Few countries may reduce transactions in US dollars after sanctions again

Washington: The United States and the other western countries have frozen the Russian foreign exchange reserves to the tune of $300 billion. The International Monetary Fund (IMF) warned that some western countries might reconsider the share of USD within their foreign reserves following this action. A leading US think tank has highlighted this issue and warned that the use of sanctions by the United States could force some countries away from using US dollars. Last year, Russian President Vladimir Putin had claimed that the United States itself is ending the importance of the US dollar as a reserve currency.

The United States and western countries have imposed harsh economic sanctions against Russia, given the Ukraine war. As per the sanctions, Russia has been denied using the international banking transaction system (SWIFT). Russia has also been denied access to a major chunk of its foreign reserves held in the United States and the other countries. Moreover, given this action by the western countries, the Russian central bank cannot use nearly $300 billion of its foreign reserves.

Russia has proposed using the Ruble, Yuan, and a few local currencies as an alternative to these sanctions. Countries like India and China, having major trade and economic cooperation with Russia, have accepted the proposal and have started transacting with Russia. On the other hand, a leading oil-producing country like Saudi Arabia has indicated using the Chinese Yuan instead of USD for oil transactions.

Against this background, the statement of a global financial institution like the IMF becomes significant. Geetha Gopinath, Deputy Managing Director of the IMF, issued this warning during an interview with a magazine. Gopinath warned ‘There are major upheavals in the systems connected with international transactions in the current scenario. Certain countries are considering reducing the share of US dollar exposure in their foreign reserves. The US dollar will not immediately lose its status as the global reserve currency, but if the Ukraine war is prolonged, it could impact the significance of US dollars.’

Before the IMF, a think tank from the United States issued a warning questioning the status of the US dollar. Gal Luft, Joint Director of think tank Institute for the Analysis of Global Security, highlighted the sanctions being imposed by the United States and said that due to the sanctions and other economic actions, the US dollars is being used indiscriminately like bullets. Therefore, certain central banks have started seriously evaluating whether it is right to depend on the US dollars.