Western governments are finding it increasingly difficult to muster the funding Ukraine needs to defend itself. The European Union struggled to reach a €50 billion (US$54 billion) aid deal in February. The United States remains deadlocked over its own US$60 billion funding package. Now, calls to use Russia’s own assets to fund the Ukrainian war effort are growing louder.
At stake are some US$300 billion in central bank reserves, which Western governments – including the EU and the US – froze immediately after Russia invaded, both to punish Russia and to limit the resources it could use to finance its aggression. It was a radical move: the last time comprehensive financial sanctions were imposed on a major country, with broad – though not universal – international acceptance, was in the 1930s, against Italy and Japan. The sanctions against Russia triggered by its 2014 annexation of Crimea were far less extensive than those imposed in 2022.
The US now wants to take an even bolder step, confiscating Russia’s assets and transferring them to Ukraine. Their argument is straightforward: Russia should be made to compensate Ukraine for its illegal and highly destructive war. Russia’s central bank reserves would fulfil – at least in part – Ukraine’s valid claims for war damages.
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But even if the US – with the support of the EU and the G7 – manages to craft a plausible legal argument for confiscating Russia’s reserves, it is not clear that this would be the right move. In fact, seizing Russia’s assets would represent a significant escalation, not only jeopardising Western dominance in the international monetary and financial system, but also establishing a dangerous precedent in international law.
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Russia’s rouble falls to lowest value against US dollar since Ukraine war began
Russia’s rouble falls to lowest value against US dollar since Ukraine war began
Financial sanctions are a weapon that affects a country’s external monetary sovereignty and its ability to manage its currency, reserves and payment system. Like any other powerful weapon, they should be deployed in accordance with international legal principles and clear governance. To this end, the G7 and the G20, together with the international financial institutions, should create a multilateral framework to govern financial sanctions’ use.
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Such a framework must recognise the US dollar’s critical role in the international monetary system as both a vehicle currency and a reserve asset. The dollar’s dominance – its international liquidity and acceptance remain unmatched – means that countries are willing to limit their monetary sovereignty for the convenience of using the greenback. Today, 60 per cent of international payments are carried out in dollars.
