Treasury Secretary Janet Yellen endorsed a proposal of liquidating frozen Russian assets to help fund Ukraine’s “continued resistance and long-term reconstruction.”
Following Moscow’s invasion of Ukraine in February 2022, the U.S. and its allies froze approximately $300 billion in Russian central bank assets. With the Eastern European conflict entering its third year, there are now discussions on potentially seizing the assets and funneling the proceeds to Kyiv.
While speaking in São Paulo, Brazil, where G20 central bank governors and finance ministers are convening, Ms. Yellen offered her public support for appropriating the assets to fund current military operations and the postwar reconstruction.
“It is necessary and urgent for our coalition to find a way to unlock the value of these immobilized assets to support Ukraine’s continued resistance and long-term reconstruction,” she said. “I believe there is a strong international law, economic, and moral case for moving forward. This would be a decisive response to Russia’s unprecedented threat to global stability.”
Ms. Yellen noted that seizing Moscow’s assets to assist Ukraine further would send a message that “Russia cannot win by prolonging the war and would incentivize it to come to the table to negotiate a just peace with Ukraine.”
White House Supports Plan ‘in Principle’
In January, the Senate Foreign Relations Committee voted 20 to 1 for the Rebuilding Economic Prosperity and Opportunity (REPO) for Ukrainians Act. The legislation would be the first time that the United States would confiscate a foreign central bank’s assets from a country in which Washington is not engaged in a war.
“It also directs the president to work with other partners and allies to take similar action,” the legislation stated.
“For almost two years, Russia has committed unspeakable crimes in its illegal, unprovoked invasion of Ukraine. Russia should pay to rebuild Ukraine, and U.S. leadership is essential to spur action,” said Sen. Jim Risch (R-Idaho), the committee’s ranking member, in a statement.
Experts note that the United States could not go it alone, with the European Union (EU), Japan, and Canada also having to employ comparable measures.
Earlier this month, the EU passed legislation that approved a concept of transferring windfall profits from frozen Russian assets into a separate reserve.
According to Sen. Ben Cardin (D-Md.), who chairs the Senate committee, the bill gives Ukraine “the help that they need,” adding that not aiding Kyiv will result in President Vladimir Putin expanding the conflict elsewhere throughout Europe.
Sen. Rand Paul (R-Ky.) was the lone “no” vote.
The current administration supports “in principle” the bill. A National Security Council memo sent to the Senate Foreign Relations Committee, seen by Bloomberg News, explained that the legislation provides “the authority needed for the executive branch” to take Russian sovereign assets for the benefit of Ukraine.
The Kremlin warned that these efforts would be illegal and lead to years of litigation. Officials also said that Moscow would seize U.S. and European assets in retaliation.
Threats to the Dollar
Another concern that officials have is the threat to the U.S. dollar’s hegemony on the international stage. Since the beginning of the Ukraine-Russia war, experts have argued that there could be consequences for weaponizing global finance, with the greenback potentially becoming a victim.
When asked about the potential threat to the U.S. dollar, Ms. Yellen admitted that she is “not too worried about that” because there are no realistic alternatives to the dollar or euro, and it would not leave the global economy vulnerable to financial instability.
“I suppose the risk would arise if there were a massive shift away from currencies. But I think that is extremely unlikely, especially given the uniqueness of this situation, a situation where Russia is brazenly violating international norms,” she said.
The former Federal Reserve chief says that all the countries with reserve currencies are banding together. Still, she conceded that “we’re working to evaluate these risks and to outline possible options for consideration.”
China, Russia, and other developing markets have accelerated their de-dollarization efforts in the last few years. The chief fear is that these countries could be slapped with sanctions, restrictions, and other economic measures to punish their actions. Economists contend that it will take possibly decades to dethrone a mighty dollar, mainly since the U.S. currency represents roughly 60 percent of global reserves, according to data from the International Monetary Fund (IMF).
That said, the BRICS coalition members (Brazil, Russia, India, China, and South Africa) have reduced the dollar’s role in their bilateral trade transactions.
In December, Moscow claimed that 70 percent of China-Russia trade was settled in the renminbi in the first three quarters of 2023.
Scores of emerging markets have also joined the two principal SWIFT (Society for Worldwide Interbank Financial Telecom) alternatives: Russia’s SPFS and China’s CIPS.
Last summer, BRICS announced the formal expansion of the group (BRICS+), inviting Argentina, Egypt, Ethiopia, Iran, Saudi Arabia, and the United Arab Emirates to become members. Argentine President Javier Milei rejected the invitation, while Riyadh has not formally accepted it.
While this might seem like a worthwhile pursuit for countries attempting to diminish American might and influence in global financial markets, it could be a costly affair, says Robert Greene, a nonresident scholar at the Carnegie Endowment for International Peace’s Technology and International Affairs Program and Asia Program.
“Overall, exchanging BRICS’ currencies with other emerging market currencies can often be costlier relative to the dollar and can involve settlement risk due to the lack of financial infrastructure that mitigates such risk,” he wrote. “As for recent BRICS invitees, their economies are heavily sanctioned, are on the verge of currency crises, or have dollar-pegged currencies.”
Still, others assert that the BRICS and BRICS+ objectives should not be dismissed since they account for half of the world’s population and maintain a more significant share of world GDP than the G7 (32 percent at purchasing power parity).
“It would be worth studying the effect of BRICS enlargement on the other global functions of the U.S. dollar, in addition to its role in world trade,” French central bank economists wrote in a February paper.
The next BRICS summit is scheduled for October in the Kazan region of Russia.
