IMF’s First Deputy Managing Director, Gita Gopinath warns that the imposition of financial sanctions on Russia might pose to be a threat and dilute the US dollar’s dominance and lead to a more fragmented international monetary system.
Russia has been hit with a plethora of sanctions from the United States and its allies for its late-February attack on Ukraine. Russia has called the attack a ‘special operation’ to disarm 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 newspaper in an interview, adding that some countries are already renegotiating the currency in which they get paid for trade.
She said that the crisis will also spur the adoption of digital finance, from cryptocurrencies to stablecoins and central bank digital currencies.
The IMF did not immediately respond to a Reuters request for comment.
Gopinath told the FT that the greater use of other currencies in global trade would lead to the further diversification of the reserve assets held by national central banks.
Moreover, she said that the sanctions against Russia will not foreshadow the dollar’s demise as the reserve currency and the war in Ukraine will slow the global economic growth but not cause a global recession.