“When we first imposed sanctions on Russia, we created an exemption that would allow a period of time that would allow for an orderly transition to take place and for investors to be able to sell securities,” Yellen said at a press conference on Wednesday. “The expectation was that it was time-limited. I think it’s reasonably likely that the licence will be allowed to expire.”

No final decision has been made, but it’s unlikely the licence will be extended, Yellen said. Bloomberg News reported on Tuesday that the Treasury Department’s Office of Foreign Assets Control is expected to let the exemption lapse at its May 25 expiration, citing people familiar with the matter.

Yellen’s remarks suggest she sees no major dangers in allowing a Russian default on its dollar bonds. She told US lawmakers last week the Treasury was “actively” examining whether to extend the licence. “We want to make sure that we understand what the potential consequences and spillovers would be of allowing the licence to expire,” she said.

Speaking Wednesday in Bonn, Germany, ahead of a gathering of finance chiefs from the Group of Seven advanced economies, Yellen said that the US and its allies and partners share the goal of reducing Russia’s revenues in the wake of its invasion of Ukraine.

Technical Default

The end of the carve-out could be the final straw in Russia’s debt saga after almost three months of war in Ukraine. It’s managed to make all its payments to creditors so far, weaving through the tangle of sanctions that closed off some avenues.

“If Russia is unable to find a legal way to make these payments and they technically default on their debt, I don’t think that really represents a significant change in Russia’s situation,” Yellen said. “They’re already cut off from global capital markets and that would continue.”

The Treasury secretary also said that, given the enormous destruction in Ukraine, it’s natural “that we all look to Russia to help pay at least a portion of the price that will be involved” in reconstruction.

“That said, while we’re beginning to look at this, it would not be legal now in the United States for the government to seize” Russian assets, she said. “Other countries have legal issues around it as well.”

Ukraine Rebuilding

Yellen expressed confidence that the US Senate will approve a US$40 billion package of assistance for Ukraine, and she called on her G-7 partners to join Washington in boosting support for the war-torn nation. On Tuesday, she had indicated that an effort in the vein of the post-World War II Marshall Plan will be required, given the reconstruction needs.

“Conversations are really just beginning among countries about how to finance longer-term reconstruction and whether or not those assets should play a role, and if so how,” Yellen also said of frozen Russian holdings.