Discussion Paper: Collateralising Russian Reserves: Short-, Medium- and Long-Term Implications for the Euro's Standing as a Reserve Currency

Joint discussion paper by Institute of Sovereign Investors & GeoEconomica.

Authors: Sven Behrendt, Karina Luchinkina, Rachel Ziemba, Paul O’Brien, Udaibir Saran Das, Massimiliano Castelli, Seema A. Khan, Philipp Schoeller and Kristian Flyvholm

Date: 22 October 2025

Abstract: Europe’s immobilisation of roughly €260–300 billion in Russian central bank reserves following Moscow’s invasion of Ukraine has become a defining experiment in the use of financial power under international law. What began as a coordinated G7 sanctions measure now tests the euro’s dual identity—as a market instrument and as a pillar of the rules-based order. Building on the proposal to use these frozen reserves as collateral for a €140 billion interest-free loan to Ukraine, this short note examines the economic, legal, and geopolitical consequences of such a mechanism for the euro’s standing as a reserve currency.

It argues that while collateralisation appears legally cautious, it is politically irreversible: once pledged, the assets cannot credibly be returned to Russia without compensation. The mechanism functions as a contractual path toward asset transfer, blurring the boundary between financial engineering and geopolitical sanction. In the short term, such an approach preserves stability; in the medium term, it embeds conditionality into the euro’s governance framework; and in the long term, it would position the euro as an anchor of the rules-based international order, enhancing the European Union’s credibility and geopolitical standing.