The euro could be affected if the West seizes Russia's frozen assets (Illustration: Marketwatch).
Italian Central Bank Governor Fabio Panetta warned on January 26 that using the euro as a tool in sanctions wars and political disputes would damage the image and position of this currency.
The United States, the European Union (EU), Japan and Canada have frozen about $300 billion in Russian central bank assets in 2022 in response to Moscow's military campaign in Ukraine. Of that, $200 billion is held in the EU, mainly at the Belgium-based Euroclear clearinghouse.
Belgium is planning to tax Euroclear’s profits from frozen Russian assets, but some EU members including Italy, Germany and France have argued that using them could cause investors from other countries to doubt the safety of their EU holdings and leave the region, weakening the euro.
“This power must be used wisely,” Mr Panetta said, referring to the euro’s status as a global reserve currency.
“Weaponizing a currency inevitably reduces its appeal and encourages the emergence of alternatives,” he warned.
He also noted that the recent increase in the use of the yuan in trade between Russia and China shows this trend, because Western sanctions have pushed other countries like Russia to look for a new reserve currency.
“China is clearly promoting the role of the yuan on the global stage and encouraging its use in other countries,” he stressed.
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