EX-Central Banker: Russian Asset Theft Will Destroy EU Markets | Prof. Dejan Šoškić

The European Union’s decision to permanently freeze some €140–200 billion of Russian state assets marks a turning point in how sovereign wealth and cross‑border financial infrastructure can be wielded as instruments of policy. What began as sanctions and transactional freezes has morphed into a form of quasi‑expropriation without judicial adjudication. The conversation with Prof. Dejan Šoškić — a former central banker who has spent a career close to the mechanics of reserves, clearing systems, and market confidence — highlights that this episode is not only about geopolitics and punishment; it is a test of the legal foundations and mutual trust that underpin the euro‑denominated market ecosystem. The consequences for confidence, pricing, and the architecture of international reserves could be profound and durable. ## Permanent Freeze of Russian Assets The character of the EU’s move is striking: an indefinite interruption of the right of a sovereign state to access assets held in foreign institutions, without the intermediary of a judicial verdict authorizing confiscation. Prof. Šoškić emphasizes that such an act departs from ordinary legal practice where freezes are temporary, tethered to ongoing adjudication, and targeted at suspected criminal proceeds. Treating state assets as if they were criminally tainted — and doing so through executive fiat rather than court order — alters expectations about property rights. This matters because modern finance rests on predictable rules. When a deposit or securities account is frozen, it is usually a provisional measure pending proof of wrongdoing. Executive branch decisions to permanently lock away sovereign holdings risk signaling that ownership titles and contractual arrangements are contingent upon political calculations. If market participants begin to view holdings in sovereign clearing systems as potentially revocable for reasons beyond bankruptcy or fraud, the implicit guarantee that underwrites the valuation of those instruments weakens. Effects on confidence are not abstract. Šoškić reconstructs confidence as the lubricant of markets: it ensures currencies retain purchasing power across time, underwrites the acceptability of bank deposits as claims, and upholds the sanctity of ownership. Undermining that confidence — especially within a major clearing jurisdiction like Belgium, where Euroclear Bank operates — has spillover risks for the euro, euro‑denominated securities, and liquidity in European markets more broadly. ## Why Russia Used Euroclear To understand the practical mechanics of the freeze, one must look at why central banks hold assets in particular places. Central banks accumulate foreign exchange (FX) reserves predominantly in the currencies used in trade and invoicing: dollars, euros, and increasingly renminbi. These reserves are kept in three basic forms: cash deposits at high‑quality foreign banks, sovereign securities (government bonds), and gold. For euro‑denominated securities, Euroclear is the dominant clearing and depository infrastructure used for settlement and registration. As Prof. Šoškić explains, Russia’s decision to hold large euro assets in Euroclear reflected trade patterns and conventional reserve management: euro invoicing and euro assets as safe‑liquid instruments. Euroclear and similar institutions are book‑entry systems; central banks maintain sub‑accounts and see balances and securities positions much like an online ledger. Because Euroclear is central to settlement in euros, large FX portfolios end up registered there. This is normal central banking practice rather than a design choice to invite seizure. The pattern is global: smaller and medium economies keep FX reserves in highly rated foreign sovereign bonds to provide external liquidity, intervene in currency markets, and ensure smooth cross‑border settlement. Europe’s clearing hubs were assumed to be neutral, rule‑based platforms. The present decision tests that assumption. ## The "Collateralized Loan" Scheme One of the more novel proposals that surfaced is the so‑called collateralized loan: frozen Russian assets would be held by a custodian (Euroclear or another institution), used as collateral for a loan extended by the European Union, and the proceeds invested in Ukraine with repayment contingent upon Russia being found liable and paying damages. On its surface, the arrangement creates a financial mechanism to deliver aid while preserving an appearance of legal propriety. Yet Prof. Šoškić points out multiple practical and legal issues. First, converting deposits into collateral for a loan without the owner’s consent effectively converts ownership into encumbrances decided unilaterally by the host jurisdiction. Collateralization presupposes enforceable claims on assets governed by predictable property law. Turning a frozen sovereign deposit into collateral by executive action blurs the line between