Financial sanctions imposed on Russia threaten to gradually dilute the dominance of the U.S. dollar and could result in more fragmented international monetary system, Gita Gopinath, IMF’s First Deputy Managing Director, told The Financial Times.
“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, adding that some countries are already renegotiating the currency in which they get paid for trade.
She said that the war will also spur the adoption of digital finance, from cryptocurrencies to stablecoins and central bank digital currencies.
Gopinath told the FT that the greater use of other currencies in global trade would lead to further diversification of the reserve assets held by national central banks.
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.