IMF Warns Russia Sanctions Threaten to Undermine US Dollar Dominance – Finance Bitcoin News

A high ranking official from the International Monetary Fund (IMF) said that financial sanctions against Russia in response to its invasion of Ukraine might result in the U.S. losing some of its dominance. The confrontation could lead to fragmentation of the world’s current monetary system, the top representative warned.

IMF says New Currency Blocs may emerge amid mounting restrictions on Russia

Russia’s decision to invade Ukraine has been met with waves of Western sanctions that have limited Moscow’s access to its foreign currency reserves and the global financial market. Gita Gopinath (first deputy managing director at the IMF), stated that the unusual measures may gradually reduce the U.S. dollar’s dominance.

The top IMF official, speaking to Financial Times, also suggested that restrictions on Russia’s Central Bank could lead to small currency blocs that are based on trading between nations. Gopinath, nevertheless, predicted that the greenback would remain the world’s major currency but didn’t rule out a fragmentation at a smaller level. She went on:

Already, we are seeing this with countries that renegotiated the currencies in which they receive trade payments.

For years the Russian Federation attempted to lessen its dependence upon the American currency, particularly after US sanctions on 2014 for the annexation and use of Crimea as a base. Russia is putting an emphasis on “dedollarization,” Deputy Foreign Minister Alexander Pankin stated in an interview with Interfax in October.

Following the latest round of penalties, introduced in response to Russia’s military assault on Ukraine, officials in Moscow have expressed interest in using cryptocurrencies and are even ready to accept bitcoin for energy exports, alongside the Russian ruble. The efforts to legalize cryptocurrency have gained support, and legislators have been trying to create comprehensive regulations.

Russia’s foreign reserves were approximately 55% in USD-denominated currency assets prior to war. Some of these funds were held in other countries, such as Germany and France. Now, Russia is trying to get out of the international financial system.

Gopinath pointed out that central banks would need to diversify their reserve assets as a result of global trade’s increasing use of foreign currencies. “Countries tend to accumulate reserves in the currencies with which they trade with the rest of the world, and in which they borrow from the rest of the world, so you might see some slow-moving trends towards other currencies playing a bigger role,” she explained.

The IMF official pointed out that the dollar’s share of international reserves had fallen by 10 percentage points to 60% in the past two decades. The rise in the Chinese yuan can account for around 25% of this decline. Beijing has attempted to internationallyize the Renminbi by encouraging its digital version.

Gita Gupinath is convinced that the war will increase digital financial assets. These digital assets include stablecoins, digital currencies of central banks (CBDCs), and cryptocurrencies. “All of these will get even greater attention following the recent episodes, which draws us to the question of international regulation. There is a gap to be filled there,” she commented.

Is it true that the U.S. dollar’s dominant position is being undermined by western sanctions on Russia? Leave your comments below.

Lubomir Tatsev

Lubomir Tassev is a journalist from tech-savvy Eastern Europe who likes Hitchens’s quote: “Being a writer is what I am, rather than what I do.” Besides crypto, blockchain and fintech, international politics and economics are two other sources of inspiration.