Ukraine - CBR assets update

We just need to think outside the box

It’s painful as someone who has been writing on the immobilised CBR asset issue for over 3.5 years now to see the painfully slow progress being made by the G7, and then the constant iteration, and reiteration of ideas, which are now more or less returning to what we, or I, suggested way back the beginning. We are kind of constantly reinventing the wheel here - and from a financial architecture issue none of this is/should be difficult with political will. The military and economic need should push the politics to ensure the legal and financial architecture fit. As is the legal arguments are leading the way, hence slow progress.

In response to Belgium’s objections to the latest EC reparations loan idea and then position paper on potential solutions to Ukraine’s now near €140 billion funding gap for 2026-2027, Dixon, Singh, and Bucheit, revise the RL idea further:

https://hugodixon.us18.list-manage.com/track/click?u=fc7c516331bb675ef5c480e53&id=a6903d877e&e=eb668dea98

No disrespect to Dixon, et al who have been part of a much larger community of believers who have been working to kick in the G7 door, and have done much hard graft and can be much commended in everything they have done.

But the discussion seems to have moved on now back to an SPV style structure, which I would argue should be formulated as a proper Sovereign Wealth style structure to manage Ukraine’s defence, and its reconstruction, recovery and eventual EU accession. For want of an accronym I long named it AURA, Agency for Ukrainian Recovery and EU accession.

So to overcome some of the Belgian objections/risks from the lifting of sanctions on Russia, CBR assets are moved out of Euroclear and other G7 depositories, to this SPV or sovereign wealth fund. The SPV is jointly owned (but not necessarily guaranteed) by G7 countries, and I would suggest Ukraine. Russia would hence now have a claim on the SPV instead of Euroclear, et al. Alternatively you could even imagine the SPV issuing debt instruments to Euroclear, which buys these on behalf of the CBR. The SPV then on lends to Ukraine, with debt to be repaid on the assumption that Russia eventually agrees reparations. Note that under the original EC RL idea a debt instrument was issued by the ECB or the EU to Euroclear and other depositories for the CBR assets, but instead that debt instrument would be written by the SPV.p which would then on lend to Ukraine.

In a scenario where Russia wins a legal case, against the SPV, for the return of the assets, and has not paid reparations to Ukraine so as to be able to repay the loans by Ukraine, then and only then are G7 countries on the hook for the underling CBR assets - assuming they have written a guarantee.

If the CBR assets are unfrozen, and Euroclear is tasked with getting these back, the SPV could be bankrupted (maybe then best not to have an underlying G7 guarantee) - imagine it as Euroclear having invested in the bonds of a sovereign that defaults, say Greece during the European sovereign debt crisis. It would not be expected to pay par to the end client (in this case the CBR), and nothing if the SPV ends being wound up in such a scenario. It’s not confiscation as the underlying asset remains that of the CBR, but instead of owning bunds or gilts, it owns the debt issued by the SPV, or AURA.

The beauty though of taking the concept on to a sovereign wealth like structure, is that this entity can leverage up on the underlying CBR assets, perhaps using them as collateral for additional borrowing on behalf of Ukraine. The entity could help plan and coordinate defence spending and production for Ukraine, and its subsequent recovery and reconstruction. The entirety would manage undrawn funds from the CBR allocation, and invest these to generate higher return for allocation to Ukraine - maiming the CBR assets go further. It could potentially be an equity partner for future foreign investment into Ukraine - in, for example, joint military production. It can provide oversight and accountability for the wider Westerm donor effort in support of Ukraine. It can be a clarion for reform, and partner for anti corruption institutions in Ukraine. I would imagine eventually, upon EU accession of Ukraine, the entity (AURA) ends up as fully owned by Ukraine.

You could even imagine a scenario when POTUS is given some ceremonial position as chair of AURA, albeit I think any investment returns have to be earmarked 100% for the victim here, Ukraine.