Congress votes to unfreeze Russian assets. Why is it bad?

The US Congress has voted to unfreeze Russian assets held in the American banks. As stated, this money will be transferred to support Ukraine. Since the start of the war, Western countries have arrested $ 300 billion of Russian reserves. After a relatively short debate, it looks like the American government will accept the bill.

Just $ 6 billion (2 %) of Russian assets are frozen in American banks. This amount is not of any material for the American budget. And of course, this amount cannot compete with the reputation damage of this bill. The US dollar is the main reserve currency in the world. Until this weekend, it was considered as a safe option for any business, country or person to hold their reserves in dollars. Now the signal is that if the US wants, they can use (or should we call it another word?) your reserves. This signal will be received by country leaders, Arabian sheiks, Chinese politicians and businessmen around the world. If the US wants, your money is not safe, even if it is a small amount.

It is also a signal to act to the European partners, who held 98% of the arrested assets. The US opened a gate, and the Europeans are gently but decisively invited to get in. Europeans don't want to lose trust in the euro, but 294 billion is a significant amount (Germany expects to earn 430 this year) and low-hanging fruit now. Besides, Americans will be busy in the Middle East very soon (see other posts), and probably will not sponsor Ukranian after-war reconstruction. So if the Europeans do not want to have a devastated country with a destroyed economy, that will be causing security threats inside of the EU, they will have to spend some money. Now they know where to get this money.

The situation with the reserve currencies (and the world economy) is getting worse, but there are no good alternatives. The Chinese yuan can never be considered as a safe reserve option. Cryptocurrencies do not gain much trust after the recent rapid fall. How can anyone trust a currency that loses 10% of its value over a week?

Photo: Karolina Grabowska