Making Russia Pay


sam boocker and alexander connor are research analyst and senior research assistant, respectively, at the Brookings Institution’s Hutchins Center on Fiscal and Monetary Policy. david wessel is director of the Hutchins Center. This analysis first appeared on the Brookings website

Illustration by Jonathan McHugh, Ikon Images

Published April 5, 2024


After Russia invaded Ukraine in February 2022, Russia’s foreign exchange reserves held by the U.S. and its allies were frozen. Since then, some officials and commentators have proposed seizing those assets, which total nearly $300 billion, and using the proceeds to defend and rebuild Ukraine. This cash infusion could provide Ukrainians much-needed support as the war drags into its third year.

But the initiative is not without risk or controversy. Seizing foreign exchange reserves has little economic or legal precedent and uncertain long-run effects. This article explains the efforts to seize Russia’s reserves and the possible consequences for the global financial system.

What are Foreign Exchange Reserves?

Foreign exchange reserves are assets of a central bank held as securities and deposits denominated in foreign currencies -- usually government bonds issued by developed economies or deposits in global banks. Central banks use reserves to facilitate international payments, manage exchange rates and guarantee the value of their own currency. The IMF reports that nearly 80 percent of all foreign exchange reserves are held in the U.S. dollar or the euro.

Where are the Russian Reserves?

On the eve of Russia’s invasion of Ukraine, the Central Bank of Russia (CBR) reported just under $500 billion in foreign exchange reserves, roughly $300 billion of which were denominated in U.S. dollars, euros or British pounds. The Russian Elites, Proxies and Oligarchs Task Force set up by the Group of Seven, European Union and Australia estimated frozen Russian reserves at $280 billion in September 2023. Approximately $210 billion of these assets are held at Euroclear, a Belgian financial services company that specializes in storing securities and investing on behalf of the CBR. The remaining frozen reserves are likely held in U.S. and allied countries’ banks, with about $5 billion in the U.S.

Why the Move to Seize Russian Reserves?

As of mid-February 2024, the U.S. and its allies had sent $280 billion to Ukraine in military, financial and humanitarian aid. But the donors’ enthusiasm is waning — especially in the U.S., where it remains unclear if Congress will pass another aid package. Seizing Russian reserves would let allied governments support Ukraine by sidestepping the difficult politics of sending tax dollars overseas. Ukrainian President  Zelensky has repeatedly urged allies to seize Russian reserves, saying in January 2024, “The more billions [Putin] and his oligarchs, friends and accomplices lose, the more likely he will regret starting this war.” 

Finally, Russian reserves are appealing in their quantity. The hoarded funds would cover three-quarters of the cost of rebuilding Ukraine, as estimated by the World Bank one year into the war. Former World Bank president Robert Zoellick writes that seizing reserves would be “elegant justice” and a desperately needed infusion for Ukraine.

Where Does the U.S. Stand on Seizure?

Some legal scholars argue that the president already has the authority to seize Russian reserves under the International Emergency Powers Act of 1977, and that the U.S. should use this power in response to Russia’s flagrant violations of international laws and norms. But U.S. officials, including Treasury Secretary Janet Yellen, have asserted that the administration does not currently possess the authority to seize reserves during peacetime without Congressional action. Since then, versions of the Rebuilding Economic Prosperity and Opportunity for Ukrainians Act (REPO Act) have passed the Senate Foreign Relations and the House Foreign Affairs Committees nearly unanimously. The measure would empower the president to seize Russian foreign exchange reserves within the U.S. The Biden administration has signaled support for the bill.

Last October, Belgium became the first country to move beyond immobilizing assets by taxing the accumulated interest at Euroclear. The tax amounts to $2 billion, which will be gradually transferred to Ukraine. Yellen has expressed support for a tax on Russian assets in the U.S., although the likely proceeds would be small.
Where do U.S. Allies Stand on Seizure?

Despite domestic legal challenges, the U.S. is exploring a multilateral approach within the G7 to seize Russian assets. The UK supports the Biden administration’s efforts within the G7, although Italy, Germany and France strongly question the legality and fear economic reprisal from Russia. The European Commission began evaluating legal options to seize Russian assets in November 2022, but member states cannot reach an agreement. The European Commission has indicated that it is unlikely to pursue outright seizure further.

