Ukraine - reserve currency/Euroclear risks are overblown

Euroclear appear to be mounting a rearguard action to counter the building momentum behind the campaign to seize immobilised Russian assets and to allocate them to Ukraine.

https://www.ft.com/content/01a4da27-109e-4db9-bd0e-160ec55a5cd0

They need to be careful herein otherwise they might leave themselves liable to claims of acting to defend Russian interests, and their own P&L, rather than those of the victims. That would be a PR disaster.

I personally see zero evidence to back the claim that moving to seize Russian assets will undermine the euro as a reserve currency. I have worked for 27 years as a City economist so kind of have some perspective herein and other asset managers and bankers I have spoken to agree with me. Recent commentary by Martin Wolf and Brad Setzer also seem to support the move to seize Russian assets.

To reiterate my numerous previous writings:

First, I see little real difference between immobilising, and freezing/seizing these assets when it comes to risks to the dollar or euro as reserve currencies. If you are worried about shifts by other authoritarian regimes out of the dollar or euro, I would argue the message was already sent to the likes of Saudi Arabia and China in the move to immobilise Russian assets and subsequent G7 statements that Russia is never getting the money back. Moving now to freeze and seize does not incrementally move the dial. If the Chinese and Saudis were worried therein, they would already have moved their assets - they have not.

Second, even assuming the Chinese, Saudis et al want to move assets out of reserve currency jurisdictions where would they go? When we are talking of literally trillions of dollars in Saudi/Chinese/India reserves there are simply no liquid and safe alternative depositories for these assets. They hardly trust each other so would be loath to buy each others assets in scale. It is important herein that G7, Western states, all move together, but if we are talking Dollar, euro, pound, Yen, CAD, AUD, NZD, literally where else can three assets go?

Third, surely by moving to freeze and seize Russian assets for the war crimes and genocide conducted in Ukraine you send a strong signal to others not to follow suit. Hence if you are an authoritarian regime worried about potentially having assets seized in Western jurisdictions then the best defence is don’t invade another country, abide by international law and don’t commit war crimes and genocide.

Fourth, not sure I see the distinction between taxing the profits on interest earned on Russian assets at Euroclear and seizing the underlying assets.

Fifth, if the concern is the ability of Euroclear itself to fend off lawsuits from Russia - if the system wide concern is then Euroclear itself, then Western governments can move to indemnify Euroclear against such claims. The legal basis for seizing Russian assets - as made by Zelikow et al - is now pretty compelling.

In the end Euroclear should not be the decision makers here, it should be a decision made with Western national security interests at the core. It’s a matter of Western government policy. And I have said previously, needs must, and if the West is not going to tap frozen Russian assets to fund Ukraine then how else will it pay? I don’t think it is fair to ask Western taxpayers to pay to in effect protect the assets of Russian tax payers. That should be political suicide in the West.

The bigger risk on the reserve currency front is if the West fails to adequately fund Ukraine resulting in it losing the war. That would represent a seismic hit to the security of Europe - where will Russia invade next - and confidence in the EU and the essence of the European project