Yellen: It is not legal for the United States to seize official Russian assets

Treasury Secretary Janet Yellen said on Wednesday that the United States had no legal authority to seize Russian Central Bank assets frozen over its invasion of Ukraine, but was in talks with U.S. partners about ways to make Russia. Pay the bill for post-war reconstruction in Ukraine began.

Yellen also said that a special license granted to allow Russia to make payments to its US bond holders will likely not be extended when it expires next week, leaving Russian officials a rapidly narrowing window to avoid the first default on its foreign debt since the 1917 revolution.

The February 24 Russian invasion of Ukraine is a central item on the agenda at this week’s meeting of G-7 finance ministers, and Yellen calls for increased financial support for the war-torn country, which the World Bank estimates is struggling with $4 billion in material weekly. ruin.

“I think it’s very natural that given the massive destruction in Ukraine, and the huge costs of rebuilding that they will face, we will look to Russia to help pay at least part of the price that will be involved,” Yellen told reporters here before. From this week’s meeting.

Some European officials have called for the European Union, the United States and other allies to confiscate about $300 billion of the Russian Central Bank’s foreign currency assets frozen because of the sanctions. The assets are held abroad, but remain under Russian ownership. Read more

“While we started looking at this, it would now not be legal in the United States for the government to seize these” assets, Yellen said. “It’s not something that is legally allowed in the United States.”

US Treasury officials have also expressed concerns about setting precedents and undermining other countries’ confidence in holding their central bank assets in the US.

At the G7 meeting in Bonn, Koenigswinter, Yellen plans to focus on Ukraine’s most pressing budget needs, estimated at $5 billion a month. On Tuesday, it pressed US allies to increase their financial support, while a German government official said ministers would pledge $15 billion in new budget aid. Read more

Russian hypothetical dangers

Russia has about $40 billion in international bonds and has so far been able to maintain its current obligations and avoid default thanks to a temporary license from the Treasury Department that grants an exception allowing banks to accept dollar-denominated payments from the Russian Finance Ministry despite crippling sanctions against Russia. .

The license expires on May 25, with the next major payment due on that day.

Yellen said Wednesday that the Treasury was unlikely to extend the exemption. That could lead to a technical stumble if Russia then resorts to trying to pay in rubles rather than dollars as required under its bond pledges.

“There has been no final decision on this, but I think it is unlikely to continue,” Yellen said, adding that any technical failure would not change the current situation regarding Russia’s access to capital.

“If Russia can’t find a way to make those payments, and they technically default on their debts, I don’t think that’s a big change in Russia’s situation. They are really cut off from global capital markets.”

Economic threats

Yellen outlined a number of threats to the global economy ahead of the G7 meeting, including spillover effects from the war in Ukraine and sanctions against Russia, which have driven up energy and food prices, and a slowdown in China’s economy due to the strict COVID-19 lockdown. But she said she did not think a “simultaneous” recession in the United States, China and Europe was a possibility.

Yellen said China’s zero-tolerance policies for COVID appear to be hampering production of goods, compounding supply chain difficulties that have boosted prices and are contributing to slower growth.

“As one of the world’s largest economies, China’s economic performance already has spillover effects on growth around the world,” Yellen said, adding that the Treasury is closely monitoring Beijing’s policy responses. Read more

She emphasized that she is calling within the Biden administration to drop some US tariffs on Chinese goods that are “not very strategic” to reduce pain for American consumers and businesses.

She said the G7 financial leaders will discuss further sanctions on Russia over its war in Ukraine and talk about “the best ways they are designed to protect the global economy from negative effects while imposing maximum damage on Russia.”

(David Lauder in Boone and Rami Ayoub in Washington report.) Written by Dan Burns and David Lauder Editing by Chizu Nomiyama

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