The conflict between Russia and Ukraine has lasted for two whole years as of February 24, 2024. As the most serious regional war that has broken out on European soil after the Cold War, its negative effects continue to spread.

One of the most obvious outcomes is the acceleration of economic decoupling, according to a new report by the Chongyang Institute for Financial Studies of Renmin University released this week.

The U.S. has strengthened the weaponization of economic and financial sanctions, which has increased the motivation for de-dollarization among global emerging markets, it said.

So far, at least about 70 countries have begun de-dollarization efforts, which include accelerating the construction of cross-border payment systems, exploring regional currency alliances, settling cross-border trade in local currencies, and developing central bank digital currencies, said the report. 

It noted that the Russia-Ukraine conflict has not yet had a fundamental impact on the international monetary system. The share of U.S. dollar reserves remained stable at nearly 60 percent from 2021 to 2023, proving that the role of the U.S. dollar as a major international currency has remained stable.

However, the share of the euro and some other currencies has declined. The global share of euro reserves has dropped by about one percentage point, mainly replaced by small mature economies and emerging market currencies, the report said.

The turmoil in the international financial market due to the conflict has triggered a surge in energy and food prices. The consumer price index in the U.S. in June 2022 was as high as 9.1 percent, a 40-year high, forcing the country to sharply raise interest rates and this became one of the triggers of the European and American banking crisis in 2023, according to the report.

Meanwhile, global investors are taking geopolitical risks seriously and this has led to a significant increase in risk aversion in global financial markets. In 2022, all three major U.S. stock indexes suffered their largest declines for the entire year since the 2008 global financial crisis, said the report.

At the same time, high U.S. dollar interest rates have attracted global capital back to the country, increasing capital outflow pressure on emerging economies and exacerbating the debt crisis of low- and middle-income developing countries, it said.

(Cover via CFP)