"Freedom Bonds": US Wants $50BN Bond For Ukraine Backed By Frozen Russian Assets

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by Tyler Durden
Thursday, Mar 21, 2024 - 07:25 PM

Leery of outright seizing all of the some $280 billion in Russian central bank assets mostly held in Europe, the Group of Seven's alternative 'Plan B' is quickly taking shape. There's been greater consensus of support for instead using the windfall profits gained from reinvesting Russian assets frozen in Europe to support the purchase of weapons for Ukraine.

Days ago the The Wall Street Journal detailed that "Two-thirds of the roughly $300 billion in reserves were sitting in European banks and clearinghouses. As those assets mature and are reinvested, they have generated profits that EU officials say could reach 15 billion euros, equivalent to more than $16 billion, over the next four years." The blocked assets currently generate an estimated $3.6 billion of net profits per year.

On Thursday the United States unveiled a new plan to allies centered on what are being dubbed "freedom bonds". The initiative would create a special purpose vehicle to issue at least $50 billion of bonds generated by the frozen assets, Bloomberg reports.

Via Associated Press

But considering that Moscow has already and on multiple occasions blasted such plans of the West as brazen "theft" and has even vowed to hit back in some way  investors will be understandably cautious, likely viewing a "freedom bond" scheme as anything but a secure and trustworthy long term opportunity. 

The Kremlin has previously vowed to be "extremely tough" on "thieves" who appropriate what belongs to Russia. "Considering that our country has qualified this as theft, the attitude will be towards thieves," Foreign Ministry Spokeswoman Maria Zakharova earlier stated. "Not as political manipulators, not as overplayed technologists, but as thieves," she emphasized.

Such threats are being taken seriously by some European leaders, who have sought ways around pure seizure of the funds. Bloomberg reviews of the delicate tightrope situation:

G-7 allies have in recent months discussed several options on how to tap the frozen assets — from using the money as collateral to raise debt or issuing guarantees against the frozen funds. But they remain at odds due to European reluctance to do anything that could be perceived as effectively seizing the assets, which they worry could run into legal challenges, risk the stability of the euro and face retaliation from Moscow.

The $50 billion in bonds plan as well as other options are still in the early stages of discussion, with Germany and France reportedly expressing initial caution over the freedom bond idea.

The Western allies have out of recent desperation over Ukraine's diminished ammo been getting creative, and seeking to find loopholes in order to free up extra funds that could be used in the war effort.

Britain has meanwhile been at the forefront of countries arguing that the total of all underlying Russian assets should be fully confiscated and used for Ukraine. "Our view is simple: One day, Russia will have to pay reparations and it doesn’t make sense to wait for those reparations. It makes better sense to use the frozen assets and to make that money available now," UK Foreign Secretary David Cameron said last week.

Which Russian assets are sanctioned and where are they held... (click image for bigger):

Via Financial Crime News

But this more aggressive approach has consistently met with firm resistance among the other powerful European allies. Along with pressing defense needs, Ukraine reportedly is severely struggling to keep basic state services afloat, including paying teachers, civic workers, and maintaining pensions - among other things.

Starting in February, US Treasury Secretary Janet Yellen began getting more vocal on the "moral case" for using Russian assets to aid Ukraine, telling allies they must find a way to "unlock the value" of the hundreds of billions in immobilized Russian assets, also with an eye towards Ukraine's post-war reconstruction. Previously some Ukrainian officials floated the idea of "reparation bonds" backed by future claims for war damages against Moscow, and utilizing frozen Russian assets.