Italian Central Bank Warns That Seizing Russia's Money Could Endanger the Euro

The Italian Central Bank has cautioned against confiscating Russian funds frozen in the EU, warning it could harm the euro.

Bank of Italy Governor Fabio Panetta highlighted the risk to the reputation and stability of the currency amid sanctions debates targeting Russia's assets.

Around $300 billion of Russian central bank assets were blocked by the EU, the US, Japan, and Canada in 2022 due to sanctions relating to Ukraine, with approximately $200 billion located in the EU.

While Brussels considers a tax on profits made from these assets by Euroclear, rather than seizing the funds, countries like Italy, Germany, and France worry that such actions could lead to a lack of confidence among international investors and weaken the euro.

Panetta underscored the importance of the euro's role as a global reserve currency and cautioned against using it as leverage in political scenarios, as it could diminish its appeal and spur the creation of alternative currencies.

He noted that sanctions have already driven China and Russia to increase trade in the yuan, with China actively promoting its currency globally. The yuan has recently surpassed the euro as the second most-used trade currency.

He also mentioned the significant drop in the use of Western currencies in Russia-China trade, with nearly 95% of it now conducted in rubles or yuan, and other nations also looking to the yuan as an alternative to the dollar and euro.

Panetta calls for awareness of the potential political influences on international currencies in the future.