“What is money?” is a question that economists have pondered for centuries, but the blocking of Russia’s central-bank reserves has revived its relevance for the world’s biggest nations—particularly China. In a world in which accumulating foreign assets is seen as risky, military and economic blocs are set to drift farther apart.
After Moscow attacked Ukraine last week, the U.S. and its allies shut off the Russian central bank’s access to most of its $630 billion of foreign reserves. Weaponizing the monetary system against a Group-of-20 country will have lasting repercussions.
The 1997 Asian Financial Crisis scared developing countries into accumulating more funds to shield their currencies from crashes, pushing official reserves from less than $2 trillion to a record $14.9 trillion in 2021, according to the International Monetary Fund. While central banks have lately sought to buy and repatriate gold, it only makes up 13% of their assets. Foreign currencies are 78%. The rest is positions at the IMF and Special Drawing Rights, or SDR—an IMF-created claim on hard currencies.