Weaponizing Wall Street’s Safest Asset: A Radical Plan to Fund Ukraine with US Debt

As the war in Ukraine grinds on, a parallel battle is being fought in the halls of finance and government across the Western world. The challenge is immense: how to sustain the colossal financial support required for Ukraine’s defense and eventual reconstruction without buckling under domestic political and economic pressure. Amidst debates over aid packages and the seizure of frozen Russian assets, a startlingly audacious idea has emerged from an unlikely source—a reader’s letter to the Financial Times.

The proposal, put forth by John Gent of London, is as simple as it is radical: what if Europe used its vast holdings of US Treasury bonds to fund Ukraine? This would, in effect, leverage the bedrock of the global financial system to support Kyiv, compelling the United States to indirectly foot the bill as it redeems its own debt. It’s a concept that blurs the lines between economics, banking, and geopolitical strategy, forcing us to ask a critical question: Could the world’s safest investment be transformed into a tool of economic statecraft, or would such a move risk detonating the entire global financial order?

This article delves into this provocative proposal. We will explore the mechanics behind how it might work, weigh the potential as a game-changing solution for Ukraine, and analyze the profound, potentially catastrophic, risks of weaponizing the US Treasury market.

The Global Addiction to US Debt

To understand the gravity of this proposal, one must first appreciate the unique role US Treasuries play in the global economy. Issued by the U.S. Department of the Treasury, these debt securities—bills, notes, and bonds—are more than just a way for the American government to finance its operations. They are universally regarded as the closest thing to a risk-free asset in the world of finance.

Their perceived safety is backed by the full faith and credit of the United States, the world’s largest economy. This stability has made them the primary reserve asset for central banks globally. Nations hold US Treasuries to stabilize their own currencies, manage international trade payments, and as a secure store of value. This immense international demand helps keep US interest rates lower than they would otherwise be and underpins the US dollar’s status as the world’s dominant reserve currency.

European nations are among the largest foreign holders of this debt. Decades of trade and investment have resulted in European central banks and private institutions accumulating trillions of dollars in US government securities. This financial interdependence has long been a cornerstone of the transatlantic alliance.

The following table illustrates the scale of these holdings among key US allies and other major economic powers as of early 2024.

Data as of February 2024. Source: U.S. Department of the Treasury. Note: Holdings of countries like Belgium and Luxembourg often include securities held in custody for other nations.

It is this multi-trillion dollar mountain of debt that forms the basis of the proposal. The idea is to take this passive financial holding and activate it as a strategic lever.

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Unpacking the Proposal: How Would It Work?

The original letter to the Financial Times suggests a straightforward, if audacious, mechanism. European governments could collectively decide to either sell their US Treasury holdings on the open market and channel the proceeds to Ukraine, or perhaps transfer the bonds themselves to a dedicated reconstruction fund for Ukraine. When these bonds mature, the US Treasury would be obligated to pay the principal to the new owner—Ukraine’s fund.

Either path leads to the same outcome: capital is transferred from the US government’s balance sheet to Ukraine, facilitated by Europe. Proponents might argue this is not an act of aggression but a simple reallocation of assets. Europe would be choosing to liquidate its investment in US debt to make a new investment in Ukrainian sovereignty and security—an investment that directly aligns with stated US foreign policy goals.

From a purely logistical standpoint, the modern financial technology and trading infrastructure would make the execution of such sales or transfers relatively simple. The challenge isn’t technical; it’s entirely political and economic. The act of a coalition of major allies deliberately using their reserve holdings to create a multi-trillion dollar liability for the issuer would be unprecedented in the history of modern finance.

The Immense Risks of Weaponizing the World’s Safest Asset

While the proposal offers a tantalizingly simple solution to a complex problem, its implementation would carry catastrophic risks that could dwarf the issue it seeks to solve. The potential fallout would ripple through every corner of the global economy.

1. Cratering the Global Bond Market

A sudden, coordinated liquidation of hundreds of billions, or even trillions, of dollars in US Treasuries would overwhelm the market. The basic laws of supply and demand would take hold: a massive increase in the supply of bonds for sale would cause their prices to plummet. As bond prices fall, their yields (the effective interest rate) skyrocket. The US government would suddenly find its borrowing costs surging, creating immense strain on the federal budget. This spike in the “risk-free” rate would cascade across the entire financial system, increasing borrowing costs for mortgages, corporate loans, and car payments, likely tipping the US and global economy into a severe recession. The stability of the stock market would be fundamentally threatened.

2. The End of Dollar Dominance

For decades, the world has operated on the US dollar standard. This “exorbitant privilege” allows the US to borrow cheaply and exert significant influence through its control of global financial plumbing. This system relies on the world’s belief that US financial assets, especially Treasuries, are beyond politics. Using them in this manner would be a declaration that they are not. Nations worldwide, particularly those with strained relationships with the US, would see this as a final warning. They would aggressively diversify their reserves into other currencies, gold, or alternative assets, eroding the dollar’s status. The long-term consequences for American economic power would be devastating.

3. Shattering the Transatlantic Alliance

This move would not be seen as a clever workaround in Washington. It would be viewed as a hostile financial act by America’s closest allies. It would represent a profound breach of trust, turning a symbiotic financial relationship into an adversarial one. The US would almost certainly retaliate, potentially by freezing European assets or imposing other financial sanctions. The ensuing economic conflict would shatter the Western unity that is critical to countering Russian aggression, achieving the exact opposite of the plan’s intention.

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More Viable, Less Volatile Alternatives

The allure of the Treasury proposal is its scale, but its risks make it unworkable. Fortunately, policymakers are focused on more realistic, albeit still complex, alternatives. The most prominent is the seizure of the approximately $300 billion in Russian central bank assets that were frozen by Western nations at the start of the full-scale invasion.

This approach has its own legal and financial hurdles. Critics worry that seizing another sovereign nation’s reserve assets sets a dangerous precedent, potentially spooking other countries into withdrawing their assets from Western banking systems. However, proponents argue that Russia’s flagrant violation of international law provides a unique legal justification. Compared to the self-destructive act of crashing the US Treasury market, leveraging frozen adversary assets is seen as a far more targeted and legally defensible strategy for funding Ukraine’s needs, which the World Bank estimated could exceed $486 billion over the next decade.

Other ideas include the issuance of joint EU bonds specifically for Ukrainian defense and reconstruction, a move that would foster deeper European integration while providing a stable funding source.

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Conclusion: A Thought Experiment with Real-World Warnings

The proposal to use European-held US Treasuries to fund Ukraine is a powerful intellectual exercise. It highlights the immense, often untapped, financial power that Western nations hold and forces a conversation about the creative tools available in an era of renewed great-power competition. It is a testament to the innovative thinking required to address the monumental challenge of supporting Ukraine.

However, as we move from theory to practice, the idea collapses under the weight of its own consequences. It is a plan that would burn down the house to keep one room warm. The stability of the global financial system, which relies on the sanctity of sovereign debt and the neutrality of reserve assets, is a greater strategic asset than any short-term funding solution it might provide. The debate it has sparked is valuable, not as a practical roadmap, but as a stark reminder of the interconnectedness of our global economy and the profound dangers of turning the instruments of our shared prosperity into weapons of war.