temporary protective measures and permanent conversion. Second, this construction risks undermining core principles of creditor‑debtor relations and the governance of clearing institutions. Euroclear Bank and similar entities operate within a supervisory architecture (national central banks, European System of Central Banks) that provides oversight and credible safety nets. If these institutions are repurposed to underwrite politically engineered sovereign lending, the integrity of settlement finality and the predictable priority of claims could be eroded. Third, the scheme introduces contingent claims tied to future legal determinations (reparations for war crimes). That intertemporal linkage creates uncertainty about the valuation of collateral, the seniority of claims, and the enforceability of repayments. Credit markets price certainty; creating a new class of assets whose redemption depends on political and legal outcomes will carry risk premia and may not attract conventional investors. ## Why Not Just Expropriate? If the objective is to deprive Russia of liquid resources, why not formal expropriation? Prof. Šoškić’s response is instructive: open expropriation would be legally and reputationally more straightforward but would carry its own costs. Explicit confiscation by statute or judicial decree would provoke immediate and clear legal challenges in international fora. It also would constitute an overt attack on property rights that could rebound against EU assets abroad. The current approach — freezing and then reengineering access — appears designed to balance political exigency with a veneer of legality. Yet that veneer is thin. Executive measures that override contracts and ownership rights without court review risk being viewed by foreign investors as arbitrary. Šoškić warns that such selective targeting of state holdings — even if directed at a state deemed culpable — establishes precedents that other governments can reciprocate. If sovereign wealth can be deemed forfeit based on political determinations, the negotiating space between states and the predictability of cross‑border claims shrink. Finally, expropriation or permanent de facto expropriation is not costless for the seizure jurisdiction. The credibility of European legal institutions and clearing platforms is an asset in itself; eroding it could raise borrowing costs for euro‑area governments, deter capital inflows, and complicate debt management at scale. ## Weaponizing the Financial System The EU’s action is part of a broader trend: the increasing use of financial infrastructure as a tool of statecraft. Freezes, de‑banking, SWIFT exclusions, and restrictions on central bank operations demonstrate how the international financial system can be mobilized to impose costs. Prof. Šoškić recognizes the strategic rationale: financial coercion can be effective and (in the short term) politically palatable. But he also urges caution about collateral effects. Weaponizing finance shifts the equilibrium of reserve management. State

EX-Central Banker: Russian Asset Theft Will Destroy EU Markets The European Union just decided to permanently freeze 140 Billion Euros or so of Russian State assets and basically expropriate the Russian state. What does mean for Europe as an economy and as a market place? Here to help with this question is Dejan Soskic, a Professor at the University of Belgarde and former Governor of the Serbian Central bank. Links: Neutrality Studies substack: https://pascallottaz.substack.com Goods Store: https://neutralitystudies-shop.fourthwall.com Timestamps: 00:00:00 Permanent Freeze of Russian Assets 00:09:50 Why Central Banks Hold Foreign Reserves 00:16:53 Why Russia Used Euroclear 00:20:46 Is €140 Billion Significant for Russia? 00:27:06 The "Collateralized Loan" Scheme 00:37:25 Legal Risks Beyond the EU 00:39:09 Why Not Just Expropriate? 00:42:30 Moving Reserves to China 00:46:25 Weaponizing the Financial System #Pascal The European Union just decided to permanently freeze about 140 billion euros of Russian state assets and basically expropriate the Russian state. What does this mean for Europe as an economy and as a marketplace? Here to help with this question is Prof. Dejan Šoškić, a professor at the University of Belgrade and former governor of the Serbian Central Bank. Dejan, welcome back. #Dejan Šoškić Thank you so much for the invitation. #Pascal Thank you very much for first talking about this over email and now actually being willing to discuss it on camera. As a former central banker, what did you think when you heard that they’re actually going to do it—that they’re not just freezing these funds on a six‑month basis that needs renewal, but permanently freezing them? There’s close to zero chance of getting these funds released anytime soon. #Dejan Šoškić Yeah, well, that’s, I would say, quite an unusual and harsh decision to make. And I would say that, you know, teaching finance to undergraduates and teaching about the fundamentals