IMF Warns Russia Sanctions Could Hurt US Dollar Dominance, Cause Fragmentation In Global Financial System: FT

IMF's first deputy MD Gita Gopinath warned that the Western sanctions on Russia could create small currency blocs based on trade between separate groups of countries, the Financial Times reports.
All of which could gradually dilute the dominance of the U.S. dollar leading to a more fragmented international monetary system.
Gopinath noted that the dollar's share of international reserves dropped from 70% to 60% over the past two decades, thanks to the Australian dollar, followed by the Chinese renminbi.
The dollar would remain the primary global currency, but fragmentation is undoubtedly quite possible at a smaller level, Gopinath admitted.
The war would also spur the adoption of digital finance, from cryptocurrencies to stablecoins and central bank digital currencies.
The greater use of other currencies in global trade would further diversify the reserve assets held by national central banks.
Beijing looked to internationalize the renminbi before the current crisis and was already ahead of other nations in adopting a central bank digital currency, said Gopinath. However, the renminbi was unlikely to replace the dollar as the dominant reserve currency.
Russia sought for years to reduce its dependence on the dollar. However, it held a fifth of its foreign reserves in dollar-denominated assets before the invasion, with a notable chunk in Germany, France, the U.K., and Japan.
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