“I think it’s very natural that given the huge destruction in Ukraine and the huge reconstruction costs they will face, we would look to Russia to help pay at least part of the price that will be involved,” she said. “It’s not something that’s legally allowed in the United States.”
But within the Biden administration, one official said, there was a reluctance “to have daylight between us and the Europeans on sanctions.” The United States is therefore seeking to find some kind of middle ground while analyzing whether a seizure of central bank funds could, for example, encourage other countries to place their central bank reserves in other currencies and to keep them out of American hands.
In addition to legal hurdles, Yellen and others argued that this could make nations reluctant to keep their dollar reserves for fear that in future conflicts the United States and its allies could confiscate the funds. Some national security officials in the Biden administration say they are concerned that if negotiations between Ukraine and Russia begin, there would be no way to offer meaningful sanctions relief to Moscow once the reserves will have been exhausted from its overseas accounts.
Treasury officials hinted ahead of Ms Yellen’s comments that the United States had not taken a firm position on the fate of the assets. Several senior officials, speaking on condition of anonymity to discuss internal debates in the Biden administration, hinted that no final decision had been made. An official said that while seizing funds to pay for reconstruction would be satisfactory and justified, the precedent it would set — and its potential effect on the United States’ status as the safest place in the world to leave assets behind — was a deep concern.
In explaining Ms Yellen’s comments, a Treasury spokeswoman pointed to the International Emergency Economic Powers Act of 1977, which says the US can confiscate foreign property if the president determines the country is under attack. or “engaged in armed hostilities”.
Legal scholars have expressed divergent views on this reading of the law.
Laurence H. Tribe, professor of law emeritus at Harvard University, pointed out that an amendment to the International Emergency Economic Powers Act passed after the September 11, 2001, terrorist attacks gives the president broader discretion to determine whether a foreign threat warrants confiscation of assets. President Biden could cite Russian cyberattacks on the United States as justification for liquidating central bank reserves, Tribe said, adding that the Treasury Department was misinterpreting the law.