Collateralising Russia’s Frozen Currency Reserves: A Creative Solution, Playing for Time, or Both?

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The past several weeks have seen a new-ish development in the ongoing saga concerning the fate of the Central Bank of Russia’s (CBR) frozen foreign currency reserves. According to the Financial Times, the G7’s discussions have shifted towards issuing bonds backed by CBR assets for Ukraine’s benefit. Two unnamed officials cited by the FT described the proposal, put forward by the Belgian government, as ‘a leading option to unlock the frozen funds for Ukraine’. One of the FT’s interlocutors was open about the rationale behind the proposal:

One of the things that this would do is put off the question of what happens to the Russian sovereign assets, even though they would be used as collateral.

Only several days later, a Reuters report suggested that, in fact, the idea does not enjoy much support in Europe outside Belgium. According to Reuters’ source, the proposal ‘suffers from the same legal, economic and financial concerns as a confiscation’. So, what should we make of these reports and of the Belgian proposal to collateralise the CBR’s frozen currency reserves?

As is often the case, it is useful to begin with some context. Since the freezing of the CBR’s reserves in February 2022, several competing options as to their ultimate disposal have been floating around.

State of the Debate

The least ambitious (or, depending on your framing, most circumspect) approach is simply to keep the assets frozen, ostensibly as a source of leverage vis-à-vis Russia. ‘Ostensibly’ because it is rarely, if ever, explained what this leverage is supposed to achieve: Russia’s agreement to pay reparations for the damage that already exceeds the amount of frozen assets? Or the abandonment by Russia of its invasion that this source of leverage has so far failed to bring about? Both outcomes are implausible, but this approach does avoid the difficulties associated with an attempt to seize CBR assets. That is the real appeal of this option: it conserves the status quo and relieves the G7 governments of difficult decisions.

The second approach, which emerged in the EU towards the end of 2022, involves the confiscation and/or taxation of the interest accrued on CBR assets worth €191 billion in Euroclear, a Belgian securities clearinghouse. This might, at first sight, appear to be an odd distinction: surely, as a matter of law, there is no real difference between the principal and the interest? Although many (myself included) have criticised the proposal on that basis, there is method to it. EU sanctions have resulted in CBR assets being stuck at Euroclear, with Euroclear apparently being free under Belgian law to invest them and – for now – keep the interest. The amount generated in interest has therefore never belonged to the CBR. The discussion as to what should happen to it is ongoing, but the €4.4 billion involved, while a substantial amount, would hardly make a dent in the amount of damage Russia caused to Ukraine.

The third approach is transferring the CBR’s frozen reserves to Ukraine in satisfaction of Russia’s reparations obligation. The idea remains contentious, although it has received a boost from recent endorsements by the US and UK governments. Furthermore, by now the disagreements that make it contentious have largely crystallised. The key legal issues are the lawfulness of third-party countermeasures of the applicability of collective (non-forcible) self-defence; as well as, if countermeasures are relied upon, whether such a transfer would be compliant with requirements for the lawfulness of countermeasures. The principal policy issue is the likely impact of the seizure on the international financial system, primarily as relates to the reaction of non-G7 states to this exercise of ‘Western’ financial power.

A Novel Proposal?

In this crowded field, collateralisation offers yet another path, and not altogether a new one. First mentions of it were made at least as early as a year ago, if not before. What is new is its reported emergence as a plausible contender. In principle, one can have a great deal of sympathy with a course of action that provides financial support for Ukraine while avoiding the challenges associated with a transfer of CBR assets. The problem is that those challenges are, at best, postponed.

If the G7 states directly pledged Russian state property as collateral, that would be tantamount to a confiscation. What seems more likely is an arrangement along that lines of that described by the journalist Martin Sandbu. It would involve borrowing against Russia’s obligation to pay reparations, coupled with a commitment to keep CBR assets frozen until the obligation is discharged. If not discharged by the maturity of the bonds, then CBR assets would be seized in its satisfaction.

