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Gita Gopinath, First Deputy Managing Director of the International Monetary Fund (IMF), said on Thursday that economic sanctions imposed on Russia as a result of its invasion of Ukraine will decrease the dominance of the U.S. dollar. She also said the Russian-Ukraine crisis will increase the adoption of digital finance, including cryptocurrencies, stablecoins, and central bank digital currencies (CBDCs).
Russia-Ukraine War To Drive Adoption of Cryptocurrencies: IMF
Gita Gopinath, the IMF’s first deputy managing director, warns increased adoption of digital finance, including cryptocurrencies, and decreased dollar dominance will lead to the diversification of countries’ foreign reserves as a result of the Russia-Ukraine war and sanctions imposed on Russia.
“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 on Russia and restrictions on its central bank forced the country to shift from the US dollar to cryptocurrencies such as Bitcoin. Recently, Russia even agreed to accept cryptocurrencies in payment for oil and natural gas trade with its allied countries. Thus, a greater use of digital currencies in global trade could replace dollar dominance, which leads to the further diversification of the reserve assets held by national central banks.
As countries isolate Russia from the global financial system, Russia has prioritized reducing its dependence on the dollar. Russia has been seeking efforts to decrease its dollar dependence after the U.S. imposed economic sanctions in retaliation to the annexation of Crimea in 2014.
Decreasing Dominance of US Dollar
Gita Gopinath asserts a fall in the US dollar’s share of international reserves from 70 percent to 60 percent in the last two decades. The US Dollar’s dominance has decreased with the emergence of other trading currencies, such as the Australian dollar and the Chinese renminbi.
With most countries seeking to reduce dollar dominance by adopting a central bank digital currency, while also relying on cryptocurrencies, the US dollar’s dominance could decline further.