US Confiscation of Russian Assets Will Accelerate De-dollarization

JAKARTA – The actions of the United States (US), which are considered to have made the dollar a weapon through the confiscation of frozen Russian assets, are said to further accelerate dedollarization. This was revealed by former International Monetary Fund (IMF) official Eswar Prasad to Bloomberg recently.

As is known, US President Joe Biden this week signed a law allowing the government to confiscate Russian state assets stored in that country.

Washington has long pushed for the confiscation of the funds to help Ukraine in its war efforts against Moscow. Meanwhile, G7 financial leaders and EU officials continued to express concerns regarding the legal precedent for confiscating any assets.

The US and its allies have frozen about $300 billion in Russian central bank assets, of which about $5 billion are held in US banks, under the pretext of being part of Ukraine-related sanctions.

As quoted by Bloomberg, former IMF official Eswar Prasad has warned that America’s move to weaponize its currency through the confiscation of dollar reserves will inevitably encourage other countries to consider de-dollarization.

The so-called REPO law, which Biden signed on Wednesday along with a $61 billion military aid package for Kiev, authorizes the US president to seize Russian state assets held in American banks and transfer them to Ukraine’s reconstruction fund.

“Our international coalition is necessary and urgent to unlock the value of Russia’s immovable sovereign assets,” US Treasury Secretary Janet Yellen said in a statement on Wednesday.

REPO provisions have heightened debate over the potential consequences of foreign demand for U.S. Treasuries and the use of the dollar, Bloomberg noted. The outlet also said it was unlikely the US would seize Russian assets without the consent of other G7 countries and the EU.

JPMorgan analyst Katherine Lei said that China may speed up the de-dollarization process. About 70% of China’s international trade, according to JPMorgan estimates, is currently still denominated in dollars.

“Countries that use dollars for international trade and finance need to ensure that their assets will not be confiscated at the whim of the US,” Paola Subacchi, author of The Cost of Free Money, told the outlet.

Russian Deputy Foreign Minister Sergey Ryabkov on Thursday warned that Moscow could downgrade diplomatic ties with Washington if the US took over frozen Russian funds. Ryabkov stressed that Moscow’s response to the seizure of its assets could include economic and diplomatic countermeasures.

(fjo)