[Joseph E. Stiglitz and Andrew Kosenko urge G7 leaders to send a
clear message to rogue regimes waging brutal wars of aggression.]
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SEIZING RUSSIA’S FROZEN ASSETS IS THE RIGHT MOVE  
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Joseph E. Stiglitz, Andrew Kosenko
January 4, 2024
Project Syndicate
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_ Joseph E. Stiglitz and Andrew Kosenko urge G7 leaders to send a
clear message to rogue regimes waging brutal wars of aggression. _

, Sergei Supinsky AFP via Getty Images

 

While policymakers in the United States and Europe are wary of using
confiscated Russian assets to support Ukraine’s war effort and
reconstruction, their concerns are, at best, misguided. Ukraine
urgently needs these funds to win the war, and failing to make these
resources available now is unconscionable.

NEW YORK – As Russia’s war against Ukraine continues to wreak
havoc both regionally and globally, the Ukrainian people and their
allies demonstrate remarkable determination and courage. But nearly
two years after Russia launched its full-scale invasion, it is
increasingly clear that the international community can and must do
much more to help.

While the G7 countries and other governments around the world have
been extraordinarily generous in supporting the Ukrainian war effort,
there are signs of growing fatigue in some circles – a development
Russia appears to have anticipated. With the United States
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the European Union
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to commit more than $100 billion in aid to Ukraine in December, the
idea of seizing Russian assets frozen by Western countries has
re-emerged as a potential solution.

Although seizing these assets would boost Ukrainian morale and
finances, policymakers on both sides of the Atlantic are wary.
As _The New York Times _recently reported
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top US officials fear that setting such a precedent would deter other
countries from depositing their funds at the New York Federal Reserve
or holding them in dollars.

But the concern that other governments might become wary of keeping
their funds in the US for fear of future seizures overlooks some key
points. Seizing Russia’s frozen assets would not affect other
countries’ assets or change the incentives of governments that are
not planning a major war. Moreover, by _not_ seizing these funds,
Western countries are signaling that governments waging brutal wars of
aggression can violate international law and simultaneously benefit
from it to escape the consequences of their actions. Instead, G7
leaders should send a clear message: no country can have it both ways.
By deterring other bad actors from violating international law, such
seizures could act as a peace-building measure.

The supposed negative effect of seizing Russian assets on other
countries’ willingness to deposit funds in the US and Europe, were
it real, would have become apparent when these funds were frozen in
early 2022. Notably, there has been no capital flight from the US or
Europe. This is partly because there are few safe alternatives to the
established financial system. Assuming that governments do become wary
of keeping their assets in the US, Europe, or Japan, where else are
they going to hold them? Even if they set aside concerns such as
capital controls, would they feel more secure holding their money in,
say, Chinese institutions?

Moreover, while European and Japanese institutions might benefit if
other potential “rogue” countries decided not to keep deposits in
the US, the financial impact would be negligible. In fact, many
economists argue that such capital inflows are a cost rather than a
benefit. Since they lead to currency appreciation, the argument goes,
they make it harder to export goods and compete with imports, thereby
destroying jobs.

To be sure, some financiers might face losses. But most of the funds
held in the US are simply reserves deposited at the Fed, which do not
directly benefit Wall Street. The same applies to Euroclear
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Belgian financial institution where the bulk of Russian assets are
held.

Another, related argument against asset seizure is that it can be
carried out only once, because once it’s done, no country would
leave its reserves or other assets in the US or the EU. But, even if
true, the argument is not persuasive: a tool that cannot be used is
essentially worthless, and there has never been a more appropriate
time to use it than now.

Ultimately, Russia must be held accountable. While Russia cannot fully
compensate Ukraine for the devastation it has wrought, it should, at a
minimum, pay for the physical damage and cover the costs of
reconstruction. When an individual commits a tort – an act that
harms another person – they are obligated to provide compensation.
Often, individuals’ assets are seized to ensure that they fulfill
this obligation. The same principle applies to countries. Although
asset seizures are often complex undertakings, Russia’s case could
prove to be the exception, given that the assets to be seized have
already been frozen.

Legal experts may argue that offering Kyiv loans and using the frozen
assets as collateral is a better approach, since it would force Russia
to choose between directly compensating Ukraine and forfeiting these
funds. But such technicalities are best left to lawyers. The reality
is that Ukraine needs the money now_, _the money is under Western
control_, _and not using it to help Ukraine win this war and rebuild
would be unconscionable. It is unreasonable to expect taxpayers and
donors in Europe, the US, and Asia to bear the costs of Ukraine’s
reconstruction when Russia itself could make a significant (albeit
involuntary) contribution.

But the specific use of the confiscated funds is a secondary concern.
While 90% of the American security assistance allocated to Ukraine
is spent in the US, the seized Russian assets could be used to
support Ukrainian forces on the ground and finance the massive
recovery effort.

It should go without saying that seizing Russia’s frozen assets
would not absolve the West of the responsibility to provide Ukraine
with military aid; without victory, there can be no reconstruction.
Nevertheless, the fact that rebuilding Ukraine could end up
costing $1 trillion
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than three times
[[link removed](Reuters),Russian%20assets%20in%20the%20West.] the
assets’ value – might mollify those who are still reluctant to use
them to fund the reconstruction effort.

Of course, no amount of money can ever undo the immense damage that
Russia’s war of aggression has inflicted on Ukraine’s economy and
its people. But the frozen Russian assets can be viewed as a down
payment on the reparations that the Kremlin should eventually be
compelled to pay.

_JOSEPH E. STIGLITZ, a Nobel laureate in economics and University
Professor at Columbia University, is a former chief economist of the
World Bank (1997-2000), chair of the US President’s Council of
Economic Advisers, and co-chair of the High-Level Commission on Carbon
Prices. He is Co-Chair of the Independent Commission for the Reform of
International Corporate Taxation and was lead author of the 1995 IPCC
Climate Assessment._

_ANDREW KOSENKO is an assistant professor of economics at the School
of Management at Marist College._

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