Blog post

Now is not the time to confiscate Russia’s central bank reserves

As the costs of Ukraine’s resistance mount, there are increasing calls to confiscate these frozen reserves to finance Kyiv’s war and reconstruction.

Publishing date
16 May 2022

Since Russia’s invasion of Ukraine, all significant jurisdictions that issue convertible reserve currencies have acted decisively to freeze their respective shares of the international reserves of the Bank of Russia. As the costs of Ukraine’s resistance mount, there are increasing calls to confiscate these frozen reserves to finance Kyiv’s war and reconstruction effort, as well as sceptical counter-arguments. In the European Union, the Polish government has advocated confiscating the reserves, and has received support from EU foreign policy chief, High Representative Josep Borrell. This idea is seductive. It is also unnecessary and unwise.

The Bank of Russia’s reserves are public money, and thus altogether different from though occasionally conflated with the frozen assets of sanctioned Russians (often simplistically though conveniently referred to as oligarchs). Some oligarchs’ assets are presumed to have been ill-gotten, but they nevertheless benefit from the protections accorded to private property. Conversely, Bank of Russia reserves are public money that benefit neither from such protections nor, in the context of sanctions, from sovereign immunity. But their acquisition by the Russian state, in principle on behalf of the Russian people, cannot be generally assumed to have been illegitimate. The Bank of Russia’s frozen reserves, at around $300 billion across participating jurisdictions, are also substantially greater than the oligarchs’ frozen assets.

There are at least five, partly overlapping, reasons why Ukraine’s supporters should hold off from confiscating Bank of Russia reserves at the current stage of the war.

First, confiscating the reserves would not tilt the balance of tangible capabilities between Russia and Ukraine. This may be the most important point, given the urgencies of war. The debate on confiscation could distract from other actions that are actually urgent and consequential, such as reducing European oil and gas imports from Russia and providing direct financing to the Ukrainian government.

Unlike these, confiscating the Bank of Russia’s reserves would not further Ukraine’s immediate objectives in terms of ending the war and securing withdrawal of Russian forces, Russian recognition of Ukraine’s territorial integrity and a lasting peace agreement. Russia’s central bank’s foreign assets are already frozen, and moving from freezing to seizing them will not weaken President Putin further. Neither the US nor the EU are financially constrained to the extent that they would need to appropriate the Bank of Russia’s money to do what they have to do. For both, the obvious procedurally quick and legally ironclad option is to continue to transfer large sums of money from national treasuries to the government of Ukraine. The US Congress is in the process of passing a $40 billion package of additional security, economic and humanitarian aid for Ukraine, and the EU is considering a new round of joint bond issuance to fund its short-term assistance to Kyiv.

Less leverage

Second, if they confiscated the Bank of Russia’s reserves now, Ukraine’s allies would deny themselves options that could prove valuable in terms of offering Russia a way out or gaining leverage in future negotiations. Nobody knows what may be at stake in discussions with Russia – and with what kind of Russia – in developments still to come. In some scenarios, the possibility of returning the Bank of Russia’s reserves could be a powerful bargaining chip. Removing that option upfront makes little sense. It is possible, of course, that using the frozen reserves to finance Ukraine’s reconstruction ends up being the best option, but that point has not been reached yet.

Third, a unilateral US move to confiscate the reserves could introduce harmful disunity in the pro-Ukraine camp, whose consistency of purpose has been a major strength until now. Notwithstanding Josep Borrell’s opinion, it is unlikely a consensus could soon be reached among EU countries (not to mention other pro-Ukraine countries) on reserve confiscation, if only because of concerns about systemic financial stability and the international rule of law. The EU is also evidently more exposed than the US to direct Russian retaliation, given its geographical proximity, security vulnerability and density of economic linkages with Russia, even though many of these are being dismantled rapidly. US Treasury Secretary Janet Yellen has signalled that the US Treasury would only recommend confiscation of the Bank of Russia’s reserves if it was supported by America’s partners in the pro-Ukraine coalition. She is right: action by the US alone could erode trust, or even provoke material damage if it included extraterritorial provisions.

Fourth, confiscating Russia’s reserves could entail unnecessary risks to the strength and stability of the international financial system. Similar arguments were made about freezing the Bank of Russia reserves in the first place, and are pervasive in both Russia and China. It is too early to know for sure to what extent these arguments have substance. But moving from freezing to confiscation would be a more radical step in terms of the safe-asset status of foreign reserves. The implications would be uncertain even if one takes into account the enormity of Russia’s assault against international norms and its apparent war crimes.

Conceding the moral high ground

Fifth, at a more intangible but no less consequential level, confiscating Russia’s reserves would mean conceding some of the moral high ground the pro-Ukraine coalition has largely occupied so far. When the US and its partners talk about defending the international rules-based order, there are already many perceptions of hypocrisy and double standards, particularly in developing and emerging economies.

The key point here is one of principle: credibly standing for a rules-based order is worth more than the billions that would be gained from appropriating Russia’s money. Countries place their reserves in other countries trusting they will not be expropriated in situations short of being at war with each other – and the jurisdictions holding Bank of Russia reserves, even though they actively support Ukraine, are not currently at war with Russia. Russia’s breach of international norms, grievous as it is, does not justify unlimited punishment.