of how the financial system works, we always need to address confidence as a very important component of a financial system. Confidence is essential for having trust in the currency that you use—trust that the -- 1 of 16 -- currency will be capable of, let’s say, preserving your purchasing power until the next day you decide to use it. But also confidence in all financial instruments, meaning deposits, lines of credit, and the respect for ownership over assets that are being lent to anyone else. A deposit in a bank is a type of line of credit. Whenever you put your money in a bank account, it’s as if you’re lending your money to the bank itself. The bank then uses those funds to extend lines of credit and to do other things with your money—investing in securities, providing additional guarantees, and carrying out all the other standard activities of a normal bank. However, undermining confidence in a financial system seems to be something that’s being taken very lightly in the current situation we’re living in, especially regarding the deposits of the Central Bank of Russia in Euroclear and in other countries. There is the sovereign property and ownership of a state, and you cannot easily assume that such money is, in any case, the product of, let’s say, activities that could be held accountable under some legal procedure in a court of law. You cannot easily draw parallels with, for instance, a court of law that can sometimes order the seizure and freezing of assets belonging to individuals prosecuted for criminal activities. That usually comes as a temporary decision from the court until the whole procedure is completed and you have a verdict on which further steps can be based. So this type of freezing of assets without any court procedure—especially in cases where states are the owners of those assets, and where you cannot imagine criminal activities being the source of them—is highly problematic. That’s the point when we’re talking about the freezing of assets belonging to suspected individuals who are under legal procedure in a court of law and so on. The suspicion is that they’ve generated or obtained these assets through criminal activities, and therefore they should be prevented from using them for other purposes or hiding them away—basically, to make sure those assets can be returned to their lawful owners, used to pay taxes, or confiscated by the state where the individual committed certain crimes. But the parallel in the case of state assets simply doesn’t hold. That’s one important point to underline. And the second point we need to keep in mind is that here we’re talking about decisions made by executive bodies, like the Commission. It’s part of the executive branch of state power—it’s not legislative, it’s not judicial, it’s executive. So if the executive power is strong enough to, let’s say, override a contract and the right of ownership, then that sends, I would say, a bad message for the overall functioning of the legal framework in the jurisdiction where such things occur. And in this case, I’d say there’s an additional concern: we’re now dealing with euro‑denominated assets. First of all, they were in the form of securities within Euroclear, and Euroclear is a bit more complex as an institution than it’s usually discussed. It has a branch that keeps securities as a depository, but there’s also Euroclear Bank, where the settlement takes place. So clearing and settlement happen within this institution. It also has a network of connected institutions that handle clearing and settlement through Euroclear Bank. -- 2 of 16 -- Deposits in Euroclear Bank are like any other deposits. If you or I had a deposit in a bank, we’d expect the bank to honor it. And if something goes wrong with the bank itself, there’s what we call a deposit insurance guarantee scheme, usually backed by the government. For instance, in the case of Euroclear Bank, that’s in Belgium, part of the Eurosystem. It’s supervised by the Central Bank of Belgium as part of the European System of Central Banks, which now oversees major banks within the eurozone—the banking union as we know it. So a lot of questions can be raised here. First of all, what is the legal ground to freeze some assets? And what is the legal ground for not allowing the income on these assets to be freely available to their owner? That’s, let’s say, the second thing that came up. And now the third thing is basically the continuous, or let’s say indefinite, freezing of the assets. On the legal grounds, as far as I’m following, the discussion is actually about the idea that Russia is responsible for war crimes and should be paying reparations and things like that. But I haven’t seen a tribunal established that has made any final decision on this issue. So this is like making decisions in advance instead of in a court of law, assuming that certain decisions are going to be made there— which is, I would say, a very far‑fetched proposal from the proponents of this idea. So, from