Weaponization of finance: European Central Banks and financial sanctions against Russia

Abstract

In response to Russia’s full-scale invasion of Ukraine, the Group of Seven (G7) countries and the European Union (EU) adopted a variety of financial sanctions, including the freezing of foreign reserve assets of the Central Bank of Russia held by other central banks. Drawing on a Principal-Agent framework and on speeches, newspaper articles and interviews with policy-makers, this study examines what it means for the ECB and the central banks of the Eurosystem to be involved in these sanctions. As a consequence of these actions, these central banks have been enlisted in monetary and financial warfare. Moreover, the three-fold objective of the ECB has de facto effectively been reweighted somewhat, as the focus on ‘price stability’ (primary objective) has become seemingly tem- porarily less prominent. Instead, the secondary and tertiary objectives have moved centre-stage, favouring geopolitical considerations.