It was one of the most spectacular sanctions that Western countries took against Russia, shortly after the Russian invasion of Ukraine in February 2022. The West froze an estimated 300 billion dollars (nearly 280 billion euros) in foreign currency reserves of the Russian central bank, that are based in Western countries. Russia has since been unable to reach it.
Not long after, the discussion started: what to do with this mountain of Russian billions? The reconstruction of the badly damaged Ukraine will cost hundreds of billions of euros and the bill is rising every day. One way to make Russia pay for this is to confiscate this central bank money, several politicians and experts in both Europe and the United States have suggested. The money is actually already “in our pockets”, said EU foreign coordinator Josep Borrell at the time. The US previously seized foreign assets from the Taliban in Afghanistan.
But two years later, it is becoming increasingly clear how difficult it will be for the West – especially Europe – to use Russia’s central bank assets for Ukraine. Russia mainly has foreign reserves in euros. This concerns around 200 billion euros, which is stored in Europe. The lion’s share is located at Euroclear securities depository in Belgium.
According to Bloomberg news agency and business newspaper, among others The time Belgium has proposed using Russian money as collateral for government loans that Ukraine can issue. If Kyiv cannot repay the loans, and investors demand their money back, Russia’s central bank money could be tapped.
This goes a lot less far than more radical plans to directly take Russian billions and channel them to Ukraine. These proposals have set off alarm bells in several corners. The European Central Bank fears that the position of the euro as an international reserve currency is at risk: a foreign party that invests its money in euros in Europe is no longer sure of its money. It could lead to capital flight from the EU. Germany and France in particular would be sensitive to these ECB concerns.
In the meantime, Belgium is mainly concerned about the position of Euroclear, which could get into trouble if the Russian billions suddenly fall off the balance sheet. According to legal experts, the seizure of foreign central bank money is also very difficult to defend legally. The assets of foreign governments, as managed by central banks, are protected by the principle of state immunity, as described in a UN convention, among other things. Russia has said it will fight any seizure.
American rush
At the same time, the Americans, who were initially cautious about plans to grab Russian money, are now urging haste. This is partly because financial support to Ukraine through the regular channels (Western government budgets) is becoming increasingly difficult to achieve. Republicans in the US Congress are currently blocking a new billion-dollar package for Kyiv. Ukraine’s financial situation is very precarious: the country is kept afloat by Western budget support.
The time describes the Belgian proposal as a compromise, with which Ukraine could immediately obtain money. But there was immediate criticism. Diplomats at the EU anonymously informed the Reuters news agency that the Belgian proposal would not solve anything: it would amount to confiscation in a roundabout way – and it would therefore be just as legally and financially risky. Russian President Putin’s spokesman said on Monday that Russia would challenge the use of its assets as collateral for Ukrainian loans. “Infringement on someone’s property rights undermines the foundation of the economic system,” he said.
While the debate continues, the Russian assets also generate interest income for Euroclear. The company announced last week that it would have made 4.4 billion euros in profits from Russian money by 2023. This profit, according to the European Commission and the Member States, should benefit Ukraine. Member States last week agreed to a Commission proposal to oblige securities managers such as Euroclear to put the proceeds in a separate account. At a later stage, that money could possibly be sent to Kyiv, but no agreement has yet been reached on this. This is expected to generate up to 15 billion euros – not nothing, but far less than the size of the central bank’s deposits themselves, which remain untouched for the time being.
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