Shortly after Russia’s full-scale invasion of Ukraine in late February of 2022, a number of governments, including the United States, all of the European Union, Japan, and others, immobilized the Bank of Russia’s reserve assets under their jurisdiction, meaning the assets remain property of the Bank of Russia, but the latter cannot move them from where they are held. Thanks to gradually increased transparency, the European Union has emerged publicly as the dominant player in that coordinated action. Most of the immobilized assets are held at Euroclear, the Brussels-based international central securities depository.
In the hushed world of central bank reserve management, no such information is usually disclosed, but the amount at hand is just too large to stay hidden: the balance sheet of Euroclear Bank, the relevant subsidiary of the Euroclear Group, has grown more than fivefold since early 2022 from its prior stable level. Euroclear does not publish the amount of securities the Bank of Russia holds there, but it must account for the cash balance in quarterly disclosures of its own total assets.
Euroclear’s contractual arrangements specify that cash held there is non-remunerated, to discourage clients from using it as a “safe house” for their spare money. When securities come to maturity or pay dividends or coupons, investors usually take the cash away or reinvest it into other securities during the same day, so that no amount is recorded on the Euroclear balance sheet. Because the immobilizing sanctions prevent the Bank of Russia from doing that, its cash keeps accumulating at Euroclear without yielding any interest to the Bank of Russia, on a scale that now reaches more than half of all its immobilized reserve assets in the G7, the European Union, and Australia, estimated at around €265 billion.
Because the Bank of Russia’s cash deposit at Euroclear is unambiguously noninterest-bearing, there is a solid argument that the interest income that Euroclear makes on it, in the high single-digit billions of euros annually at current rates, belongs to Euroclear and not to the Bank of Russia. That income could thus be appropriated by the European Union for Ukraine’s benefit, without expropriating the Bank of Russia and thus staying in line with the European Union’s commitment to the international rule of law. The European Union plans to provide €50 billion of financial assistance to Ukraine over the period 2024–27, an amount it may have to further ramp up depending on developments on the Ukrainian frontlines and in the US Congress. The income from the immobilized assets would not cover the full aid package, but it would still help.