Russia’s Invasion of Ukraine Accelerates Plans in Some Countries to Issue Digital Currencies


Christine Lagarde comments that digital currencies have implications for world currencies.

Photo: JOHN THYS/AFP / Getty Images

Russia’s invasion of Ukraine may have accelerated plans by some countries for their central banks to issue their own digital currencies, which may have implications for the attractiveness of the world’s main currencies.

The euro is the second most used currency after the dollar, according to the annual report on the international relevance of the euro from the European Central Bank (ECB). The international relevance of the euro has remained stable in 2021.

After the pandemic, the euro area has recorded one of the highest recoveries in its history, thanks also to broad budgetary and monetary policy support,” says ECB President Christine Lagarde in the report.

The euro area faces rising inflation

Now the euro zone faces a sharp rise in inflation on higher energy costs, bottlenecks and a normalization of demand as economies reopen.

But these developments have not resulted in “a significant change in the international importance of the euro,” according to Lagarde.

The share of euros in global foreign exchange reserves increased in 2021 by 0.5 percentage points, to 20.6%, and the euro’s share of international bond issuance rose by almost 3 percentage points to 24.6%.

Financial sanctions imposed on Russia

Russia’s invasion of Ukraine and financial sanctions imposed on Russia, such as freezing half of its reserves and excluding some banks from the Swift payment systemhave fueled speculation about its implications for the role of the dollar and euro globally.

Russia had already markedly reduced its dollar exposures after the annexation of Crimea and the sanctions applied in 2014, adds the ECB report.

Russia had also diversified its official foreign reserves and reduced 630 billion dollars of these reserves.

In the middle of 2021, gold outperformed the dollar in Russia’s foreign reserves reaching a share of 22% compared to 16% of the dollar. The renminbi’s 13% ratio is close to that of dollars, while euro-denominated assets reached 32%, according to ECB data.

Virtually all of Russia’s official holdings of US Treasury securities have been liquidated. Since the beginning of the current millennium, the dollar’s share of global foreign exchange reserves has fallen by more than 10 percentage points, to the benefit of other currencies including the renminbi.

But in other dimensions of international use of currencies, has remained stable, as in international trade bills, or has increased in the issuance of international bonds, add the ECB economists.

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