germany, Yellen said it was “reasonably likely” to expect the license to expire on May 25.
“There hasn’t been a final decision on that. But I think it’s unlikely [the carve-out] Yellen said.
But the ending cut would effectively prevent Russia from paying US bondholders, raising the risk of default. Russia has not defaulted on its foreign debt since the Bolshevik Revolution more than a century ago.
US sanctions imposed after Russia’s invasion of Ukraine banned transactions with the Russian Central Bank, the Ministry of Finance and the Russian National Wealth Fund. However, the Treasury Department has issued a license that allows some debt repayment related transactions.
“When we first imposed sanctions on Russia, we created an exemption that would allow a period of time for an orderly transition and to enable investors to sell securities,” Yellen said. “The expectation was that it was limited in time.”
Yellen indicated that she is not concerned about the potential fallout from the termination of the license.
“Russia is now unable to borrow from global financial markets,” Yellen said. “It does not have access to the capital markets.” “If Russia has been unable to find a legal way to make those payments and it is technically in default on its debt, I don’t think that really represents a major change in Russia’s situation. They are already cut off from global capital markets and this would have continued.”
Russia has managed to prop up the ruble despite global sanctions by raising interest rates, preventing Russian brokers from selling securities held by foreigners and requiring gas and oil deliveries to be paid in rubles, among other measures. These measures allowed Moscow to artificially manufacture the demand for the ruble, even as the country’s economy remained in tatters.
The ruble is approaching a five-year high against the euro and standing at a more than two-year high against the dollar. It is the best performing currency of 2022.
But Russia may not be able to maintain this power for much longer. The risk of default and disagreements with European countries over gas payments could limit Russia’s ability to prop up its looming currency.