The International Monetary Fund has stated that financial sanctions against Russia threaten to erode the US dollar’s supremacy over time, potentially leading to a more fragmented international monetary system.
The IMF’s First Deputy Managing Director, Gita Gopinath, told (FT) Financial Times.
The US and its allies have slapped Russia with a slew of penalties in response to its late-February offensive on Ukraine. The attack was described by Russia as a “special operation” aimed at disarming its neighbour.
“The dollar would remain the major global currency even in that landscape but fragmentation at a smaller level is certainly quite possible,” Gopinath told the FT in an interview,
She went on to say that some countries have already begun to renegotiate the currency in which they are compensated for trade. She also stated that the crisis will accelerate the adoption of digital finance, which includes everything from cryptocurrencies to stablecoins and central bank digital currencies.
According to Gopinath, the increased usage of foreign currencies in global trade will lead to a larger diversification of national central banks’ reserve holdings.
She had earlier said the sanctions against Russia do not foreshadow the demise of the dollar as the reserve currency and that the war in Ukraine will slow global economic growth but will not cause a global recession.
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