Nobel laureate J. Stiglitz, in a recent article , dispelled a number of concerns about the economic consequences for Western countries from the confiscation of Russia's frozen sovereign assets. In my article, I will focus on three main economic arguments voiced by those who are afraid of decisive steps (I will leave the legal issues of confiscation to the relevant specialists).

Regarding the threat to the dollar and euro due to a possible exit from assets in them

The question of demand for the dollar or the euro is a question of demand for a safe asset. For the Russian Federation, “safe” now sounds like something that will not be frozen or confiscated. But for others it is a marginal aspect. The main one is the one that will not “burn out”, and the one whose exchange rate the authorities do not manipulate at their discretion (as with the yuan). The dollar and euro are such assets. There is a service they provide. The service is in demand. The US and EU decided to limit its provision in connection with the war started by Russia. There are those who believe that out of solidarity with the Russian Federation, other countries will now refuse the services provided to them by the dollar and the euro. Can they refuse the fact that they now see the risk that they themselves may be denied such a service? But such a risk was always there, we always thought about it, the case of its application to Russia did not change anything.

A further reduction in investments in instruments denominated in dollars or euros is possible on a very limited scale due to the global shortage of reliable and liquid financial instruments that can be classified as international reserves, and the low capacity of the gold market. By the way, I would like to note that the value of long-term US Treasury bonds owned by China will fall in 2021-2023. is mainly associated with the revaluation of assets, and not with net sales (the Fed rate has increased, the yield of government bonds along with it, too, and accordingly, the cost of government bonds has fallen). Moreover, Chinese investments are not limited to US Treasuries. China is shifting part of its portfolio from Treasuries to U.S. agency bonds (bonds issued or guaranteed by federal agencies or companies sponsored by the U.S. government).

Regarding the possible displacement of the dollar or euro by the yuan

The share of the yuan in international reserves is 3%. The share of the dollar is 60%, the euro is 20%. The dollar accounts for 80% of international financial and 40% of trade settlements. The importance of the dollar and euro is enhanced by their liquidity and the openness of the US and EU to trade and investment. China's financial system, on the contrary, is less developed, its currency is not completely freely convertible, and there are strict controls over the yuan exchange rate and capital movements by the authorities.

One of the important factors determining whether the yuan will become on par with the dollar and euro is whether it can achieve massive use in transactions not related to China and Chinese companies. A reserve and trading currency is not a currency that is simply used outside the issuing country, it is one that is used for transactions between other countries (that are not the issuers of that currency). The yuan will not be truly internationalized until it is used, for example, by Argentina to trade with Japan. This is not the case, with rare exceptions.

Even if Saudi Arabia starts accepting yuan for all the oil it sells to China, yuan-denominated oil contracts would account for 7% of global volume. If China and Saudi Arabia settled all their bilateral trade in yuan, the yuan's share of global trade settlements would increase by 0.2 percentage points.

Regarding the single BRICS currency as a possible alternative to the dollar

The conditions under which a group of countries can consciously make a choice in favor of a single currency and what necessary requirements must coincide for the successful creation of a single currency area are described by Nobel Prize winner R. Mundell (the so-called “theory of optimal currency areas”). One condition is exposure to similar shocks. That is, relatively speaking, if there is a recession in one country, then it is desirable that there is a recession in others, since monetary policy is the same for all participating countries. The graph (below) shows that the rest of the BRICS countries are subject to much greater inflation fluctuations than China, which is the leader of this quasi-union.

The next chart (below) - a quick look at interest rates shows that monetary policies in the BRICS countries tend to be very different as well.

The second condition is that if countries are exposed to various shocks, then the mobility of production factors should be high. How do adherents of the single BRICS currency imagine migration between Russia and Brazil, the distance between which is 15 thousand km? Or what tricks can be used to lure Russian workers en masse to India? More importantly, capital cannot even move relatively freely due to varying degrees of capital controls in Russia, India and China.

And in the end - what is BRICS? This is not an international association (economic or political) - it is a meeting/conference of the heads of several states. BRICS members declare their desire to create an alternative to Western-controlled international financial and economic unions, but 15 years after the creation of BRICS, the countries have not concluded any currency, trade, customs, defense or other agreement.

As we see, the most frequently mentioned problems of an economic nature that the Western financial system in general, and the dollar and euro in particular, as a result of the confiscation of frozen sovereign assets of the Russian Federation will allegedly have, are many times and unreasonably exaggerated. The sovereign assets of the Russian Federation should be confiscated and transferred to Ukraine to compensate for the damage caused.