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At a time when the U.S. is issuing debt at unprecedented levels, seizing the assets of one of the world’s largest central banks poses a significant threat of exacerbating the perilous financial situation of the U.S. by making U.S. Treasuries less attractive to foreign buyers

WASHINGTON, D.C. – Senator JD Vance (R-OH) provided a memo to his Republican colleagues in the House and Senate which outlines the dire consequences the REPO for Ukrainians Act (REPO Act) would exact on the Western financial system. Under the REPO Act, assets of the Russian central bank could be seized and repurposed as further aid to Ukraine, an unprecedented action in the absence of direct conflict or U.N. agreement which threatens to upend the global financial order. The legislation would also freeze the current Russia sanctions regime in place, tying the hands of the next president to negotiate a peaceful end to the Russia-Ukraine war. 

Read the full memo here and read more from Politico’s Morning Money here.

Read excerpts of the memo below:

The effect of the REPO Act on the actionability of and global interest in U.S. Treasuries could be catastrophic: “If foreign governments perceive a risk that their assets will not only be frozen but actually seized and repurposed outright, it is unlikely that foreign governments would continue to view American Treasuries as favorably as they have in the past. Losing our capacity to auction off Treasuries would render the United States unable to meet its federal debt obligations—potentially threatening the U.S. ability to finance the national debt and avoid default risk.”

The seizure of assets owned by a foreign state is unprecedented in the absence of direct military engagement: “[Action through the REPO Act] would be the first time that the United States has seized and repurposed frozen sanctioned assets owned by a foreign state despite the absence of any direct military engagement by that state against the United States.”

The REPO Act ties the hands of a future U.S. president to negotiate peace: “The President, as Commander in Chief, wields the executive authority necessary to negotiate with foreign powers. Negotiating peace is a delicate matter. To be successful, the president requires leverage and flexibility. Removing the president’s ability to end or alter a sanctions regime, especially in the context of such a significant conflict, would dramatically limit U.S. negotiating leverage, thereby undermining the prospect of reaching a peace deal in the Russia-Ukraine war.”

The REPO Act would threaten the Western financial order by driving foreign nations away from U.S.-controlled SWIFT and CHIPS payment systems to competing systems controlled by Russia and China: “The threat of having assets confiscated and repurposed on top of sanctions risk would make U.S.-controlled payment systems even higher-risk for other countries, driving them further into the arms of competing networks. The dominance of the western financial systems not only serves as a backstop to ensure the continued reserve currency status of the U.S. Dollar, but also acts as a powerful counter-terrorism tool … Further pushing countries away from SWIFT would mean losing valuable insights and mechanisms to track terrorists, drug cartels, and other international criminals.”

The REPO Act would pose risks to U.S. based global financial institutions and banks: “While these financial institutions … have tried to begin pulling back on their exposure to Russia, they face a two-pronged hurdle. First, the U.S. government has requested they continue to maintain some level of operations in Russia. Second, Russian M&A and banking laws continue to change. Most recently, Russia has made changes to their laws to require Putin’s approval for all sales of subsidiaries by foreign companies … American firms also face the question of whether compliance with Russia’s punitive measures for exiting companies may actually place these firms in direct violation of the U.S. sanctions regime … one can anticipate that there would be some level of retaliation [for U.S. firms seeking to exit the Russian market]—and it’s within reason to expect that this may include Russia seizing the assets of U.S. firms still operating in Russia.”