Russia’s response to asset seizure could trigger global financial collapse, says EU official – Firstpost

While Brussels is exploring legal avenues to transfer frozen Russian assets to Ukraine, it must also retain a portion of the funds as a precautionary reserve, a senior EU official informed Reuters, adding that it is necessary to safeguard against potential disruptions to the global financial system, particularly if Euroclear, the Brussels-based clearing house, encounters difficulties.

Since the onset of the Ukraine conflict two years ago, the West has frozen approximately $300 billion in assets belonging to the Russian central bank. Euroclear, based in Brussels holds around €191 billion ($205 billion) of these assets. The EU is reportedly expediting the process to transfer the first instalment of up to €3 billion ($3.2 billion) to Kyiv from profits generated by the frozen Russian assets, with plans to commence as early as July.

However, the EU must ensure that this transfer does not compromise financial stability. According to an unnamed EU official, there is a need to maintain a significant amount of funds in Euroclear to address potential claims against the clearing house. The official emphasized that once the conflict ends and settlements can be completed, the retained funds will be transferred to Ukraine.

Should the West proceed with expropriating the funds, the Russian central bank is likely to seize some €33 billion of Euroclear money held in the national securities depository in Moscow, the official noted. Russia may also sue to seize Euroclear cash from depositories in Hong Kong and Dubai.

Moscow has repeatedly warned that it will respond in kind if the West goes through with threats to confiscate Russian assets. The finance ministry said last month that Western states and companies themselves still have holdings in Russia that could be jeopardized if the frozen funds were tapped.

If Western banks begin suing Euroclear for the loss of their money invested in Russia “that’s the mechanism how Euroclear could be emptied,” the EU official warned.

The Euroclear Bank boasts of over €37 trillion of assets in custody globally, but if it runs out of liquidity amid a litany of lawsuits – the Belgian central bank may be forced to withdraw its license, causing a global financial crisis, the official warned.

A number of Western countries remain divided over expropriating Russia’s frozen assets to aid Ukraine. While the US and UK support the direct seizure of the assets, some EU member states, including France and Germany, have recently warned that the move could negatively affect financial stability and erode trust in the euro’s status as a reserve currency.

With inputs from Reuters.