According to a top IMF official, the sanctions placed on Russia since its invasion of Ukraine could deteriorate the dominance of the US dollar and stimulate the adoption of cryptocurrencies.
The sanctions placed on Russia have frozen many of its assets and stunted its ability to trade.
Gita Gopinath, first deputy managing director at the IMF, said some countries are renegotiating the currency they are paid in for international trade. As nations amass funds in the various trade currencies, their dominance will grow and dilute the dollar’s dominance.
“The dollar would remain the major global currency even in that landscape, but fragmentation at a smaller level is certainly quite possible,” Gopinath said in an interview with the Financial Times published Thursday.
According to the IMF official, the US currency has weakened over the last two decades, with its international reserve shares falling from 70% to 60%.
“Some countries feel their economies could be held hostage to US policies because the dollar is dominant, and countries want to diversify their risk,” Chen told Insider.
Since the US and its allies have blocked Russia from using SWIFT, a global service that supports international transactions, Russia began demanding payment in its native currency, the ruble. The sanctions have effectively shut down the country’s ability to trade internationally. They have also froze $630 billion in assets held by Russia’s central bank. Russian lawmakers are now saying countries that want to buy from Russia can use their own currencies or bitcoin.
Gopinath said the impact of the Russia-Ukraine war could also support the adoption of cryptocurrencies and stablecoins globally. But she cautioned that the lack of regulation needs to be addressed first.
“All of these will get even greater attention following the recent episodes, which draws us to the question of international regulation,” she said.