Attempts by the West to use blocked Russian assets will be a serious shock to the foundations of the world economy. This was announced on Tuesday, February 13, by the press secretary of the Russian President Dmitry Peskov.
According to him, the encroachment on Russian property will affect not only global economic development, but also the investment climate and international law. Moscow, in turn, will not leave the authors of such initiatives alone, the Kremlin representative added.
“Our position is extremely simple and clear... These are illegal actions. We will pursue legally all those who are involved in such decisions... and their implementation. Russia will defend its interests,” Peskov emphasized.
The day before, the European Union authorities officially allowed the use of income from Russia's frozen foreign exchange reserves for possible financing of Ukraine in the future. The corresponding resolution was published on the website of the EU Council.
According to the document, European central depositories that own assets of the Central Bank of the Russian Federation worth more than €1 million will have to keep records of the profits received from this money and store it separately. The collected funds can subsequently be sent to the EU budget to support Kyiv.
In the wrong hands
Let us recall that from February 22, 2022, the G7 countries, together with the EU and other allies, began to introduce economic sanctions against Russia, unprecedented in scale, and during this time they have already approved almost 16.6 thousand various restrictions (according to the specialized database Castellum.AI). The restrictions, in particular, affected the energy industry, trade, aviation, the banking sector and the foreign exchange reserves of the Central Bank of the Russian Federation.
The Central Bank managed to partially prepare for such a scenario and over the previous few years withdrew a significant amount of money from Western assets, mainly American. Nevertheless, unfriendly countries, primarily European ones, managed to block about half of Russia’s gold and foreign exchange reserves, worth more than $300 billion.
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Let us explain that Russia distributes reserves across several currencies and countries to minimize risks from various external shocks. For example, financial crises are usually accompanied by a fall in the prices of export goods and an outflow of capital from the country. In this case, according to Central Bank experts, it is beneficial for Moscow to keep part of its money in those states with which it conducts active trade and in whose currencies the debts of companies, banks and the Russian government are denominated.
Meanwhile, to withstand political crises, as was the case in 2022, the country needs reserves that cannot be affected by the sanctions of Western states. For this reason, in recent years, the Central Bank has significantly increased the share of gold and yuan in reserves, as previously stated by the head of the regulator, Elvira Nabiullina.
“The Bank of Russia... pursued a policy of increasing and diversifying international reserves in order to have, in essence, two airbags: in the event of financial risks materializing, when the financial market’s need for US dollars and euros is high, and in the event of a geopolitical crisis, when there may be Russia’s access to most reserve currencies is limited... After Western countries froze reserves in their currencies, Russia continues to have a sufficient amount of reserves in gold and yuan,” Nabiullina explained.
At the same time, storing all reserves within Russia completely deprives the state of protection from external crises, according to the Central Bank. According to the regulator’s experts, this is exactly how the country lived in 1992-1999, and “it was an almost continuous financial crisis.”
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Although some of Russia's reserves were eventually frozen, Western countries for a long time could not determine exactly where this money was located. Only at the end of December 2023 it became known that part of Moscow’s assets, worth almost €210 billion, is blocked in the EU (of which €191 billion is controlled by the Euroclear financial group in Belgium, and €19 billion in France), €7.8 billion in Switzerland , €4.6 billion in the United States, and about €38 billion in other G7 countries and Australia, the Financial Times reported.
At the same time, according to the publication, against the background of problems that arose in the West with the allocation of new aid packages to Ukraine, the United States and the EU began to develop a legal mechanism for the transfer of Russian reserves to Kyiv from the end of last year. The European Union’s decision to withdraw profits from frozen funds was a tentative step in this direction, says Alexander Abramov, head of the laboratory for analysis of institutions and financial markets at the Institute of Applied Economic Research at RANEPA.
“It is becoming increasingly difficult to sponsor Ukraine only from their own budgets, so European authorities are looking for new sources of funding. Confiscation of proceeds from blocked Russian money should not have serious legal consequences, so the EU decided to take this interim measure. Then, in theory, the European Union could transfer all Russian assets to Kyiv so as not to burden its budget system,” Abramov suggested.
At the same time, such a decision could have serious consequences for Europe, says Andrei Loboda, economist and communications director at BitRiver. According to him, if Russian reserves are confiscated, other countries may think about the advisability of storing their savings in the EU and begin to massively withdraw funds from European assets.
“With this development of events, the euro may simply lose its status as a world reserve currency and seriously lose ground to the Chinese yuan. In addition, litigation with Russia could be very costly for the European Union,” RT’s interlocutor did not rule out.
“The attitude will be like thieves”
In connection with the possible confiscation of frozen money being discussed in the West, Russia has already begun to actively prepare for legal proceedings to prevent this, writes Bloomberg. At the same time, along with legal decisions, Moscow is also developing tough response measures, as stated by the official representative of the Ministry of Foreign Affairs Maria Zakharova on the air of Solovyov LIVE.
“A tough answer will be given... Considering that our country has qualified this as theft, the attitude will be like thieves. Not as political manipulators, not as overplayed technologists, but as thieves,” Zakharova emphasized.
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Note that in response to blocking its assets worth $300 billion in 2022, Moscow prohibited foreigners from selling Russian securities, as well as withdrawing funds from the country’s financial system. As a result, money from investors and companies from unfriendly states for a comparable amount was blocked on the territory of the Russian Federation. According to Russian Finance Minister Anton Siluanov, if necessary, these funds can be used.
“We also have enough assets that are frozen here... The numbers are not small, the income from the use of these funds is significant and can also be used if a decision is made by our unfriendly partners,” Siluanov said on the Rossiya 24 channel.
According to Andrei Loboda, Russia can use income, interest and dividends from Western assets blocked in the Russian Federation to restore new regions. In addition, Moscow still has a number of other economic measures in reserve, especially in the field of energy, the expert believes.
“Russia has the right to nationalize the property of EU companies on its territory and the accounts of Western European legal entities. In addition, we can completely ban the export of energy resources to Europe or set a minimum price level of 50% above market prices for all buyers of our raw materials. In fact, Moscow has not yet responded to Brussels, which has lost its mind,” Loboda concluded.