Russia asset seizure? – It’s a Dollar angst

10:20 29.04.2024 •

Congressional passage of authority granting President Joe Biden new powers to seize Russian dollar assets to aid Ukraine has intensified debate over the potential consequences of foreign demand for US Treasuries and use of the dollar.

The so-called REPO provision was added to a $95 billion Ukraine, Taiwan and Israel aid package by House Republican leaders and Biden signed the measure into law Wednesday. It lets the president transfer Russian government assets to a Ukraine reconstruction fund, with some restrictions requiring coordinated action with allies and a judicial review, Bloomberg notes. Lawmakers argue over effect on dollar, US Treasury market.

“It is necessary and urgent for our international coalition to unlock the value of immobilized Russian sovereign assets,” Treasury Secretary Janet Yellen said in a statement. “Congress took an important step in that effort with the passage of the REPO Act, and I will continue intensive discussions with our G-7 partners in the weeks ahead on a collective path forward.”

Group of Seven finance chiefs discussed the potential use of frozen Russian assets last week, with officials from Europe — where the vast majority of the holdings sit — expressing continued concern about the legal precedent.

Similar angst comes from a number of US Republicans, who claim the step would undermine demand for Treasuries and, more broadly, the role of the dollar in the global financial system.

“We already have a lot of pressure on American bond markets, between inflation and the deficits that we have so, yeah, I’m concerned about it,” Ohio GOP Senator J.D. Vance, the REPO bill’s chief Senate critic, said Tuesday. “We have to be careful.”

Vance isn’t alone in his sentiment. Worries about eroding the dollar’s position as the world’s dominant currency surfaced in 2022, when the US and its allies froze Russia’s assets following Moscow’s invasion of Ukraine. Economists highlighted that the joint nature of the action helped insulate such concerns however, and the Biden administration has signaled it will continue to act in concert with its partners.

Russia vowed to “retaliate” against any seizure of its assets, as well as fight such moves in court should they transpire. Critics warn that could lead to a confiscation of US individuals’ assets in Russia. The REPO bill author, Senator Jim Risch, an Idaho Republican, and other advocates have stressed that Russia has already expropriated foreign assets, regardless of the new law. He said worries about Russian asset seizure impact on financial markets are “way overblown.”

“America’s supercharged weaponization of its currency through the seizure of dollar reserves will certainly cause US rivals” to look at de-dollarization, said Eswar Prasad, a former International Monetary Fund official now at Cornell University. But the moves may be limited “because currencies such as the yuan are not backed up by strong, deep, and open financial markets, in addition to a robust institutional framework.”


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