With about half its reserves frozen in the currencies of those imposing the sanctions,another 20 per cent held in hard-to-convert gold and the big pipeline of hard currencies that it generates from its sales of oil and gas starting to dwindle,however,its actions clearly signal that it is experiencing a shortage of foreign exchange to meet its external commitments.

Russia doesn’t have a lot of sovereign debt. Its debt-to-GDP ratio is less than 20 per cent – another strand of the attempt to sanctions-proof the economy. Its companies also deleveraged,for the same reason,after the 2014 invasion of Crimea provoked an earlier (and far weaker) round of sanctions.

Total external debts amount to about $US500 billion,or about a third of GDP,with only about $US80 billion owed by the government and only half of that in foreign currencies and only half again of that held by foreigners.

The rest is owed by its banks (who have a horrible mismatch between their foreign currency assets and liabilities,with foreign currency liabilities about six times the size of assets) and Russian companies.

With the government’s bonds trading around 25 cents in the dollar,it is clear that foreign investors don’t expect to get much of their money back,although the fact that the bonds are trading at all is interesting because it suggests some buyers are prepared to bet that they can recover more than 25 cents in the dollar – perhaps from those frozen foreign exchange reserves.

An interest payment on a rouble-denominated government bond was due and paid last week but wasn’t actually paid to the bondholders,instead being held on their account.

There are interest and principal payments scheduled on dollar-denominated sovereign bonds looming later this month as well as a $US1.3 billion payment by state-owned gas giant Gazprom that fell due this week.

With 30-day grace periods in most bond issues,the moment of reckoning for holders of dollar-denominated bonds should come next month. The ratings agencies,and debt investors,expect defaults.

While six of the 16 sovereign bond issues on issue allow repayment in increasingly worthless roubles,a failure to meet the payments on the remaining issues would trigger a default.

Russia has defaulted on its government debts before – after the Russian Revolution and in 1998,when it was caught up in the flow-on effects of the Asian financial crisis in the midst of a partial opening up of its own economy. It defaulted on its domestic debts rather than its foreign debt,however,to avoid being shut out of international markets.

The immediate effects of the West’s sanctions have been seen in the collapse of the rouble,the closure of the Moscow sharemarket,a more than doubling of its central bank policy rate to 20 per cent and inflation that swelled 2.2 per cent in a week.

A default might look like an incremental change in its position,given that its external liabilities are quite modest,but would have long-term consequences.

Defaults on its debts would ensure the crisis was very protracted and very painful because it can take decades for a country that defaults to reach agreements with its creditors and regain access to global debt markets.

Russian retailers import about 75 per cent of their non-food products. About 95 per cent of car parts are imported. Components for industry and medicines are dominated by imports.

If it defaults (some of its major companies may also find themselves short of the foreign currency needed to meet their commitments given the forced repatriation and conversion of most of their foreign currency holdings) it will be shut out of foreign debt markets and the rationing of the foreign currencies it can generate from its diminishing energy sales will become even tighter.

The impact on its economy and people could be devastating,with foreign companies already fleeing Russia in droves and taking with them access to their capital and intellectual property,hyperinflation,a double-digit percentage point shrinkage in the economy and the lost access to foreign goods and services combining to savage living standards.

Russia is already experiencing a financial crisis and the early signs of economic stress from the West’s unexpectedly quick and strong response to its invasion of Ukraine.

Defaults on its debts would ensure the crisis was very protracted and very painful because it can take decades for a country that defaults to reach agreements with its creditors and regain access to global debt markets.

Vladimir Putin misjudged the West’s response for his decision to invade. Russia’s economy,and its citizens,are going to pay a very heavy price for that miscalculation.

The Business Briefing newsletter delivers major stories,exclusive coverage and expert opinion.Sign up to get it every weekday morning.