The “weaponization” of the US dollar through the seizure of frozen Russian assets could prompt a global shift away from the greenback, Bloomberg reported on Wednesday, citing a former International Monetary Fund (IMF) official.
US President Joe Biden signed a bill this week allowing the administration to seize Russian state assets held in America.
Washington has long insisted on the confiscation of the funds to aid Ukraine in its war effort against Moscow. Meanwhile, G7 finance chiefs and EU officials continue to express concerns about the legal precedent of any asset seizure. The US and its allies have frozen around $300 billion in Russian central bank assets, around $5 billion of which is sitting in US banks as part of Ukraine-related sanctions.
As quoted by Bloomberg, former IMF official Eswar Prasad has warned that “America’s supercharged weaponization of its currency through the seizure of dollar reserves will certainly cause US rivals [to look at de-dollarization].”
The so-called REPO Act, which Biden signed on Wednesday along with a $61 billion military aid package for Kiev, authorized the US president to seize Russian state assets held in American banks and transfer them to a Ukraine reconstruction fund.
“It is necessary and urgent for our international coalition to unlock the value of immobilized Russian sovereign assets,” US Treasury Secretary Janet Yellen said in a statement on Wednesday.
The REPO provision has intensified debate over the potential consequences of foreign demand for US Treasuries and use of the dollar, Bloomberg noted. The outlet also said it is unlikely that the US will seize Russian assets without agreement from other G7 nations and the EU.
JPMorgan analyst Katherine Lei was quoted as saying that “China may accelerate the process of de-dollarization.” About 70% of Chinese international trade is still denominated in dollars, according to JPMorgan estimates.
“Countries that use the dollar for international trade and finance need to be sure that their assets will not be seized on the whim of the US,” Paola Subacchi, author of The Cost of Free Money, told the outlet.
Russian Deputy Foreign Minister Sergey Ryabkov warned on Thursday that Moscow could downgrade diplomatic relations with Washington if the US expropriates frozen Russian funds.
Moscow’s response to the seizure of its assets could include economic and diplomatic countermeasures, Ryabkov said.
