If sanctions were going to have an effect on global reserve holdings, we presumably would have seen it by now.

In the past two weeks, President Donald Trump has totally reoriented the U.S. approach to the war in Ukraine. A call with Vladimir Putin and subsequent meetings by U.S. and Russian officials were followed by clear messages in Munich that the United States is looking to Europe to take the lead on European security—a message reinforced by the headline-grabbing Oval Office meeting with Volodymyr Zelenskyy. One way for Europe to show that leadership is to revisit the question of seizing frozen Russian sovereign assets.

As a reminder, the approximately $300 billion worth of Russian reserves sitting in international banks and clearing houses were immobilized days after the beginning of the war in an unprecedented and coordinated action targeting the Russian Central Bank and other Russian government sovereign wealth funds. A report released by the World Bank, United Nations, European Commission, and Government of Ukraine on February 25, 2025, estimated that the direct destruction in Ukraine had already exceeded $176 billion and that reconstruction was likely to cost $524 billion over ten years. The overwhelming costs of rebuilding have prompted debates for more than two years now on whether and how to use immobilized Russian sovereign assets to offset the costs of Ukraine reconstruction. The U.S. Congress passed the REPO Act in April 2024, authorizing the United States to seize the $5 billion of Russian sovereign assets held in the United States for the use of Ukraine, with a number of safeguards in place. The G7 also agreed on a $50 billion loan to Ukraine backed by windfall proceeds from immobilized Russian sovereign assets. However, European partners, who hold the majority of immobilized Russian funds, have been unwilling to support the outright seizure of the assets, raising concerns regarding the inviolability of sovereign assets under international law, the risk to European company assets in Russia, and the effect seizure would have on the credibility of the euro as a reserve currency.

Others have made arguments about whether the seizure of Russian sovereign assets for Ukraine is the morally right thing to do (yes), whether countermeasures allowed under international law are sufficient to support the seizure of Russian assets (probably), and whether European companies that hold assets in Russia can expect to ever get them back (doubtful). I’d like to focus on the question of whether the seizure of Russian sovereign assets will significantly impact the euro’s status as a reserve currency. While we can’t predict the future of the euro, evidence suggests that the disposition of Russian sovereign assets isn’t likely to affect its credibility as an international reserve currency.

Research by economists Menzie Chinn, Jeffrey Frankel, and Hiro Ito from 2007 and updated in 2024, explores what characteristics are needed for an international reserve currency. They identify several, including the size of the economy, macroeconomic stability, inertia, trade relations, and others. Chinn, Frankel, and Ito go on to explore the reasons for changes in the holdings of specific currencies over time. While at the central bank level, these changes are determined by individual nations’ priorities, there is a remarkable degree of consistency over time in the global composition of reserve currencies. This is despite significant upheavals in the global economy, including the global financial crisis, a financial crisis in the eurozone, the increasing internationalization of the Chinese yuan, and the increased use of sanctions. International Monetary Fund data reported in the Composition of Official Foreign Exchange Reserves (COFER) show that even as the total amount of global reserves has grown, the composition of those holdings has remained relatively stable. Although the nominal value of U.S. dollar reserves has continued to grow, reserves denominated in other currencies have grown even faster, resulting in a relative decline in the share of U.S. dollar reserves. As the second-largest reserve currency, the euro’s share has grown more slowly than other alternatives, but still far outstrips the nominal growth in Japanese yen, Chinese yuan, British pound, and Canadian or Australian dollars.

Chinn, Frankel, and Ito’s research looked closely at which factors influence holdings of the major reserve currencies, including political factors such as alignment in the U.N. and the use of sanctions. Their analysis found that the size of GDP, political and economic stability, and trade factors had the greatest influence on reserve currency holdings. Political factors, particularly exposure to sanctions, had negligible influence. COFER data on euro holdings support these findings. From the beginning of Russia’s invasion of Ukraine in 2022 Q1 through 2024 Q3, the global share of euro reserves has hovered around 20 percent, despite the immobilization of Russian Central Bank assets and unprecedented sanctions on Russian entities. If sanctions were going to have an effect on global reserve holdings, we presumably would have seen it by now.

Across the world, businesses thrive on predictability and economic stability. The war in Ukraine and the response from Western allies has been underway for three years. Sanctions, while disruptive, are now part of the environment and businesses have factored them into their expectations. The risks and benefits of seizing Russian sovereign assets for Ukraine’s benefit have been roundly debated for almost two years. The governments of major reserve currency countries have already devised innovative approaches to use the retained profits from immobilized Russian sovereign assets to provide loans to support Ukraine. But these are small and cautious steps. No central banker anywhere in the world can be ignorant of the very real possibility that these assets once immobilized could someday be forfeited. Anyone who wanted to adjust their holdings of any of the international reserve currencies has had ample time to do so. Instead, we’ve seen growth in the amount of euros held in global reserves and the percentage of global assets held in euros has been steady for the past three years.

The future of the euro as a reserve currency depends on European economic growth, macroeconomic stability, and Europe’s trade relationships around the world—not the disposition of Russian sovereign assets. As Russia’s war drags on, the destruction in Ukraine and the costs of rebuilding continue to escalate. The United States is signaling that it is ready to move toward a negotiated end to fighting. If European leaders want a seat at the table, they should seize the opportunity to demonstrate leadership by seizing Russian sovereign assets now and transferring them to a vehicle that Ukraine can use to fund its urgent needs. Doing so will increase pressure on Russia to come to the negotiating table and show that Europe is ready to make tough decisions in support of peace.

About the author: Jim Mullinax

Jim Mullinax is a Diplomatic Fellow at The Wilson Center and a senior Foreign Service Officer with the U.S. Department of State with over 30 years of experience representing American economic interests in posts across Asia and in Washington, D.C.

The views expressed are those of the author and do not necessarily reflect those of the U.S. government or the Department of State.

Image: Shutterstock.

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