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.
The perpetual future began life as a way to give traders continuous FX exposure without having to keep rolling short-dated futures, and with the “carry” element handled automatically via a daily swap-rate adjustment. [For more on the origins of the ‘perp’, see our long read over at our sister publication, The Peg, based on an exclusive sit-down with the instrument’s inventor, Ben Delo.]
Russia immediately recognized the tool’s potential to unlock dollar- and euro-denominated liquidity within its walled-off financial system.
Indeed, after the country lost access to real, deliverable U.S. dollars and euros in 2022, spot trading on its exchanges stopped, correspondent banking dried up, and rolling dollar positions through normal FX swaps became difficult or impossible. But the economy did not stop referencing the dollar or the euro. Trade contracts, balance sheets, and risk management still needed a USD and EUR price. What disappeared was not the need for dollars and euros, but the ability to settle in them.
MOEX perpetual futures stepped into that gap to help keep the system ticking over.
Rather than providing actual dollar and euro liquidity, today they synthesize it by providing continuous dollar and euro pricing that allows participants to hold USD/RUB or EUR/RUB exposure indefinitely, while still being able to settle all gains, losses, and carry in rubles.
In this way, the contracts let the market form a usable USD or EUR exchange rate without moving a single dollar or euro.
The daily swap-style adjustment embeds an implied dollar and euro funding cost, so the price reflects not just expectations about the exchange rate, but also the scarcity and risk of dollars and euros under sanctions.
Mechanically, the system operates on the assumption that the frozen euro and dollar reserves held abroad remain Russia’s assets and therefore constitute a viable notional float, even if they are temporarily inaccessible. On that basis, they can be liquefied at the level of domestic monetary accounting rather than through physical settlement.
The funds immobilized at Euroclear can thus be thought of as analogous to the bonds backing a large euro-denominated stablecoin: they anchor value, even though redemption is suspended. Against this notional backing, the system can issue corresponding euro- or dollar-linked liabilities on domestic rails, provided that flows net to zero at all times.
The critical distinction is that issuance is controlled by the claimant, not the custodian of the underlying assets. Moreover, any expansion of liquidity is not funded by pledging additional frozen assets, but by mobilizing alternative balance-sheet resources at the domestic central bank — or at friendly custodians — most notably gold.
But the outcome is the same: a synthetic dollar and euro rate emerges, creating powerful arbitrage incentives for participants able to operate across both corridors.
Crucially, Russia is innovating very fast here. Most recently, it has applied the price discovery features of perpetual futures to its own government bond indices as well as to gold, one of the most likely mechanisms to give rise to a globally significant shadow liquidity rate.
The result is a type of shadow USD and EUR rate.
It is not an official rate and it is not deliverable, but it is real enough for hedging, pricing, and internal accounting. Because nothing ever settles in USD, sanctions cannot easily disrupt it. Control over the clearing system and the contract design allows the dollar to survive as a unit of account even when it can no longer function normally as a means of payment. Crucially, exposure to this shadow rate can be leveraged on terms that sit outside Basel-style constraints, allowing balance sheets to expand against synthetic rather than deliverable liquidity.
In simple terms, MOEX perpetual futures separate the idea of “what a dollar is worth” from “having a dollar.”
Under sanctions, that separation is decisive — but it is also competitive. If this shadow system maintains trust more effectively than the standing international system, it can begin to compete with it, both as a pricing mechanism and as a source of monetary elasticity.
That elasticity, in turn, allows the domestic system to engineer the monetary base needed for growth, even in the absence of external funding. The limiting factor at this point becomes inflation. But in a global environment shaped by strong deflationary forces — particularly those emanating from China — the risk is not immediate overheating. Indeed, a scenario in which Russia absorbs demand and consumption capacity that China can no longer sustain is entirely plausible.
Money never sleeps
Of course, Europe can play the same game too. And this, in fact, is what yesterday’s decision was all about.
In both cases, the result is the liquefaction of capital that would otherwise remain frozen or trapped in limbo, legitimized and powered by narrative dominance over whose system will prove most adept at achieving economic and military supremacy.
Aka, who can better convince investors that liquefying their claims today will reward them most generously over the long term? Crucially, there is nothing novel or innovative about this mechanism. Throughout history, rulers and states have repeatedly relied on the same logic: capital is mobilized in the present by promising access to future gains. From the financiers of imperial conquests and military campaigns, to the backers of colonial ventures and chartered companies, those who supplied funding are granted claims — explicit or implicit — on the spoils, tribute, or commercial monopolies expected to follow. What changes across eras is not the structure of the bargain, but the story used to legitimize it.
