Reuters Columnist Warns vs Using Russian Assets In Ukraine

Western powers have frozen about $300 billion of Russia’s foreign exchange reserves. Rebuilding Ukraine after the war could cost at least as much.

Photo Insert: The best way to rebuild Ukraine is for governments and international organizations to start thinking about the complex international and financial strategy that will allow them to begin the task once the war is over.

So the idea that the US and Europe should confiscate the assets to help finance reconstruction has a symmetrical financial appeal. It would also provide moral comfort by making Russia pay for the reconstruction.

But it would also be the wrong way to hold Russia to account, Pierre Briancon wrote in a column carried by Reuters Breakingviews.

Assuming the overall composition of Russian reserves hasn’t changed much since June last year, France, Germany, and the United Kingdom now control the equivalent of about $155 billion, with another $39 billion on hold in the US. From a legal standpoint, seizing the assets held at the Russian central bank is more complicated than freezing them.

Yet, even if governments can find a workaround – for example, by passing new laws – confiscation would be wrong-headed.

To begin with, the move would deprive Western powers of a key source of leverage over Russia when negotiating a truce, because they could no longer offer to unfreeze the assets. Indeed, the permanent loss of the reserves could even push President Vladimir Putin into more desperate and aggressive acts.

Once seized, the reserves would also be open to claims from individuals or organizations alleging they have been wronged by Moscow. Think of private creditors who might suffer losses following a Russian sovereign default.

Finally, confiscating the reserves would imply that Europe and the US have given up hope of a future Russia ever rejoining the international system. If a more Western-friendly regime were to emerge, it would ask for a return of at least part of the money. That would leave US and Western taxpayers on the hook.

The best way to rebuild Ukraine is for governments and international organizations to start thinking about the complex international and financial strategy that will allow them to begin the task once the war is over. Not to daydream about confiscating Russian reserves.

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