The decision just taken by the Russian government to nationalize companies such as the Italian Ariston or the German Bosh is only the most recent development in an ever-escalating multidimensional conflict. Shortly after the launch of the Special Military Operation in Ukraine decided by the President of the Russian Federation Vladimir Putin in February 2022, the United States and its allies prohibited any transactions involving the Russian central bank and the Ministry of Finance. Furthermore, given that like all central banks, the Russian one has organized at least part of its reserves in liquid assets such as the main currencies, the United States and its allies have decided to block these reserves. The Russian central bank thus soon confirmed that Russian assets worth around $300 billion had been frozen in the West, equal to half of its total foreign currency reserves. Since then, many different voices have proposed seizing these assets and using them to defend and rebuild Ukraine.
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Russian reserves could provide the Ukrainians with support that appears much more than necessary today. It is estimated that over the past two years the United States and its allies have sent just under $300 billion in military, financial and humanitarian aid to Ukraine. The seizure of Russian reserves would thus have the effect of helping Western governments in their intention to continue to support Ukraine over time, reducing the burdens hitherto borne by their taxpayers and, at least according to some, of weakening President Putin by reducing support hitherto offered to him by the Russian oligarchs.
Certainly, this policy of seizing Russian assets abroad is not a policy without risks and controversies, given that such a step has few precedents, and the long-term effects on a global financial system that rests on the confidence that rights of property must be respected, as prescribed by international law, are far from certain. In particular, there is a fear that more than one nation, fearing the safety of its reserves in dollars and euros, will decide to convert them into currencies other than Western ones, especially the Chinese renminbi.
If so, this reconversion would end up increasing government borrowing costs, would make the fight against financial crime more difficult and would make the sanctions imposed against the Russian Federation less effective. Nonetheless, a few days ago, US President Joe Biden signed a law authorizing him to seize Russian foreign exchange reserves after properly reporting it to Congress.
For their part, Russian officials have repeatedly warned that the confiscation of their country’s state assets would lead to the confiscation of foreign investors’ assets already blocked by their authorities. It is not clear what the real value of these assets is, but at least from the looks of it, it should be comparable to the value of Russian reserves held abroad.