the legal point of view, it’s a disputable act. And from the point of view of confidence in the overall banking system of Europe—the confidence in institutions like the Belgian Central Bank and the Belgian government—but also, since Euroclear is one of the largest clearing systems in Europe, besides Euroclear you have Clearstream, which handles most of the securities transactions. That would also send a signal to any investor wanting to invest in euro‑denominated financial assets, including sovereign debt bonds issued by any country within the eurozone. If this remains in place without, let’s say, legal backing that would support such an act in a more appropriate way, I see this deteriorating confidence not just in Euroclear as an institution, but also in the euro as a currency, and in all the securities issued in euros that are cleared through Euroclear. And most of those are actually sovereign debt bonds issued by member states of the Eurozone, and some others as well. So this is, in my view, something that really, really goes against the basic principles of a sound financial system. If we look back in history, we can see how important confidence is—you can even find it in one of the oldest legal texts in the world, the Code of Hammurabi from the ancient Sumerian state. It says that whoever does not pay back what they owe will be enslaved until they repay their debt. So building confidence in a financial system is a crucial component that shouldn’t be undermined. And this step, in my view, is not a step in the right direction. #Pascal Can you tell me, before we continue on this, why central banks hold foreign currency‑denominated assets in other jurisdictions? Why does the Russian central bank have euro‑denominated assets in -- 3 of 16 -- Euroclear? I suppose the Americans do the same, and the Europeans probably have assets in the U. S., maybe in Japan, and so on. Why do they do that? What are these funds usually used for? #Dejan Šoškić Well, America is a special case because the dollar is a special case, you know, and they have the ability to issue dollars. So they don’t need to hold that much in reserves. But for other countries in the world, it’s normal practice to have something called FX reserves. Those are reserves mainly in the currencies in which the country conducts most of its trade. You know, they buy and sell goods, and you also need to analyze what currency is specified in the invoices for trade between entities in your country and the rest of the world. So, for instance, the main trading currency is obviously the dollar, but in second place it’s the euro. So it’s normal for countries—smaller countries and emerging economies, even Russia—to keep reserves. Even China keeps its FX reserves in dollars and other currencies, especially the euro. The euro is basically the second most important now. The RMB, the Chinese RMB, is also, you know, getting into the spotlight regarding this feature of keeping FX reserves. So FX reserves are kept to be used by the central bank to provide external liquidity for the country—meaning that anyone who wants to pay something to a foreign creditor can exchange their local currency for the foreign currency that the creditor expects to receive. So that’s basically there to provide, let’s say, seamless operation of international transactions. And sometimes these FX reserves can also be used to intervene in the FX market—to, let’s say, eliminate large instabilities in the exchange rate, or sometimes, if you want to fix the exchange rate for a certain period of time, you can do that by intervening in the FX market, and those interventions come from the FX reserves. So, going back to a step we maybe should have mentioned earlier, FX reserves can be held in basically three types of assets: money in accounts at banks elsewhere, even foreign banks—and these banks need to be of the highest possible quality—and the second type is securities. And again, these securities need to be of the highest rating possible—mainly government bonds, and mainly from large countries that are fiscally capable of repaying on time without any problem, or what we would otherwise refer to as highly rated countries by the rating agencies, like AAA or AA. Those are the types of bonds you’d want to have in your portfolio. And the third asset is gold. Gold has been very much in demand over the last couple of years—we’re witnessing an increase in prices. One of the reasons for this rise is that central banks around the world, especially in the Global South, are more inclined to buy gold to hold their FX reserves in that form. One aspect of that is maybe to shy away from dollar markets. The other is to be more on the safe side concerning potential freezing of assets and things like that. We mentioned in our previous video, when we discussed similar issues, that this is not the first time something like this has happened. We saw it with Afghanistan, with Venezuela, with Iran, and some other countries. So it’s --