ANALYSIS: A shadow dollar interest rate is being born

The question is, when will markets notice?

Photo by Sina Katirachi on Unsplash

Overnight, the European Union failed to reach a consensus on confiscating Russia’s frozen assets to finance Ukraine’s defense needs for 2026-2027. The key obstacle to a deal was Belgium, which feared being directly exposed to expensive legal challenges from Russia if confiscations went ahead.

Belgian leaders were particularly nervous that courts — especially in Belgium, where some of the legal jurisdiction exists — could rule against the EU, leaving Belgium on the hook to pay billions in compensation if Russia won a case.

Such obstruction didn’t go down well with the pro-EU camp, which went as far as to brand Belgium’s prime minister a “Russian asset”. Something, he himself joked about in the aftermath.

The final outcome is a compromise deal which sees EU leaders agree to provide Ukraine with a large loan package worth €90 billion to be funded by joint EU borrowing (usually a big no-no for powerful players like Germany).

The EU’s conclusions also state that the frozen Russian assets will remain immobilized indefinitely and that the bloc reserves the right to use them to repay the loan in the future if and when Russia pays war reparations to Ukraine in line with international law.

But here’s the thing. Two can play that game.

While most media attention has focused on Europe’s willingness to write cheques that cannot yet be cashed — backed by contingent claims on future asset seizures or legal judgments — the Russian response has followed a parallel logic, albeit for a much longer period. Moreover, rather than relying on political declarations or legal contingencies, Moscow has drawn on innovative financial engineering to achieve pretty much the same thing.

A crucial tool in that process has been the deployment of the “perpetual future” on Russia’s MOEX exchange.