US Confiscation of Russian Assets Will ‘Supercharge’ De-Dollarization

On Saturday, the US House of Representatives passed the cheekily-named REPO Act, which would enable US President Joe Biden to confiscate roughly $6 billion in frozen Russian assets held in US banks and send it to Ukraine.

The provision is part of a package bill that also includes over $95 billion in aid to Ukraine, Israel and the Indo-Pacific, as well as a potential TikTok ban.The bill is expected to pass in the Senate and then be immediately signed by US President Joe Biden. While the $6 billion represents only a fraction of the more than $300 billion in Russian assets frozen by the G7 countries in 2022, most of that money is held in Europe and US lawmakers hope that it will encourage European lawmakers to do the same.

“We’re making good progress in how to access that funds on an agreed basis that I think we can take forward to the G7,” UK foreign minister David Cameron, whose government has already come out in support of seizing Russian assets, told reporters earlier this month.

The decision to confiscate Russian assets and provide them to Ukraine represents a major escalation in the West’s sanction war against Russia. However, the move is short-sighted by the US because it will accelerate global de-dollarization, which will remove one of the most powerful tools the US has.

“It's reinforcing the need to de-dollarize on the part of any third-party country. Be it Russia, be it China - be it anybody else, including any country in the G-7 that may be marginally supportive of the United States. This is pure and simple economic blackmail,” Paul Goncharoff, chief manager of consulting firm Goncharoff LLC. told Sputnik. “Now they’re wondering ‘Am I putting it into something that will be seized or frozen?’ So lack of control [by the owners] over assets is not a good basis of any currency.”

"So it just supercharges de-dollarization. And that's not good, especially when you have an America that is used to living on larger and larger debt raised by people placing the trust and buying treasuries and bonds," Goncharoff added.

The US’s status as the world’s largest reserve enables it to avoid the inflationary effects of its spending, particularly military spending. In 1984, as the US was ramping up its military spending under former President Ronald Reagan, economists studied the inflationary effects of military spending by examining military spending by four countries in the 1950s and 1960s, determining that military spending does increase inflation unless it is offset by slack in the domestic economy, or for nations with a global reserve currency, the slack of the global economy.

“The US used the key currency status of the dollar to export its inflation by running [a] balance of payment deficits in the 1950s and 1960s,” they wrote. “Although the US has had by far the highest defense spending as a percentage of GNP of all the countries under study, the special position of the dollar may have allowed the US not only to use slack in its own economy to absorb possible inflationary effects of defense spending, but to use slack in the world economy as well.”

Two other countries in the study, West Germany and France, experienced high inflation, while the UK, whose pound sterling was still used widely as a reserve currency at the time, also did not experience high inflation.

Writing in an Op-Ed for The New York Times, columnist Christopher Caldwell agreed. “If Russia, China and other diplomatic rivals were to decide that their dollar assets were vulnerable and that they could no longer trust the dollar as a means of exchange, we would feel the pain of that $34 trillion in [US national] debt in a way we don’t now.”

The decision “seriously undermines the image and credibility of the West,” Lev Sokolshchik, an associate professor of the School of International Regional Studies and research fellow of the Centre for Comprehensive European and International Studies at the at the Higher School of Economics told Sputnik. “If, for example, a country pursues an independent policy from the US, accordingly, their assets may be at risk: they may be frozen and eventually confiscated.”

Sokolshchik noted that Saudi Arabia, which is partially responsible for the global dominance of the US Dollar because of its creation of the petrodollar, is increasing its collaboration with China, Russia and other BRICS nations. As far back as 2022, Saudi Arabia and China have held talks about settling oil sales to China in Chinese yuan rather than American dollars.

“This is strictly just political testosterone on overdrive. Very short-sighted on the part of America.” Goncharoff concluded.