The EU is, however, moving forward with a proposal to seize the interest earned on Russian reserves which has been accumulating at Euroclear since the initial sanctions were enacted. Euroclear collected about $5 billion in profits on Russian assets in 2023. EU officials estimate the approach would generate about $17 billion over four years.

Last October, Belgium became the first country to move beyond immobilizing assets by taxing the accumulated interest at Euroclear. The tax amounts to $2 billion, which will be gradually transferred to Ukraine. Yellen has expressed support for a tax on Russian assets in the U.S., although the likely proceeds would be small.

The Belgian government has also proposed issuing debt for Ukraine using Russian reserves as collateral. When the war ends, this plan would effectively give Russia a choice: repay the debt in the form of reparations or acquiesce to the seizure of its reserves. Unlike seizing the assets now, this deal would delay legal questions until after the war, when reparations rulings can occur. Even so, issuing debt collateralized by another nation’s foreign reserves would be unprecedented.

What are the International Legal Hurdles?

Advocates argue that Russia’s assets can be seized under the international law of countermeasures, which provides nations a pathway to implement certain otherwise unlawful remedies in proportional response to the unlawful actions of another state. But many officials and legal scholars argue that there is no precedent— and asset seizure is inconsistent with conventional understandings of how countermeasures should operate, including that they be reversible and primarily implemented by directly affected states.

Furthermore, reserves generally receive the strongest sovereign immunity protections; nations need confidence that their property rights will be honored under international law to participate in the global economy. Russia’s abhorrent, unlawful aggression in Ukraine may well disqualify them from enjoying reserve protections, but many nations will wonder what exactly the limits are if seizure becomes permissible in this case. University of Virginia Professor Paul Stephan argues that “a transparent violation of a category of rules that the U.S. normally supports, simply because compliance would frustrate an immediate sense of justice, undermines the ability to use international law to shape a more peaceful and prosperous world.” Russia is already planning to challenge any seizure in national and international courts.

What are Possible Economic Consequences of Seizing Russian Reserves?

Russian officials have promised retaliatory asset seizures if the U.S. and allies send reserves to Ukraine. Russian state media reports that the Kremlin has identified roughly $290 billion in U.S. and allied assets in Russia, and Putin has already seized assets from European companies. European officials expressed specific concern that Euroclear, which is systemically important beyond holding Russian reserves, has significant exposure to Russia that could be exploited to undermine European financial stability. Former IMF chief economist Ken Rogoff warns that “[seizure] would be just, but very difficult to do given the damage Russia can unleash.”

Seizing Russian reserves could also pose long-term risks to the U.S.- and European-led global financial system. Nation-states, fearing the security of their dollar- or euro-denominated assets, might shift their reserves out of U.S. and allied jurisdictions and into alternate currencies, such as the Chinese renminbi.

Fabio Panetta, governor of the Bank of Italy, expressed this concern in a January 2024 speech, noting that “weaponizing a currency inevitably reduces its attractiveness and encourages the emergence of alternatives. … The Chinese authorities are explicitly promoting [the renminbi’s] role on the global stage and encouraging its use in other countries, including those sanctioned by the international community following the invasion of Ukraine.” A shift away from U.S. and allied currencies could make it harder to track financial crime, make sanctions less effective and raise government borrowing costs.

Agathe Demarais, senior fellow at the European Council on Foreign Relations, notes that the risks of grabbing Russian reserves could be partially offset through multilateral action: “Washington would very much prefer to spread the potential blowback that such a step would entail across like-minded allies.” Because the G7, EU and Australia are unique in their ability to provide large quantities of safe and liquid assets over long periods, acting together reduces the risk of reserve outflows simply because there are very few viable alternatives for storing vast sums as liquid assets. By building a framework with clear rules, the U.S. and allies can assure foreign central banks that their reserves would not be seized arbitrarily.

main topic: Geopolitics
related topics: Region: Europe