It is apparent that international reserves enjoy some protection under international law (as noted by Paul Stephan), even though this may not include sovereign immunity from judicial processes, as mentioned above, and precedents are scarce. The moral high ground is also worth defending in relation to Russian public opinion, even though the perceptions in Russia are currently distorted by massive and ruthless domestic propaganda. Seizing Russia’s collective property runs the risk of entrenching Russian perceptions that the opposite side’s aim is really to harm Russia, rather than to defend Ukraine. That is likely to favour a revanchist orientation of the Russian public, plausibly against the best interests of Ukraine, its allies and world peace.

Legal obstacles

Moreover, using sanctions to confiscate the Bank of Russia’s reserves while the US is not at war is likely to be illegal under US law – the 1977 International Emergency Economic Powers Act (IEEPA). The only case of confiscation of government assets through sanctions under IEEPA was in 2003, during the US invasion of Iraq. Prior examples would have used authority under legislation that can only be applied in wartime (the Trading With the Enemy Act of 1917). Neither the Afghan nor the Venezuelan case have precedent value in this debate: in the former, the disposition of the central bank’s reserves may be justified by a past ruling that found the Taliban liable to the victims of the September 2001 attacks; in the latter, there was no confiscation but rather a release of previously frozen assets to the government viewed by the US as legitimate.

Even if Congress passes new legislation to authorise confiscation of assets in situations where the US is not at war, it could be found to be unconstitutional in future court cases. Such an aggressive expansion of executive powers might even cause the US judiciary to revisit the deference it has historically granted the government when exercising blocking or other sanctions authorities. Also, with confiscation unshackled, a future US president may use the non-wartime authority in a reckless manner, for example in a trade or tariff dispute. Similar arguments can be made in the EU and elsewhere.

The choice is not between confiscation and complicity. Of course, things would change entirely if the US, the EU or other members of the pro-Ukraine coalition were to become belligerents themselves, and quite possibly also if there is dramatic escalation by Russia. For now, Ukraine’s supporters should weigh which options are most likely to achieve their goals, even if they are less emotionally satisfying in the short run.

Recommended citation:

Kirschenbaum, J. and N. Véron (2022) ‘Now is not the time to confiscate Russia’s central bank reserves’, Bruegel Blog, 16 May

About the authors

  • Nicolas Véron

    Nicolas Véron is a senior fellow at Bruegel and at the Peterson Institute for International Economics in Washington, DC. His research is mostly about financial systems and financial reform around the world, including global financial regulatory initiatives and current developments in the European Union. He was a cofounder of Bruegel starting in 2002, initially focusing on Bruegel’s design, operational start-up and development, then on policy research since 2006-07. He joined the Peterson Institute in 2009 and divides his time between the US and Europe.

    Véron has authored or co-authored numerous policy papers that include banking supervision and crisis management, financial reporting, the Eurozone policy framework, and economic nationalism. He has testified repeatedly in front of committees of the European Parliament, national parliaments in several EU member states, and US Congress. His publications also include Smoke & Mirrors, Inc.: Accounting for Capitalism, a book on accounting standards and practices (Cornell University Press, 2006), and several books in French.

    His prior experience includes working for Saint-Gobain in Berlin and Rothschilds in Paris in the early 1990s; economic aide to the Prefect in Lille (1995-97); corporate adviser to France’s Labour Minister (1997-2000); and chief financial officer of MultiMania / Lycos France, a publicly-listed online media company (2000-2002). From 2002 to 2009 he also operated an independent Paris-based financial consultancy.

    Véron is a board member of the derivatives arm (Global Trade Repository) of the Depositary Trust and Clearing Corporation (DTCC), a financial infrastructure company that operates globally on a not-for-profit basis. A French citizen born in 1971, he has a quantitative background as a graduate from Ecole Polytechnique (1992) and Ecole Nationale Supérieure des Mines de Paris (1995). He is trilingual in English, French and Spanish, and has fluent understanding of German and Italian.

    In September 2012, Bloomberg Markets included Véron in its second annual 50 Most Influential list with reference to his early advocacy of European banking union.


  • Joshua Kirschenbaum

    Joshua Kirschenbaum is a senior fellow at GMF’s Alliance for Securing Democracy, focusing on illicit finance. Josh joined GMF from the Treasury Department, where he worked from 2011 to 2018. He served as acting director of the Office of Special Measures at Treasury’s Financial Crimes Enforcement Network, overseeing international money laundering investigations under Section 311 of the USA PATRIOT Act. Previously, Josh worked on Iran sanctions at Treasury’s Office of Foreign Assets Control (OFAC). In 2019, he became a Senior Vice President in the Bank Secrecy Act / OFAC Department at the Bank of Hope, a regional bank based in Los Angeles. The views expressed are solely his and do not purport to reflect the views of his employer.

    He received a master’s degree in international security from Georgetown University and a bachelor’s degree in public policy from Northwestern University.

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