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Russia’s Currency Play: Prepping for the Eurobond Due Date

The Bank of Russia is ramping up its foreign currency game in a big way. As the deadline for a significant Eurobond repayment approaches, the central bank is switching gears and shifting strategy.

Pumping Up Foreign Currency Sales

The period from September 14 to 22 will see Russia’s central bank inject a whopping 21.4 billion rubles worth of foreign currency daily into its domestic market. To give that some context, this marks an 830% jump from the initially planned 2.3 billion. The total for this period? An impressive 150 billion rubles, or roughly $1.5 billion.

The clock’s ticking with a $3 billion Eurobond due on September 16. While the bank aims to make most of the payouts in rubles, it’s open to accommodating requests for foreign currency settlements.

A Bit of Deja Vu

Last year witnessed Russia skipping a payment deadline – they missed out on clearing $100 million in interest on foreign-currency bonds. That’s noteworthy because it was the first time Russia defaulted on foreign debt since the times of Bolshevik Revolution, over 100 years ago. And it wasn’t because the Kremlin didn’t have the funds. Global financial system roadblocks, in the form of sanctions, stopped the payments in their tracks.

Stabilizing the Ruble Rollercoaster

Recent geopolitical actions, like the Ukraine invasion, coupled with Western sanctions, trade declines, and internal disturbances like the Wagner uprising, have sent the ruble into a tailspin. It hit a 16-month low in August, diving below the 100-to-the-dollar mark.

Reacting to this, the central bank chose to give the ruble a boost. They increased interest rates from 350 basis points to 12% and announced a hiatus on foreign exchange purchases for the rest of the year.

Interestingly, as reported by The Moscow Times, there’s a bit of a tug-of-war happening internally among Russian financial bigwigs. While central bank governor Elvira Nabiullina is treading cautiously against further intervention, Finance Minister Anton Siluanov is pushing for tighter capital controls.

The Eurobond Rethink

Given the constraints of Western sanctions, Russia is mulling over a unique move: swapping out all sovereign Eurobonds for substitute versions. It’s not just a name change; it’s more about the mechanics. This new version would still be pegged to foreign currencies but would handle all settlements in rubles. An official from the finance ministry clarified the strategy, emphasizing its difference from simply switching Eurobonds with OFZs.

Looking Forward

For investors and market enthusiasts, Russia’s central bank moves and the looming Eurobond due date offer intriguing insights. As the Russian financial landscape grapples with external pressures and internal dynamics, these currency strategies could play a pivotal role in the nation’s fiscal future.