In 2018, Russia began inserting an unusual clause into euro and dollar sovereign bonds, seemingly designed to circumvent future Western sanctions. The clause worked by letting the government pay in roubles if sanctions cut off access to dollar and euro payment systems. The clause received little scrutiny at the time, perhaps because Russia used a state-owned bank, rather than a global investment bank, as underwriter. But with the invasion of Ukraine and the ensuing sanctions imposed by the United States and other governments, the relevance of the clause has become clear. This Essay examines how the market reacted to the clause before and after the invasion. Our expectation was that the market would charge a premium for bonds with the clause. Investors bought euro and dollar bonds, after all, because they did not want to be paid in roubles. Yet contrary to expectations, investors seemed to prefer bonds that allowed for payment in roubles over bonds that did not. This surprising finding has considerable implications for other countries, which may lose access to foreign currency for reasons that are more benign than Russia’s war of aggression. Despite its sordid provenance, Russia’s sanctions-busting clause might turn out to be a positive innovation that could benefit countries facing unexpected crises. Indeed, had Ukraine included such a clause in its bonds, the benefit would have been enormous.

Michael Bradley et al., A Silver Lining to Russia’s Sanctions-Busting Clause?, 108 Virginia Law Review Online, 326 (2022).