The dollar’s dominance within the international monetary system is at risk of undergoing a gradual “fragmentation” as a result of financial sanctions being imposed on Russia, Gita Gopinath, the International Monetary Fund’s first deputy managing director, told The Financial Times.
“The dollar would remain the major global currency even in that landscape but fragmentation at a smaller level is certainly quite possible,” Gopinath was quoted as saying in an interview.
Her comments came as the Russian ruble bounced back against the dollar this week, following a stunning collapse earlier this month — raising questions about the sanctions’ impact. The U.S. and its allies have imposed a host of sanctions intended to isolate Russia from the global financial system — including restricting its largest bank’s access to transactions made in the dollar — as Russia’s monthlong war in Ukraine rages on.
Among other things, some countries are already renegotiating the currency in which they get paid for trade, Gopinath told the newspaper. In addition, Russia’s war on Ukraine will spur the adoption of digital finance, from cryptocurrencies to stablecoins and central bank digital currencies, she said.
The IMF has already previously talked about the stealth erosion of the dollar’s dominance, as highlighted in a working paper published on March 24. The paper highlights a decline in the dollar share of international reserves since the turn of the century, a reflection of active portfolio diversification by central bank reserve managers.
On Thursday, the ruble
was trading around 82 cents to the dollar, not far from where it was before the invasion, after having weakened to roughly 150 to the dollar on March 7. Meanwhile, the U.S. Dollar Index
advanced 0.4% in morning trading.