In Russia’s case, while it cannot currently redeem accumulated euro- and dollar-denominated financial claims directly against goods and services from the EU or the United States, it can still facilitate their redemption indirectly through country-to-country arrangements that function much like a sovereign-level hawala system. What underwrites these arrangements is not access to the frozen assets themselves, but the shared expectation that those assets will ultimately revert to Russian control — and that the future proceeds will be sufficient to compensate those willing to extend credit and intermediate settlement today.
Ironically, because confidence in Russia’s liquefication system relies on such monetary flows reconciling to zero at all times (or alternatively being topped up with other hard assets like gold), the system installs a type of monetary discipline that the EU equivalent lacks.
That itself is a fascinating topic that should be expanded on. But not at this point.
What matters for the present discussion is how rival claims over underlying assets fracture financial systems and give rise to shadow pricing mechanisms — parallel rates that reflect competing assertions of legitimacy rather than unified market consensus. The most recent and acute historical example of this dynamic can be found in Libya, where disputes over control of oil revenues and legacy sovereign assets culminated in the emergence of dual, competing central banks.
Following the collapse of the Gaddafi regime in 2011, Libya’s institutional unity unraveled as rival political authorities consolidated power in the west (Tripoli) and the east (Bayda). Each side claimed authority over the Central Bank of Libya, state oil revenues, and access to sovereign financial assets accumulated under the previous regime. This schism produced parallel fiscal, monetary, and banking systems, including competing payment channels and exchange-rate practices.
A critical external factor was the large pool of Libyan sovereign assets held abroad — most notably in Belgium, where Euroclear held tens of billions of euros in Libyan funds that had been frozen under international sanctions. Control over the recognition, release, or income generated by these assets became a point of geopolitical and legal contention, reinforcing the internal split. The result was a fragmented financial order in which legitimacy, not just liquidity, determined which rates, balances, and institutions were treated as real.
Libya’s dual exchange-rate system, however, did not end through political reconciliation or military victory, but through financial consolidation. Competing authorities could print money and control territory, and at times even oil fields, but only one central bank retained international recognition, access to reserves, and control over external settlement. In 2018, the Tripoli-based central bank effectively reconciled the dual rates by devaluing through an FX fee, collapsing the gap between the official and parallel markets and eliminating the arbitrage that sustained shadow pricing. Physical control over oil assets proved insufficient because oil could not be monetized without access to recognized financial channels and overseas assets. Control over financial plumbing — correspondent banking, reserves, and legally recognized balance sheets — ultimately prevailed, demonstrating that in modern systems, monetary authority is decided not by force or resources alone, but by who controls settlement and recognition in global finance.
But this was before crypto, before blockchain, before perpetual futures and, most crucially, before the cultural schisms that prevail throughout the West today. The presence of all of these today gives rise to the real possibility of parallel recognition of rival systems across the same territories.
Again, it’s not like this hasn’t happened before.
During WW2, a Reichsmark claim was not equivalent to a resistance IOU, and neither side recognized the other’s contracts as legitimate. People lived under both systems at once, switching between them depending on risk, necessity, and trust.
Eventually, however, such rival systems, especially when they are funded by the same contested monetary base, do run into real-world limitations.
This becomes most evident when rival claimants move to monetize the same pool of frozen assets or monetary base at the same time.
This, arguably, is where we are now.
Systems that can’t deliver the goods to the people who need them (as is the case now with Ukraine) either have to draw on the good faith of others who can do so on their behalf (i.e. via credit), or by extracting value from their own citizens, notably via inflation.
As inflation in any particular system begins to bite, the illusion that such claims are meaningfully secured starts to unravel.
What follows is not outright default at first, but a slow degradation of credibility, including among one’s own citizens. With that, inflation — which can also manifest as the erosion of long-established freedoms — begins to take a toll.
When this happens, the only recourse is narrative dominance — aka, which side has the better story with which to convince people that the sacrifices they are being forced to make are worth it.
What then secures the system is no longer the asset itself, but trust in which claimant’s narrative will ultimately prevail. Pricing shifts from fundamentals to expectations about recognition, enforcement, and endurance.
In effect, the frozen asset turns into a contested reserve, and liquidity becomes narrative-driven.
