In an interview with Foreign Policy, IMF’s managing directors Kristalina Georgieva and Gita Gopinath shared their views on the impact Russia’s war on Ukraine has on the financial market.

The two women, holding the top two positions at the International Monetary Fund, agree that the impact can already be felt but it will take another few months before the global market experiences the full force of the consequences of war.

They confirmed the IMF’s support of the crippling economic sanctions the West imposed on Russia and said that they stand ready to help their members with more financing.

However, the IMF’s support for sanctions seems to be conflicted with its fear of the drastic changes to the dollar this might bring. And at the center of those fears stands Bitcoin with its ability to take more power away from institutions like the IMF.

The IMF is worried about the role cryptocurrencies will play in the global market

With April on the way and the war in Ukraine threatening to enter its second month, the world is becoming increasingly worried about the consequences on the market. The International Monetary Fund, a global financial organization with 190 member states, is one of the most concerned institutions and has been continually warning about the impact prolonged conflict will have.

Their biggest worry, besides the effect on the outflow of goods from Ukraine, is that the war will cause a significant chunk of the globe to reconsider its dollar reserves.

When governed by free-market principles, the global financial system naturally turns to the U.S. dollar. Its stability, when combined with the scale of the U.S. economy and the U.S.’s dominance in the global oil trade, makes it a sound choice for a reserve currency.

However, when the majority of western economies confiscate reserves belonging to an independent central bank and cut off its access to the dollar economy, the currency becomes worthless as a reserve.

This is exactly what happened after the U.S. and the E.U. imposed crippling economic sanctions on Russia. Its dominance over gas and oil trade not just in Europe, but in the entire world as well, means that a huge number of countries face significant challenges when it comes to trading with Russia.

Gita Gopinath, IMF’s first deputy managing director, said that this will speed up the fragmentation of the global payment systems that have been going on for the past year or so. This is an important concern to the IMF, as it will effectively decrease the power international institutions like itself have over the global financial system and reduce the dollar’s dominance in global trade.

Gopinath explained that all currencies have two complementary purposes—storing value and facilitating payments. If countries begin changing which currencies they use for each purpose, it could lead to the creation of financial “pockets” that could have a detrimental effect on how the market functions.

And while she hasn’t explicitly named Bitcoin as the main culprit behind these tectonic changes to the market, she noted that the IMF was concerned about the increased use of cryptocurrencies they’ve seen.

The IMF identified a significant increase in the use of cryptocurrencies globally even before Russia’s invasion of Ukraine. The sharpest increase was seen in emerging markets with less financial inclusion and access to credit, where unregulated cryptocurrencies and other forms of digital assets began to play an important role in the economy. However, the war won’t do much to increase the use of cryptocurrencies in these markets—the IMF is more worried about having the developed world turn to digital assets like Bitcoin.

Nonetheless, she still believes that the sanctions on Russia were well justified. The effect they had on Russia’s financial markets and the ruble are already dramatic, but the IMF won’t have a clear picture of its full scope until April, when it will publish its World Economic Outlook report.

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