.ALL COUNTRIES ARE NOT IMMUNIZED TO THIS KIND OF INTERVENTION .RUSSIA - $300BN Frozen
.
episode I want to talk to you about
what's happening in the Russian economy
and specifically to talk about the $300
billion worth of Russian assets that
have been frozen ever since Russia
invaded Ukraine now these assets relate
to all of Russia's cash that was sitting
in overseas Banks and institutions at
the time that it decided to launch The
Invasion and almost immediately after
news of the war broke out those assets
were frozen by the financial
institutions that are holding them and
they've been sitting in a state of limbo
ever since for more than 2 years however
things are now starting to heat up and
there is a potential that those frozen
assets might start to thorw because
we've now got proposals put forward by
the European Union the UK and the USA in
terms of what should be happening with
that cash so in today's video I'll have
a brief look at the details of the
assets themselves where they're actually
sitting and what that cash has been
invested into we'll then talk about the
European Union's latest proposal which
is to take the profit element of those
assets and use that to fund Ukraine to
actually enable Ukraine to buy Weaponry
with the money well then talk about what
the USA and the UK are proposing because
they've come up with a completely
different concept they're talking about
issuing what's called either a freedom
Bond or a reparation Bond whereby the
full am of the assets that have been
frozen that Russia has will be issued in
the form of a bond and those bonds will
only have to be repaid upon Russia
giving over a huge amount of cash to
Ukraine to repair all of the damage that
they've caused so I'll go through the
details of exactly what the UK and the
USA are proposing and how much that
would actually equate to we'll then talk
about what Russia's response to these
ideas has been and as you might imagine
President Putin is not very happy with
the concept of somebody taking his $300
billion worth of assets and Russia is
now threatening retaliation and then
finally today I'll wrap up with my
summary to what I think is likely to
happen to these frozen assets over the
course of the next 3 to 6 months and
what the impact of that will be on the
Russian economy but before we get
started once again I'd like to say thank
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FROZEN ASSETS
below on the 24th of February 2022 which
was the day that Russia commenced its
invasion of Ukraine Russia had total
overseas currency and gold reserves of
612 billion and out of that figure
around 300 billion was held in cash and
securities in overseas institutions now
one of the first things that happened in
terms of the sanctions being applied
against Russia was that Russia was cut
off from the financial systems so it no
longer had access to the Swift payment
system and banks that were holding
assets on behalf of the Russian state
were told to freeze those assets and not
allow Russia to move them and take all
of that cash out of those accounts and
the reason that Russia was holding
around $300 billion worth of cash in
overseas accounts was because of all of
the trade that Russia was doing with all
of the counterpart countries so
basically when countries were doing
trade with Russia rather than remitting
all of the cash directly to Moscow they
were sending it to bank accounts that
Moscow had set up in various countries
around the world and this made things
much easier to manage on a day-to-day
basis but obviously from Russia's point
of view the risk was that that cash was
sitting overseas and in the event that
it decided to invade one of its
neighbors there was a potential that all
of that cash could be seized and
obviously that's exactly what's happened
so let's have a look at a breakdown of
exactly what Russia was holding at that
point at the time of the invasion
Russia's Central Bank was holding around
$27 billion in Euro Assets in Europe $67
billion in US dollar assets and $37
billion in British pound assets it also
had Holdings of $36 billion in Japanese
yen in Japan 19 billion in Canadian
dollars in canada6 billion in Australian
dollar in Australia $1.8 billion in
Singapore dollars and Swiss frank
Holdings in Switzerland of around $1
EU PROPOSAL
billion so as we've just seen European
financial institutions are currently
sitting on around $210 billion worth of
cash that Russia deposited with them
before the invasion of Ukraine now if
you know anything about the financial
system you'll know that money makes
money if a financial institution is
sitting on $200 billion it doesn't just
lock it away in the safe and do nothing
with it it can lend that money to other
institutions that's how the world of
Finance works if you've got more money
than you need you lend it to somebody
who needs that money and they pay you
some interest when they give you it back
and it's estimated that that $210
billion worth of cash is throwing off
between three and2 and4 billion worth of
profit every single year so over the
last 2 years since the invasion started
that money will have thrown off between
7 and 8 billion worth of profit and the
European Union is now honing in on that
profit and saying that it can be used to
fund the war in Ukraine the European
Union has proposed taking 90% of the
revenues generated by Russia's frozen
assets and transferring them to an EU
run fund that finances weapons for
Ukraine Joseph barell the eu's foreign
policy Chief proposed that the remaining
10% of the seized revenues go into the
EU Central budget which cannot be used
to buy weapons to boost the defense
capacity of Ukrainian industry under the
plan proceeds from the assets such as
interest payments would go to the
European peace facility an off-budget
fund that provides military aid to
countries outside the EU and has been
