Western experts are unanimous about the devastating impact of anti-Russian sanctions both on the global economy and the US dollar in particular. It goes without saying that the West will hardly cope without such a significant partner as Russia. The sanctions slapped against Russia by the US and its European allies have already put the US dollar on the defensive.
The International Monetary Fund has sounded the alarm among the first. The US-run lending institution has spotted the risks to the US dollar’s reign. “The dollar would remain the major global currency even in that landscape but fragmentation at a smaller level is certainly quite possible,” Gita Gopinath, the IMF’s first deputy managing director said in an interview with the Financial Times. The sweeping measures against Russia include restrictions on its central bank. This policy encourages the emergence of small currency blocks which trade with one another using their national currencies. Russia has sought for 10 years to chip away at its reliance on the US dollar. Nevertheless, this campaign went along sluggishly. Interestingly, a few packages of tough sanctions to punish Russia for its invasion of Ukraine jump-started the process. Gita Gopinath warns that the wider use of other currencies in global trade would lead to further diversification of the reserve assets held by national central banks. On the whole, the US dollar’s share in international forex reserves has shrunk to 60 per cent over the past two decades. The IMF official also believes that the war in Ukraine will boost the popularity of digital tokens and the Chinese yuan.
