Gita Gopinath, Lead Director for First Affairs of the International Monetary Fund (IMF) said on Thursday that the economic restrictions imposed on Russia due to its intrusion into Ukraine would reduce the holdings of the US dollar. He also said the Russia-Ukraine crisis will increase the use of digital finance, including cryptocurrencies, stablecoins and central bank digital currencies (CBDC).
Gita Gopinath, the IMF's first co-director of affairs, warned that the increased use of digital finance, including cryptocurrencies, and the decline in dollar holdings would lead to diversification in foreign rizab following the Russo-Ukrainian conflict and barriers imposed on Russia.
In one of his predictions, he stated that the US dollar will remain as the main global currency but the impact on the outcome will be to depreciate a small fraction of the US dollar.
The European divide over Russia will also be another factor that will force Russia to switch from the US dollar to cryptocurrencies like Bitcoin. More recently, Russia has also agreed to accept cryptocurrencies as payment for genuine oil and gas trade with its allies. Thus, greater use of cryptocurrencies in global trade may replace the dominance of the dollar, leading to a greater variety of rizab assets held by the nation's central bank.
Understandably, when Russia took the stand to isolate itself from the global financial system, Russia has begun to reduce its dependence on the US dollar since 2014 again.
Gita Gopinath asserts that the international rizab of the US dollar has fallen from 70% to 60% in the past 2 decades. With most countries starting to switch to CBDCs, it is not surprising that the US dollar's holdings may decline again.