used mainly for Ukraine a senior EU
official said last week that the Frozen
Russian assets are likely to generate
between 15 and 20 billion EUR in after
tax profits until 2027 European
officials initially discussed using the
proceeds from the frozen assets to fund
the Reconstruction of Ukraine but in
recent weeks they've increasingly
focused on how to help Ukraine
militarily as ke's ammunition starved
forces struggle to hold back Russia's
Invasion while a major US military aid
package is stuck in the US Congress a
senior EU official said we are in a more
dire situation so the delivery of
weapons is even more important Burell
said that some members of of the EU had
voiced concerns about legal issues and
others about the effect on the financial
markets but he said the European Central
Bank had been closely consulted as EU
staff developed the proposal on top of
the profits generated from the frozen
assets Ukraine will also receive each
year the 25% tax that the Belgian
government puts on the profits for 2024
this is expected to be around 1.7
billion e so the total Financial
contribution for Ukraine from frozen
assets in the EU will therefore be
somewhere between 4 and 4.5 billion e
once the proposal is approved by EU
governments the profits will be set
aside for Ukraine twice a year with the
first trunch being available in July
2024 the Russian assets are currently
held by EU Central Securities
depositories mainly Belgium's Euro clear
which will keep 3% for operational
expenses and temporarily retain 10% of
the profits as a safeguard against legal
action by Russia European Commission
Executive Vice President Valdes
dombrovskis said Russia was being held
to account for the massive damage it had
caused our proposal will redirect
substantial windfall revenues from
Frozen Russian State assets for the
benefit of Ukraine and its people he
said the EU proposal does not envisage
for now the confiscation of the capital
of the Russian assets only the use of
the profits they generate however
Ukraine's primee Minister has called for
the EU to go one step further and
confiscate the capital itself we insist
on the full conf ation or other use of
all frozen assets Europe in the world
needs an effective precedent for making
the aggressor pay a heavy price for the
destruction it has caused in Ukraine he
told the news conference in
LEGAL IMPLICATIONS
Brussels so I think this is quite
interesting because what the European
Union is proposing is that they don't
want to touch the frozen assets they see
that as a step too far actually taking
Russia's cash but what they're happy to
do is skim off all of the profit that
those assets is generating and that's
really quite an interesting idea because
if you've got money in the bank if you
put your money into your bank and it's
generating interest that interest will
be added to your account if your bank
suddenly turned around and said actually
we're going to keep all of that interest
because we've decided that we'd quite
like to do that you'd have a legitimate
claim against your bank to say hang on a
minute I gave you my money there is a
cost for that you're giving me some
interest and therefore I'm entitled to
be paid it you can't just take that it's
basically the same as taking some of my
Capital so what the European Union is
proposing here is slightly contradictory
they're saying well we can't touch the
assets because we don't own them they
belong to Russia so we don't want to
cross that line but actually we're quite
happy to take all of the interest that's
being generated by those assets but
surely it's the same cash because that
asset appreciates in value that's what
happens when you put $210 billion into a
financial in institution it will grow
through interest that's added to it so
skimming off the interest is essentially
the same as taking some of the capital
if you think about the impact of
inflation each year inflation goes up
and it reduces the purchasing power of
your cash but by putting your money into
an interest bearing account hopefully
that offsets the impact of inflation
that's how it works so the real value of
your money doesn't fall by the full
amount of inflation it only Falls by the
difference between inflation and the
interest that you're being paid so in
terms of looking at the logic and the
rationale behind the eu's proposal it
doesn't really make that much sense
either they're saying that these assets
are frozen and we're going to take some
of them and give them to Ukraine to help
it in its defense against Russia or
you're saying they're completely offside
we can't touch any of these assets
because they belong to Russia but what
the EU has actually done is come up with
a hybrid proposal whereby they're taking
some of the asset orbe it it's the
interest that's being generated by those
assets and taking that and giving it to
Ukraine which I think is a really
interesting concept and potentially
opens up a world of legal action against
all of these financial institutions and
these institutions have now come out and
said that they're very concerned about
the eu's proposal so what we're talking
about here is legislation that's being
agreed at the top level by the EU but in
terms of what's going to happen in
reality on the ground the banks that are
holding on to that cash are the ones
that are going to have to hand it over
to the EU and they are potentially then
open to legal action in the future if
Russia wants to bring them to the high
USA & UK PROPOSALS
court two far more radical plans have
been put forward by the USA and the UK
in terms of what should be done with the
Frozen Russian assets the USA has
proposed issuing a $50 billion bond that
is linked directly to the $300 billion
worth of assets that have been frozen so
basically the way this would work a bond
would be is ued called either a freedom
Bond or a reparation Bond so meaning the
