Republican House Speaker Mike Johnson has brought a ray of hope to those who support Ukraine’s war effort. On March 31, on Fox News, he suggested that he would try to encourage his divided party to support the so-called REPO (Rebuilding Economic Prosperity and Opportunity) Act. That legislation would allow President Joe Biden, working with his European allies, to seize Russian currency reserves frozen in the West and use them to help Ukraine.
Appropriating these reserves would be convenient from a political perspective. Since the Russian invasion of Ukraine in February 2022, the United States and its allies have poured more than a quarter of a trillion dollars into the war, with few concrete results. Ukraine has suffered a series of battlefield defeats lately. Prolonging the war is a project that Americans of all political stripes have become increasingly unwilling to fund through taxes.
Johnson supports the Ukrainian war effort and sees supporting it as a responsibility of American leadership. But his caucus — more in tune with the Republican voter base — has stymied him. The REPO Act could offer both Johnson and Biden a way to sidestep the controversy.
So far, the idea of supplying Ukraine through a spending bill has drawn pushback from Republicans in Congress, who wonder if Americans’ taxes might not be better spent on strengthening the border between the United States and Mexico. The REPO Act, in contrast, could make “Russia foot the bill for its own aggression,” as a group of scholars at the Brookings Institution put it. Johnson himself describes it as “pure poetry.” It’s a tempting idea.
But it’s also a bad idea. In any free country there is a constitutional reluctance to allow the government to do anything without collecting taxes, for good reason. Taxes and accountability go hand in hand. Typically, if citizens are not paying for a government program through taxes, they do so in some less direct way: by going into debt, for example, or by allowing outsized government participation to some corporation or other private interest.
The REPO Law carries additional risks. The very act of seizing Russian assets would pose dangers to the American economy, because other countries, not just Russia, would consider it an act of plunder. This could weaken the dollar’s status as the world’s main reserve currency.
The dollar is probably the most valuable strategic asset the United States has. We exercise a certain degree of control over the world economy because the world, for commercial purposes, allows its transactions to pass through our currency. This leaves us with cheaper transaction costs and lighter financial burdens. It gives us room to accumulate debt (US$34 trillion so far) that other countries do not have.
If Russia, China, and other diplomatic rivals decided that their dollar assets were vulnerable and that they could no longer rely on the dollar as a medium of exchange, we would feel the pain of that $34 trillion in debt in a way we don’t currently. Maintaining the advantages of a reserve currency depends on us behaving as trustworthy and neutral custodians of others’ assets. If we start stealing other people’s money, that could change.
At the beginning of the war, Russia had about $600 billion in reserves. That means securities in euros, dollars, pounds sterling, yen and other stable and convertible currencies, as well as gold. In normal times, Russia, like other countries, manages these currencies to facilitate trade and stabilize its own currency. A small part of that money—a few billion dollars—is in the United States. Most of the talk about the seizure of Russian assets concerns the roughly $300 billion sitting in Europe, most of it in a warehouse in Belgium called Euroclear.
Although the Europeans regulate this money, they have generally followed the United States’ lead in diplomatic and strategic matters since the beginning of the war. Some European countries, notably Germany, have urged caution before deciding to appropriate Russia’s reserves, fearing that such a move could jeopardize the euro’s own status as a (minor) reserve currency. The REPO Law could prompt them to act more aggressively.
The European Union has proposed a compromise between leaving the money alone and seizing everything. It has asked Euroclear to keep profits generated by its Russian assets in separate accounts. These profits could then be taxed at a high rate and such profits given to Ukraine, an accounting maneuver expected to generate around $3 billion a year.
Other Europeans have proposed a more reckless strategy. They argue that Russia’s hundreds of billions of dollars should be used as collateral for a large Western war loan to Ukraine, to be repaid with advance reparations, for which the European Union could replace Ukraine as the applicant.
These debates boil down to the difference between freeze assets and seize them . In recent months, Biden and his administration have advocated taking direct possession of Russian reserves and using them to finance the war against Russia, a move that would be at least radical, if not entirely unprecedented. Freezing reservations is something that happens regularly. But seizing them is something that has only been done in drastic circumstances, and only in a limited way.
The United States froze Iranian assets in the early days of the 1979 hostage crisis, but most of them were freed two years later. Frozen assets were used to pay war reparations to Kuwaiti victims of the 1990 invasion of Iraq, but that was done following a plan approved by the UN Security Council the following year. The United States confiscated about $1.7 billion from Iraq in 2003, but that was in the middle of the war. And in September of last year, Biden himself returned a few billion dollars in frozen assets to Iran as part of a deal that involved the repatriation of Americans imprisoned there. Freezing has generally not meant confiscation.
However, things began to change with the chaotic withdrawal of US troops from Afghanistan in the summer of 2021. The Biden administration subsequently froze the country’s $7 billion in reserves and allocated half of it to a compensation fund for the families of the victims of the September 11 attacks. Although it could be said to have been a wartime measure, this type of seizure was irregular and surprising. Few saw it as a precedent: Russia’s central bank did not hide its reserves through shell companies or other tricks on the eve of its invasion of Ukraine. No one seems to have considered the possibility that a foreign banking authority could simply seize the money.
Biden and Johnson, each in their own way, are claiming moral leadership for their respective parties. “American leadership is what holds the world together,” Biden said last fall, asserting that walking away from Ukraine would put that leadership at risk. Johnson has accused Biden of “projecting weakness” in his foreign policy and is presenting an alternative.
The greatest concern is not moral but practical. If the REPO Act is enacted, then currency seizures, currently perceived as a tool of last resort, could become standard operating procedure, to the detriment of the United States. Any foreign government likely to have an American voting bloc against it—China, for starters—would think twice before putting its assets in the United States or one of its NATO allies.
This is not yet a probability, but it is a possibility that no politician of either party should lose sight of. For decades, the United States has been putting off difficult decisions at home and abroad and papering over partisan divisions with the tens of trillions of dollars that our advantageous international position has allowed us to borrow. Our options, however, are narrowing. If Johnson thinks the United States is “projecting weakness” now, wait until he sees the nation without its reserve currency.
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