The International Monetary Fund’s (IMF) Deputy Managing Director, Gita Gopinath, stated on Thursday that the Russian-Ukraine situation will boost the use of digital finance.
such as cryptocurrencies, stablecoins, and central bank digital currencies (CBDCs).
She also said that economic sanctions placed on Russia as a result of its invasion of Ukraine will reduce the dollar’s dominance.
IMF: Russia-Ukraine War Will Drive Cryptocurrency Adoption
As a result of the Russia-Ukraine war and sanctions imposed on Russia, Gita Gopinath, the IMF’s first deputy managing director, warns that increased adoption of digital finance, including cryptocurrencies, and decreased dollar dominance will lead to the diversification of countries’ foreign reserves.
“The dollar would remain the major global currency even in that landscape but fragmentation at a smaller level is certainly quite possible,” she said in an interview with the Financial Times.
Moreover, Western sanctions and restrictions on Russia’s central bank forced the government to abandon the US dollar in favor of cryptocurrencies such as bitcoin. Russia has recently decided to accept cryptocurrency as payment for oil and natural gas transactions with its allied countries. As a result, increased usage of digital currencies in global trade could replace dollar dominance, resulting in wider diversification of reserve assets held by national central banks.
Russia has prioritized minimizing its reliance on the dollar as countries isolate Russia from the global financial system. Since the United States implemented economic sanctions in retaliation for the annexation of Crimea in 2014, Russia has been attempting to reduce its reliance on the dollar.
Reducing Dominance of US Dollar
According to Gita Gopinath, the US dollar’s share of international reserves has decreased from 70% to 60% in the last two decades. With the rise of competing trading currencies such as the Australian dollar and the Chinese renminbi, the US Dollar’s dominance has waned.
The US dollar’s supremacy may be further eroded as most countries aim to lessen dollar dominance by adopting a central bank digital currency while simultaneously depending on cryptocurrencies.