A prominent European Central Bank policymaker stressed on Friday that the euro zone should avoid using its currency as a tool in international disputes as this could ultimately lead to a weaker euro. The statement comes as the European Union considers expropriating Russian state assets.
European authorities are considering the possibility of seizing frozen Russian assets, including those owned by the central bank, to help finance Ukraine’s reconstruction. However, there are concerns that the negative effects of such measures could outweigh the benefits, including possible retaliation and reduced confidence in European assets.
Bank of Italy Governor Fabio Panetta made the remarks without directly mentioning Russia, but using a currency as a weapon could reduce its appeal and pave the way for alternative currencies. said. He stressed that the use of such powers must be cautious given the ongoing nature of international relations.
In a separate statement, Martins Kazaks, a member of the ECB’s policy committee who is also the governor of Latvia’s central bank, stressed that Europe should contribute to Ukraine’s war effort. But he insisted that this aid should not be about recovering European assets stranded in Russia.
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In 2022, following Russia’s invasion of Ukraine, the EU, US, Japan, and Canada froze approximately $300 billion in Russian central bank assets. Approximately $200 billion of this is held in Europe, primarily at Euroclear, a Belgian clearing house.
Others argue that asset seizures could lead to foreign investors leaving the country fearing for the safety of their investments. This could cause currencies to weaken and yields to rise.
Panetta, a former ECB executive board member, said the conflict over Ukraine has increased the role of the Chinese yuan, especially in Russian trade, and weakened the status of other currencies. He pointed out that China is actively promoting the global role of the renminbi, even in countries facing international sanctions after the invasion of Ukraine.
As a result, the renminbi exceeded the euro in trade finance usage and the yen in global payment transactions.
