Treasury Secretary Janet Yellen has called on nations of the Western “coalition” against Moscow to “find a way to unlock the value of [Russia’s] immobilized assets to support Ukraine’s continued resistance and long-term reconstruction.”
“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,” Yellen said at a meeting of G20 finance ministers and central bank governors in Sao Paulo, Brazil on Tuesday.
Tackling the question of the potential threats to the dollar’s status as the de facto world reserve currency that such an unprecedented move would entail, Yellen said that it it’s “extremely unlikely” that the greenback would be negatively affected. “Realistically there are not alternatives to the dollar, euro and yen,” she assured.
Yellen is the latest senior Western official to propose moving forward with the seizure of Russian assets as Western countries’ own desire to continue fueling the Ukrainian proxy war against Russia falters. Earlier this month, the European Union adopted a law allowing Brussels to bank windfall profits from Russian assets trapped in European banks and use them in Ukraine, a move characterized by Moscow as blatant “theft” which will be met with legal action.
Russian officials and independent economic observers alike have warned of the possible consequences stemming from what Yellen is proposing, with Russian finance minister Anton Siluanov saying Moscow has the means to issue a “symmetrical” response to this form of Western financial aggression.
“We have no fewer frozen [assets than Western countries],” Siluanov said in an interview with Sputnik on Monday. “Any actions taken against our assets would receive a symmetrical response.”
Mechanism for Tit-For-Tat Response Already Exists
“Russia has already taken conservatorship of assets of a number of foreign companies which refused to operate in Russia,” Dr. Andrei Kolganov, a professor of economics at Moscow State University and chief researcher at the Russian Academy of Sciences’ Institute of Economics, told Sputnik, commenting on the folly of the West’s asset seizure plans.
This instrument was already used against foreign investors with an ownership stake in the Baltika Beer Company, as well as the assets of Finnish energy concern Fortum, the professor noted.
“So in principle, the mechanism for the confiscation of foreign assets has already been worked out. Moving from conservatorship to confiscation is, in principle, a fairly simple technical procedure. The amount of assets that are ‘frozen’ on the territory of the Russian Federation, or which may be frozen, is now estimated at approximately $288 billion,” Kolganov explained.
In other words, the professor said, Russia has control over a big chunk of Western assets which, if the US and its allies proceed with confiscation, “will not escape to the West, but will work here in Russia, because we are talking about investment, first and foremost, in the manufacturing sector.”
From there, these assets could become the property of the Russian state, or be transferred to Russian private owners and continue to work as before.
Confiscation of assets of Western companies in Russia would seriously impact their respective bottom lines, meaning they could try to put pressure on governments, both in their home countries and in Russia, to try to avoid having their capital seized.
“We have a lot of foreign companies working in Russia, including those from so-called unfriendly countries. We have more than 50 decently-sized American firms alone working here, and plenty of European companies,” Dr. Georgy Ostapkovich, director of the Center for Market Research at the Institute of Statistical Research and Economics of Knowledge at Russia’s Higher School of Economics, told Sputnik.
Sorry Yellen, Seizing Assets Won’t Crash Russian Economy
Kolganov says that as unpleasant as a seizure of Russia’s assets abroad might be it would not serve to tank the country’s economy, with Moscow able to continue its international payments using its sizable and healthy foreign exchange earnings after reorienting its trade toward developing countries. The money frozen in Western banks constitutes reserves, which “were not actively used for international trade and international payments” anyway, the professor explained.
“For private businesses, the confiscation of assets would create a pretty big hole in their earnings and budgets. Therefore, it would be a rather sensitive measure if Russia had to resort to it in response to the confiscation of its assets,” the economist added.
Dr. Ostapkovich emphasizes that Moscow will have to be strategic and precise in the foreign assets it may choose to seize, to avoid the risk of friendly countries and companies doing business in Russia feeling threatened.
“Every operation” on Russia’s part “must take place with the help of legal services, that is, through the courts,” the veteran economist said. “We are a state based on the rule of law, and cannot just go ahead and close them, because they will naturally go to court. Moreover, they will file in the London court, which judges according to Anglo-Saxon law. This is case law. They will look for a precedent.”
In other words, Ostapkovich stressed, Moscow should expect a tug of war on the international stage regarding the seizure of assets by the West and Russia’s tit-for-tat response.
Pandora's Box of Damage to the Dollar
In his interview with Sputnik, Russia’s finance minister mentioned the promising transition away from Western currencies in favor of new currencies among the world’s rising economies, especially China.
“The Chinese are reducing their holdings of American securities. This is a consequence of what’s happening [to Russia, ed.] The reliability of the dollar and the euro has been undermined,” Siluanov said.
And while it may be too early to speak about the collapse of the dollar or euro as a result of a decision to seize the assets of a sizable economy like Russia, Kolganov confirmed that it has the potential to seriously undermine Western reserve currencies’ reputation in a big way.
“The yuan’s share in international transactions has doubled over the past two years, but doubled to only about 4.6 percent of the total. This is not a huge amount, but still, an upward trend exists. The share of rubles in international payments has also increased, mainly in the form of payments with our country…Nevertheless, a gradual move away from the dollar will of course take place. Because here we’re talking not only about the confiscation of assets, which will undermine confidence in payments made in reserve currencies. Because any country and any central bank may feel threatened that if the geopolitical situation changes, they could be treated in a similar way.”
The problem is exacerbated by the fact that the United States and Europe are facing a loss of economic confidence at home, with the former facing debt levels that are off the charts, which in the future could cause serious shocks to the entire global dollar system, Kolganov noted.
Recipe for Action
Russia can already move forward with tit-for-tat measures against the Europeans over Brussels’ law allowing the seizure and use of the interest earned on Russian assets frozen in Western banks, Ostapkovich says, noting if the EU moves forward with the seizures, Moscow could similarly start shaving dividends and interest on European companies operating in Russia.