The EU announced its intention to freeze half of the reserves of the Bank of Russia

Posted 28 February, 2022

Western countries will block about half of the financial reserves of the Russian Central Bank, said the head of European diplomacy Josep Borrell.

Western countries will block about half of the "financial reserves" of the Bank of Russia, announced on February 27 after a meeting of EU foreign ministers, EU High Representative for Foreign Affairs and Security Policy Josep Borrell. “About half of the financial reserves of the Russian Central Bank will be frozen since they are in the banks of the G7 countries. This measure will greatly affect the Russian financial system,” Borrell said (RBC followed the press conference).

According to the head of European diplomacy, in the near future, the European Council (the highest executive body of the EU) will have to formalize this decision and other decisions on Russia (such as disconnecting a number of Russian banks from the SWIFT system) in legally binding documents.

“Half of the financial reserves of the Russian Central Bank are placed in the banks of the G7 member countries. They will block them. <...> We cannot block reserves that are in Moscow or in China. In recent years, Russia has placed more and more reserves where we cannot block them. Russia was preparing for such a situation by abandoning the dollar and placing reserves in euros, yen, yuan,” Borrell explained.

“Imagine the significance for the country of losing half of its reserves,” the official stressed.

Borrell did not name the exact amount of assets of the Bank of Russia, which could be frozen by the European Union and partner countries. It is not clear whether the Bank of Russia, before the formal entry into force of these sanctions, can have time to withdraw reserves from the reach of Western countries. On February 27, the Central Bank announced the return to purchases of gold, it is purchased from Russian gold miners through commercial banks and stored in Russia.

By "financial reserves" Borrell could mean the international reserves of the Central Bank, excluding gold. As of February 1, the currency reserves of the Bank of Russia amounted to $498 billion (including gold - $630 billion). Based on this, the West can block at least $240-250 billion of financial assets of the Central Bank.

Japan was the only one of the G7 countries that could not agree to the blocking of the assets of the Bank of Russia, follows from the words of Borrell, the joint statement of the allied countries on restrictive measures against the Bank of Russia, and the statements of the Japanese authorities in the local media. The joint statement was made on behalf of the G7 countries without Japan (France, Germany, Italy, UK, Canada, USA). The Japanese authorities announced on February 27 that they are joining the sanctions on SWIFT and personal sanctions against Russian President Vladimir Putin and members of the Russian government, but did not mention sanctions against the Russian Central Bank.

The Bank of Russia last disclosed the currency and geographic structure of its assets in January 2022 as of mid-2021. This distribution is disclosed with a semi-annual lag, so the current structure may differ given the sharply increased sanctions risks in recent months and weeks. As of June 30, 2021, 16.4% of the Central Bank’s reserves, or $96 billion, were in dollar assets. Assets equivalent to $189 billion were nominated in euros and another $38 billion in British pounds.

Slightly more than 13% of the Central Bank’s gold and foreign exchange assets (the equivalent of $77 billion) as of mid-2021 were placed in assets denominated in Chinese yuan. China did not join the announced sanctions against the Bank of Russia. In the Japanese yen, the Central Bank held 5.7% of assets, or $33 billion.

 

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