Giving Russian reserves to Ukraine would be 'elegant justice,' former World Bank chief says

• The West should transfer frozen Russia reserves to Ukraine, a former World Bank president said.
• Though countries may be more incentivized to dump reserve currencies, they'd find few alternatives.

Concerns about transferring Russia's foreign reserves are overblown and deny Ukraine needed funds, a former World Bank president wrote in the Financial Times.

Countries shouldn't hesitate to take advantage of these assets, as there's no real risk to international financial stability, Robert Zoellick said.

"Russia is waging a war of attrition against Ukraine," he wrote. "Ukraine's friends need to send a signal that Moscow cannot outlast Kyiv; it is elegant justice to do so with Russia's own assets."

More than $300 billion in currency reserves were frozen following Russia's 2022 invasion of Ukraine, and came alongside a slew of other sanctions. Though the funds have since remained untouched, wavering Western financial support for Kyiv has prompted discussion on whether they could be a source of aid.

Critics have argued that such a seizure would erode international willingness to keep reserves in dollars, fueling an accelerated move towards de-dollarization.

But Zoellick said that Western unity about using these assets would deny any disgruntled states realistic alternatives. Though central banks could invest in gold, it lacks liquidity, while other currencies don't have the same reach as the greenback.

"China and other economies do not hold dollars or euros because they are friends with Europe and the US. Rather, they run trade surpluses that earn foreign currencies," Zoellick said. "If Beijing dumped its dollars or euros for renminbi, it would have to figure out where to invest the proceeds at the same time that it undermined its exporters' exchange rate, thus hurting its trade."

By guaranteeing Kyiv the funding for reconstruction and recovery, it may incentivize the country to reach a settlement with Moscow sooner, he added. On the other hand, there's a small chance the G7 could offer some of the assets back to Russia, in exchange for true peace.

Former Treasury Secretary Larry Summers has similarly called for using Russian reserves to help Ukraine. And current Treasury Secretary Janet Yellen has said frozen Russian assets should be taxed, with proceeds sent to Ukraine.

"The G7 nations and others have frozen Russian reserves for two years without creating a disruptive, chilling effect," Zoellick wrote. "If countries believe that they cannot conquer and annex their neighbors without losing access to their global reserves, that is a good thing."