repair of relating to Ukraine so that
money would be raised from investors so
you would have 50 billion that would be
invested by various governments from
around the world and that 50 billion
would then be given to Ukraine to buy
Weaponry to support itself in its
defense against Russia so that would
effectively be the funding that
president zalinski has been calling for
because Ukraine are currently Under
Pressure right now they need as much
cash as possible because they're running
short in terms of what's happening on
the battlefield now in terms of how that
Bond would work it wouldn't actually be
collateralized directly by the assets
that have been frozen so it wouldn't
have full security you wouldn't be able
to sell those assets directly to repay
all of the bond holders but the proposal
is that the interest that's being earned
off those assets could be used to
actually pay the coupon on the bond so
if you've issued a 50 billion Bond it
might have a coupon of 5% attaching to
it so each year you would need to pay
2.5 billion to all of those Bond holders
to give them their return so in order to
fund that you would need to take 2.5
billion from the interest that's being
earned on the frozen assets and give
that to all of the bond holders but in
terms of how you actually repay that
Bond The Proposal is that the bond would
be linked to a damage payment that is
made payable from Russia to Ukraine
after the war ends so basically the bond
would be issued in perpetuity so it
wouldn't have an expiry date and only
would become repayable if Russia hands
over a large amount of cash to Ukraine
which Ukraine could then use to repay
the bond and the bond itself would have
some form of link to the frozen assets
so basically the frozen assets wouldn't
be available to be released back to
Russia until Russia had made this
payment to Ukraine in reparation of all
of the damage so in reality
the only way that the bond would ever
get repaid is if Russia agrees to hand
over more than 50 billion to Ukraine to
repay it if Russia never does that then
the bond would never be repaid but also
the frozen assets would never be
released so you'd have a circular
situation here where the only way that
Russia could get access to its $300
billion worth of assets would be by
repaying the bond that Ukraine had taken
out to fund its defense against Russia
so a slightly complicated situation but
quite a clever way of being able to
realize some of the asset value that's
currently Frozen now it's only 50
billion that's been proposed by the USA
so far but if this idea was to be taken
up by all of the governments of Europe
and the west then there is obviously the
potential that you could add to that
Bond you could raise another 50 billion
at some point down the road if the
initial funding had run out and Ukraine
needed more money so this is quite an
interesting way of all of the
governments from the West actually
giving money to Ukraine but not doing it
directly at the moment all of the money
is being handed over as Aid so basically
they're giving the money to Ukraine and
they will never get it back it's just a
gift but by setting up this Bond idea
what you're doing is effectively setting
up a loan so the governments are loaning
the money to Ukraine and in the event
that they get a large amount of cash
from Russia in the future then they
could repay all of those governments
which I think is probably a better
long-term proposal in terms of if this
war is to go on for 5 or 10 years then
it's going to be a really big ask for
governments around the world to keep
giving more and more Aid to Ukraine on
an unlimited basis now in terms of The
Proposal from the UK it's very similar
David Cameron who was previously the
Prime Minister but resigned after the
brexit vote and is now the foreign
secretary for the UK put forward a
proposal on the 6th of March stating
that the UK would be willing to loan
Ukraine fund matching the amount of
Russia's frozen assets in the UK which
are sitting at around 32 billion e or
around 37 billion dollar and suggested
that the Frozen funds could be
considered as collateral as part of the
loan process so this proposal from the
UK is going one step further than the
USA's idea and actually securing the
loan against the frozen assets so having
a direct link between the loan that's
being given by the UK government to
Ukraine and those frozen assets from
Russia so basically the UK government
would get repaid when those frozen
assets were sold they would just take
all of that cash and repay the
RUSSIAN RESPONSE
debt now as you might imagine Russia is
not very happy about the idea that their
frozen assets might be used to provide
loans to Ukraine or even taking the
interest that those frozen assets is
generating at the moment and using that
to help Ukraine when asked about the
eu's proposal to use the interest being
generated from the assets to fund
Weaponry for Ukraine
Maria zacharova spokeswoman for the
Russian foreign Ministry said it is
simple banditry and theft and went on to
say that Russia would retaliate if the
West went ahead with confiscating
Russian assets the Kremlin has said that
the eu's plan if implemented would
destroy Europe's reputation as a
reliable guardian of property rights and
lead to years of litigation Kremlin
spokesman Dimitri pesov said Europeans
are well aware of the damage such
decisions can do to their economy their
image and their reput reputation as
reliable so to speak guarantors of the
inviolability of property the damage
will be inevitable the persons will be
involved in making such decisions the
states that will decide this of course
will become objects of prosecution for
many
SUMMARY & CONCLUSION
decades so what's the summary and
conclusion today well I wanted to post
this video because I think what happens
with Russia's frozen assets is
absolutely fascinating and it's a big
