On Thursday, the U.S. announced a $50 billion loan to support Ukraine’s war effort, backed by interest income from the roughly $260 billion in Russian central bank assets that Western financial institutions froze when the war began in February 2022. 

The novel funding mechanism comes months after the Ukrainian war effort stalled because of dwindling munitions supplies and delays in receiving American aid when a funding package was held up as a result of congressional gridlock. 

Ukrainian President Volodymyr Zelenksly welcomed the funding. 

“Thanks to every American heart that supports freedom and supports us,” he said at a joint press conference with President Joe Biden at the G7 summit in Italy. 

The frozen Russian assets, which include bonds, gold, and cash, are primarily in Europe with only about $5 billion held in the U.S. They’ve since been collecting interest, on the order of about $3 billion per year.    

The U.S. and its allies opted to give Ukraine a loan backed by the frozen assets, rather than seizing them outright because doing the latter presented legal challenges. It also risked setting a dangerous precedent whereby countries might take control of the assets of geopolitical rivals, a scenario of particular concern among European leaders. U.S. Treasury Secretary Janet Yellen favored seizure and liquidation of the Russian assets to fund Ukraine’s rebuilding effort. 

Under the current plan, the Russian assets wouldn’t change hands. Instead, Ukraine receives a lump sum payment from the United States and the European Union. The U.S. in particular pushed for this arrangement because it wanted to ensure Ukraine had enough funding to sustain it for the long term. The loans would be backed by the interest generated from the Russian assets, and the interest would also be used to pay the loans back over time.  

“Russian immobilized assets should be used for defending the lives of Ukranians from Russian terror and for repaying the damage the aggressor caused to Ukraine,” Zelensky said. “It’s fair and absolutely right.” 

A notable portion of the funding will go toward reserve brigades, according to Zelensky. This would allow Ukrainian soldiers currently on the battlefield to be relieved by rested brigades that would also have newer equipment. This would “raise morale, but also the raise of strength of our brigades,” he said. 

The remaining portions of the loan will be used to fund munitions development in Ukrainian territory so its army can manufacture some armaments on its own, to rebuild critical infrastructure, and to shore up its national budget. Countries that provide funding to the loan will have some flexibility in where exactly they can direct their contributions, a U.S. official told the BBC. Some countries “prefer to send their money to budget support and to reconstruction” rather than just military support, the official said.  

The exact structure of the loan was subject to its own round of debates between European and U.S. officials. European countries wanted to give Ukraine $3 billion a year with the money coming only from the interest generated by the Russian assets. Meanwhile the U.S. sought to give the Ukrainians a major cash infusion upfront—NPR reported it was as much as $60 billion—to fund their war effort. Ultimately the heated negotiations ended up with the current shape of the deal, in which Ukraine would receive $50 billion from the U.S.-led consortium, but without fully seizing the Russian assets. 

One of the key priorities for the U.S. was to ensure that Ukraine gets the money quickly. The need to ensure a speedy disbursement became even more apparent after a group of Republican members of Congress held up $61 billion in Ukraine funding earlier this year, which significantly hampered the Ukrainian war effort. The plan is for Ukraine to get the money by the end of this year, an unnamed member of France’s delegation told the Associated Press.