By Karin Strohecker

LONDON, (Reuters) – Russia moved closer to a default on international debt Wednesday when it paid dollars bondholders in roubles. It said that it will continue doing so until its foreign currency reserves are blocked.

On Monday, the United States stopped Russia paying its holders of sovereign debt over $600m from U.S. bank reserves. Moscow was forced to make a choice between defaulting or draining its dollars reserves.

Russia hasn’t defaulted since it reneged on the payments due following the 1917 Bolshevik Revolution.

A fund manager for one of the bonds that were due to be paid on Monday stated, “This accelerates the timeline around Russia’s willingness and capability to pay.”

Kremlin stated that it would continue to collect its debts.

Russia is able to repay its debts with all the necessary resources. Dmitry Peskov, a Kremlin spokesperson said that if the blockade persists and payment aimed at servicing debts is blocked, this (future payments) could be made with roubles.

Moscow had 15 outstanding international bonds totaling around $40 billion. Moscow was able to make several foreign exchange coupon payments via its Eurobonds, even though the United States has stopped these transactions.

Russia’s Finance Ministry said that Wednesday, due to a refusal by a foreign Bank to issue an order for $649m to holders its sovereign debt holders in dollars-denominated Eurobonds, it would have to pay roubles.

According to the finance ministry, the foreign bank it didn’t name rejected Russia’s request for coupons on two bonds. It also refused payment of the Eurobond due in 2022.

Russia’s debt repayment ability is under scrutiny after its “special military operation” in Ukraine has resulted in sweeping sanctions that have almost frozen half of Russia’s reserves, and severely restricted its access to the global payment system.

‘ARTIFICIAL SITUATION’

JP Morgan was a correspondent bank that had been making payments to Russia on sovereign bonds. The U.S. Treasury stopped JP Morgan from making the payments due Monday. A source who is familiar with the matter said. JP Morgan did not respond to requests for comment.

Russia could allow foreign holders of 2022 or 2042 Eurobonds in Russia to convert their rouble payments into foreign currency once they have access again to forex accounts, according to the finance ministry.

The ministry said that until then, Eurobond payments equivalent in roubles to bondholders of so-called hostile nations will be held in special accounts designated ‘C’ at Russia’s National Settlement Depository.

Russia is allowed to pay the dollar within a grace period of 30 days. However, if it does not appear in the bondholders accounts by that date, the default would be considered, according to global rating agencies.

Russia considered this a default scenario.

Peskov stated that although a default scenario could theoretically be made, this would only be an artificial one. Peskov stated that there is no reason to expect a true default.

Since the sweeping sanctions against Moscow and countermeasures from Moscow, bondholders have been keeping track of their bonds payments.

Russia issued coupons Wednesday for four OFZ treasury-rouble bonds. They were popular because of their high yields, but are no longer eligible for payments due to sanctions or Russian retaliation.