By Dave DeCamp

The US-led Western sanctions campaign against Russia threatens to chip away at the US dollar’s dominance as the world’s reserve currency, a top IMF official told The Financial Times.

Gita Gopinath, the IMF’s first deputy managing director, said the sweeping sanctions against Russia will lead to more countries making transactions in other currencies.

“The dollar would remain the major global currency even in that landscape but fragmentation at a smaller level is certainly quite possible,” she said. “We are already seeing that with some countries renegotiating the currency in which they get paid for trade.”

Since the sanctions campaign began, Russian President Vladimir Putin has taken steps to increase trade with the ruble. He said that Russia will stop selling gas to “unfriendly” nations unless they pay in the Russian currency. Moscow has also proposed to India to make deals in ruble-rupee-denominated payments.

Gopinath said that as more currencies are used in global trade, there will be a further diversification of the reserve assets held by national central banks. “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 [in reserve assets],” she said.

Sanctions recently imposed by the US and its allies specifically targeted Russia’s use of the dollar and euro, so Putin’s move to increase trade with the ruble is not a surprise. Russia has been preparing to shield itself from Western sanctions for years, and the ruble has already recovered nearly all of its value since it crashed when Moscow first invaded.

Gopinath said that the dollar’s dominance will not be challenged in the “medium term.” But more global transactions made in other currencies can reduce the value of the dollar over time. President Biden has repeatedly warned that the sanctions will hurt the US and Europe as well as Russia.



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