In a recent press conference, Treasury Secretary Janet Yellen expressed her support for utilizing frozen Russian assets to fund the war in Ukraine. However, she also mentioned an alternative approach proposed by Belgium, which involves using these assets as collateral for borrowing. According to RSM chief economist Joe Brusuelas, this alternative idea aligns with the hypothetical approach that renowned economist John Maynard Keynes would have taken.
Keynes, who played a crucial role in resolving the global financial crisis during World War I, advocated for innovative measures to prevent a financial collapse. When the Bank of England lost two-thirds of its gold reserves within a week, Keynes suggested suspending the rules that required a fixed ratio of gold reserves to the volume of notes in circulation. This plan allowed for the issuing of new paper currency while still using gold for foreign payments, ultimately preventing a financial collapse and enabling wartime funding.
Brusuelas asserts that Keynes would have recognized the borrowing scenario as efficient and appropriate, in line with the rules-based economic order that has governed global economics for several decades. By borrowing against the frozen Russian assets instead of seizing them, there is still an incentive for Russia to end the war and regain access to its reserves, which amount to approximately $300 billion. Notably, most of these assets are located in Belgium.
Under the borrowing scenario, Ukraine would issue bonds to purchase Western-made weaponry such as ammunition, missiles, and tanks. This approach not only provides Ukraine with much-needed military resources but also revitalizes the Western defense industrial base. Additionally, it sends a powerful message of deterrence to China, Iran, and Russia.
Moreover, implementing this plan would offer a timely boost to the European, particularly German, economy. The benefits extend beyond immediate military support and economic stimulus. Brusuelas highlights that this approach would not jeopardize the reserve status of the dollar and euro, as there are no obvious alternatives currently. This echoes Keynes’ understanding of the negative consequences of harsh conditions imposed on Germany after World War I, as outlined in the Treaty of Versailles.
Keynes would likely have opposed outright confiscation of Russian reserves or significant reparations designed to cripple the Russian postwar economy. The economist recognized the disastrous outcome that followed such unrestricted confiscation and punitive reparations in the 20th century.
In conclusion, the idea of utilizing frozen Russian assets as collateral for borrowing, proposed by Belgium and supported by Treasury Secretary Janet Yellen, aligns with the hypothetical approach that renowned economist John Maynard Keynes would have taken. This innovative plan not only provides Ukraine with necessary military resources but also boosts the Western defense industrial base and serves as a deterrent to other global powers. Moreover, it offers a timely economic stimulus to Europe, particularly Germany. Importantly, this approach avoids the mistakes of history by not resorting to outright confiscation or punitive reparations. By considering Keynes’ principles, policymakers can navigate the complex financial and geopolitical landscape of funding the war in Ukraine effectively.
