THREAD explaining why seizing Russia's assets is a crossing the Rubicon moment for the West.
1/ Property Rights.
The principle that forfeiture of property before conviction is illegal is one of the longest and most cherished in the Western capitalist tradition. It underpins the basic dimensions of our democratic society. As Wiki notes, the US Constitution's Fifth Amendment guarantees that "no person shall be deprived of life, liberty, or property, without due process of law", a phrase that was derived from Magna Carta.
It was instituted in large part to protect citizens from the overreach of the state.
Due process includes the observation of habeas corpus, the idea that everyone is innocent until proven guilty.
1/ Property Rights.
The principle that forfeiture of property before conviction is illegal is one of the longest and most cherished in the Western capitalist tradition. It underpins the basic dimensions of our democratic society. As Wiki notes, the US Constitution's Fifth Amendment guarantees that "no person shall be deprived of life, liberty, or property, without due process of law", a phrase that was derived from Magna Carta.
It was instituted in large part to protect citizens from the overreach of the state.
Due process includes the observation of habeas corpus, the idea that everyone is innocent until proven guilty.
2/ State and central bank immunity.
Ah, you may think. These are not the assets of individuals. These are mainly state assets of either the Russian central bank, the Russian Finance ministry or the Russian Sovereign Wealth fund (though, actually, there are also Russian bank assets and individuals in the mix). Seizing their assets is entirely different.
Well no. The principles of sovereign and central bank immunity are, arguably, even more entrenched in the system.
Take as an example the case of the Afghanistan Central Bank (DAB). On February 21, 2023, the United States District Court for the
Southern District of New York held that DAB is a central bank entitled to jurisdictional
immunity under the Foreign Sovereign Immunity Act and that the court is constitutionally constrained from permitting creditors to seize DAB funds.
Why is it such a big deal? Because sovereign continuity is considered fundamental in the rule-based global order, with the only permitted exception for outright confiscation being for sovereigns that are officially at war with each other.
Ah, you may think. These are not the assets of individuals. These are mainly state assets of either the Russian central bank, the Russian Finance ministry or the Russian Sovereign Wealth fund (though, actually, there are also Russian bank assets and individuals in the mix). Seizing their assets is entirely different.
Well no. The principles of sovereign and central bank immunity are, arguably, even more entrenched in the system.
Take as an example the case of the Afghanistan Central Bank (DAB). On February 21, 2023, the United States District Court for the
Southern District of New York held that DAB is a central bank entitled to jurisdictional
immunity under the Foreign Sovereign Immunity Act and that the court is constitutionally constrained from permitting creditors to seize DAB funds.
Why is it such a big deal? Because sovereign continuity is considered fundamental in the rule-based global order, with the only permitted exception for outright confiscation being for sovereigns that are officially at war with each other.
3/ Reputational issues
It's worth noting that while the assets are widely reported to be situated at Euroclear, in reality, this obscures the fact that Euroclear is merely their custodian. The assets are, according to sources familiar with the situation, mostly sovereign bonds that have been pledged as collateral to the Bundesbank. The corresponding euro liquidity remains frozen on account. If that is true, this explains why the ECB is among the staunchest of opponents to the seizing, and why the Germans in particular are so against the move.
The optics of the Bundesbank, of all the central banks in the world, doing the seizing provides Russia with a highly exploitable propaganda narrative. Not just that the West can't be trusted to preserve sovereign immunity and property rights, but that the Germans are up to their old WW2 tricks in terms of unfairly seizing assets.
But more pertinently, the seizing would skewer any hopes the euro has of surpassing the dollar as the world's top international reserve currency.
On the flipside, defying US/UK pressure to seize the assets could be the making of the euro.
reuters.com/world/europe/e…
It's worth noting that while the assets are widely reported to be situated at Euroclear, in reality, this obscures the fact that Euroclear is merely their custodian. The assets are, according to sources familiar with the situation, mostly sovereign bonds that have been pledged as collateral to the Bundesbank. The corresponding euro liquidity remains frozen on account. If that is true, this explains why the ECB is among the staunchest of opponents to the seizing, and why the Germans in particular are so against the move.