Still, the scheme is premised on the G7 governments’ recovery of $350 billion from Russia in the future, while those same governments have failed to do precisely that over the past two years. Whether investors will sign up can hardly be taken for granted. One also has to wonder how long it would take to raise funds through issuing bonds. Those practical matters will determine whether collateralisation emerges as a credible alternative to transferring the $350 billion.

Depending on the details, this arrangement may raise an intriguing international law question. Suppose that, as Sandbu proposes, Ukraine assigns to the G7 states its right to claim reparations against Russia. Then, those states issue bonds backed by their own, rather than Ukraine’s, claims against Russia. Would Russia’s default on a payment assigned by Ukraine to, say, Belgium be an internationally wrongful act against which Belgium could take countermeasures as a directly injured state?

No Luck at the ICJ

While separate from the G7 discussions, it is worth touching briefly on the impact of the two recent ICJ judgments in the Russia/Ukraine litigation: the merits judgment in the Terrorist Financing Convention and Racial Discrimination Convention case, and the preliminary objections judgment in the Genocide Convention case. Ukraine has been unsuccessful in seeking reparations in the former case, and the rump of the latter case that will proceed to the merits phase can likewise give rise to no reparations.

This looks like bad news for Ukraine’s pursuit of reparations, but I am not sure whether it really is. On the one hand, an award of reparations by the ICJ could have eased the concerns of those anxious that the G7 states should not unilaterally decide whether Russia has breached international law and, if so, how much it owes Ukraine. There is also a plausible argument that seizing state property to enforce an ICJ judgment does not infringe state immunities, which would render the discussion of countermeasures or collective self-defence unnecessary.

On the other hand, suppose that all of Ukraine’s claims arising from Russia’s defiance of the provisional measures order in the Genocide Convention case went ahead to merits. That would have meant waiting another several years (at least!) for a judgment that would have broken new ground for the ICJ in terms of the sheer amount of the damage it would have had to consider. From Ukraine’s standpoint as it seeks to secure the transfer of frozen CBR assets, the spectre of a reparations judgment by the ICJ – at an indeterminate future point and from a court with very limited relevant jurisprudence – may well have been a source of distraction more than hope.


As the debate on the future of Russia’s frozen currency reserves rumbles on, we continue to see proposals that seek to circumnavigate the challenges of transferring those funds to Ukraine while achieving a similar result, even if only in part. One may applaud the intention (or criticise it as delaying tactics), but there is no getting around the fact that, in the long run, only three options remain: transfer to Ukraine; return to Russia; or indefinite freezing (which, incidentally, is supposed to be an oxymoron). Someday, the G7 will need to bite the bullet and decide.

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Petro Halimurka says

February 13, 2024

Dear Anton, thank you for this interesting and mind-provoking post.

When reading the proposal for the assignment of claims, my attention was drawn to domestic legislation. For instance, under Article 515 of the Civil Code of Ukraine, substitution of a creditor is not allowed in obligations inextricably linked to the creditor's personality, in particular, in obligations to compensate for damage caused by injury, other damage to health, or death. At the same time, according to Article 511 of the Civil Code of Ukraine, an obligation does not create an obligation for a third party. In cases established by the contract, an obligation may give rise to rights for a third party against the debtor and/or creditor.

Of course, these provisions are for illustrative purposes only and in no way challenge the question as to whether international law permits or prohibits the assignment of claims for damages arising from the use of force.

Yet, it would be interesting to know your opinion on whether the use of force not in conformity with the UN Charter might entail the emergence of a right to provisional countermeasures under Articles 2(4) and 51 of the UN Charter for third states within the meaning of Article 36 of the Vienna Convention on the Law of Treaties. And, subsequently, whether the existence and persistent exercise of the veto power, which makes it impossible for the Security Council to adopt a decision on this matter at any time (i.e., potentially forever eliminates such a possibility), could lift any time limitations, including those on the reversibility of countermeasures (...until the Security Council has taken the measures necessary to maintain international peace and security).

Petro Halimurka