topic we're talking about 300 billion
dollars worth of assets this would dwarf
the amounts that have been given to
Ukraine so far in terms of helping it to
defend itself against Russia let's not
forget that this war has been going on
for more than two years so this topic
has actually been on the agenda for more
than two years and it's only now that
we're getting to the sharp end that
people are starting to make decisions
and you might be sitting there thinking
why is it taken two years why are we
only talking about this today and the
reason for that is because of the
funding problems that are happening
right now in terms of all of the aid
that's being given to Ukraine over the
last 2 years Ukraine has received tens
of billions of dollars worth of support
but unfortunately the war doesn't look
like ending anytime soon so we're now
getting to the state where this looks
like being unlimited support we don't
know when the end is going to come and
that's one of the reasons why the latest
funding package from the USA is taking
so long to approve because it hasn't had
sign off from the Senate and of course
let's not forget that this is an
election year in the USA we've got a
presidential election coming up in
November and if there is a change of
President then there is a possibility
that there could be a change of approach
and we don't know whether or not Ukraine
is going to continue receiving large
amounts of funding from the USA so the
governments around the world need to
think of other ways of getting money to
Ukraine so I think this is why this has
become such a Hot Topic right now
because we've got $300 billion worth of
cash just sitting there that could be
used to help Ukraine but what we've
heard from the EU is that they don't
want to touch those assets they don't
think that it's legal for them to
actually seize the cash and give it away
but what they're happy to do is take the
interest off the top so the profit
that's being generated from those assets
but as we discussed earlier in the video
is there really a legal difference
between the assets themselves and the
interest that those assets is generating
because from a legal point of view
either you own those assets or you don't
this is like owning a property but then
being told that you're not entitled to
any of the revenue that's generated by
that property from renting it out it
doesn't really make sense but for
whatever reason the EU has decided that
it's going to go only after the income
it's not interested in trying to get
hold of the assets and Russia has
responded by saying that this is theft
and that they are going to take legal
action against all of the institutions
that are involved in this and this is
now causing a high degree of nervousness
amongst all of those financial
institutions so we've got a classic
situation where the policy makers are
saying one thing's going to happen and
then the people on the ground who
actually have to go ahead and deal with
that are very worried about their own
situation so it will be interesting to
see whether or not the EU does approve
this legislation and if we get to see
some of that cash actually moving into
that Fund in July as proposed or whether
it's held up by some form of legal
action now in terms of the proposals put
forward by both the USA and the UK they
are far more radical both of those
countries are saying it doesn't really
matter what the law says we want to get
some cash to Ukraine and we found a way
of doing it by linking bonds so raising
new money so they're not actually taking
money out of the Russian bank accounts
they're raising money from governments
around the world so it'll be fresh
Capital but that those bonds will have a
direct link to the frozen assets and the
only way that Russia would ever be able
to get its money back would be by ly
giving large amounts of cash to Ukraine
which at this point in time looks very
unlikely I can't see President Putin
agreeing to any of those sort of deals
and I definitely can't see him being
comfortable with the idea of repaying
bonds that Ukraine issued to fund its
war against Russia but it's an
interesting idea that the USA and the UK
have come up with what they're trying to
do is realize the value of those frozen
assets they're obviously doing it in a
slightly different way they're not
directly taking the cash out of the
Frozen account but what they are doing
is linking the new bonds directly to
those frozen assets so that they've got
some sort of recourse and again the
legal implications of that are a
Minefield I am sure Russia will be
instructing all of their barristers
right now to get on the case and start
putting together some sort of plans to
issue legal action if this does take
place but I think what we're seeing now
is a change in the way that the West is
approaching this war because the war is
going on so long and is becoming so
expensive iive and so much Aid has
already been provided to Ukraine they
need to unlock the value of these frozen
assets and the ideas that have been
tabled so far go some way to doing that
it'll be interesting to see whether or
not this actually gets approved and we
start to see these bonds being issued
and if we do if we saw a $50 billion
Bond being taken up and funded and $50
billion being given to Ukraine then that
could change the war in Ukraine
materially it could put Ukraine back
onto the front foot and rush it onto the
back foot and it may well be another way
that we could get an acceleration in
terms of the peace talks because as it
stands at the moment Russia doesn't look
like it wants to come to the table to
agree a peace settlement something
radical needs to happen and these
proposals go some way to getting there
so hopefully you've enjoyed today's
video you found it useful informative
and thought-provoking if you've liked
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