The optics of the Bundesbank, of all the central banks in the world, doing the seizing provides Russia with a highly exploitable propaganda narrative. Not just that the West can't be trusted to preserve sovereign immunity and property rights, but that the Germans are up to their old WW2 tricks in terms of unfairly seizing assets.
But more pertinently, the seizing would skewer any hopes the euro has of surpassing the dollar as the world's top international reserve currency.
On the flipside, defying US/UK pressure to seize the assets could be the making of the euro.
reuters.com/world/europe/e…
4/ Bitcoin's raison d'etre moment?
ECB Policymakers will also be acutely aware that seizing Russian assets will build the market and sovereign case for holding reserves in alternative assets like gold, but also (following in the footsteps of El Salvador) bitcoin.
It's worth noting, the National Bank of Poland, one of the biggest champions of seizing the Russian assets, has been aggressively moving more and more of its reserves into gold since the war broke out. More broadly, central banks have been among the biggest net buyers of gold the past year.
Could gold and bitcoin highs be benefiting from such repositioning? I wouldn't discount it.
ECB Policymakers will also be acutely aware that seizing Russian assets will build the market and sovereign case for holding reserves in alternative assets like gold, but also (following in the footsteps of El Salvador) bitcoin.
It's worth noting, the National Bank of Poland, one of the biggest champions of seizing the Russian assets, has been aggressively moving more and more of its reserves into gold since the war broke out. More broadly, central banks have been among the biggest net buyers of gold the past year.
Could gold and bitcoin highs be benefiting from such repositioning? I wouldn't discount it.
5/ The workarounds
The 'Wheelbarrow'
Rather than letting the collateral go to waste while it's in our care, this would involve rehypothecating it to raise liquidity for Ukraine, which would be invested in such a way as to create growth and profit. Then when everything's over, the collateral can be returned and nobody is any wiser. A bit like "borrowing" someone's wheelbarrow to sow your fields, then putting it back but still benefiting from the crops that grow in the meantime.
It's just an advance against reparations
This would involve dispensing the assets on behalf of Ukraine at will, on the basis that when the war's over, (and we've won), we can claim it against the reparation bill we will send to Russia. But this is a bit like a landlord spending a tenant's deposit because they are fairly confident the property will undoubtedly get trashed. So high on the hubris meter.
We'll just take the interest
An iteration of the Wheelbarrow, but with much less of a punch. Still complicated.
The tax smokescreen
Asset confiscation is sometimes disguised in the former of extraordinary taxes levied by governments unexpectedly. But this is easier to enforce on private individuals or corporates, and markets still tend to see through the ruse.
Forget about the perception of legality
Drop the perception of legality and suffer the consequences. Or declare war and confiscate according to the Trading with the Enemy Act. (Though that act only applies to Britain).
The 'Wheelbarrow'
Rather than letting the collateral go to waste while it's in our care, this would involve rehypothecating it to raise liquidity for Ukraine, which would be invested in such a way as to create growth and profit. Then when everything's over, the collateral can be returned and nobody is any wiser. A bit like "borrowing" someone's wheelbarrow to sow your fields, then putting it back but still benefiting from the crops that grow in the meantime.
It's just an advance against reparations
This would involve dispensing the assets on behalf of Ukraine at will, on the basis that when the war's over, (and we've won), we can claim it against the reparation bill we will send to Russia. But this is a bit like a landlord spending a tenant's deposit because they are fairly confident the property will undoubtedly get trashed. So high on the hubris meter.
We'll just take the interest
An iteration of the Wheelbarrow, but with much less of a punch. Still complicated.
The tax smokescreen
Asset confiscation is sometimes disguised in the former of extraordinary taxes levied by governments unexpectedly. But this is easier to enforce on private individuals or corporates, and markets still tend to see through the ruse.
Forget about the perception of legality
Drop the perception of legality and suffer the consequences. Or declare war and confiscate according to the Trading with the Enemy Act. (Though that act only applies to Britain).
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