As Fortress Russia crumbles, the global economy faces a new world order

As Russia’s economy teeters on the brink of collapse, its fallout could prove even more consequential than perhaps initially thought.  

The freezing of the Russian Central Bank’s assets and the weaponisation of the US dollar has not only caused Vladimir Putin’s “Fortress Russia” plan to crumble, but also stoked worries that the world economy has crossed the Rubicon.

Some in global finance, including the International Monetary Fund, fear the onslaught of Western sanctions means the global economy is splitting into camps in the wake of Russia’s invasion, one led by the US and the other by China, with disastrous consequences.

They believe the world economy is fracturing into two parts. Russia will be forced to move away from Western finance, tech and the US dollar, perhaps into Chinese President Xi Jinping’s arms, while others could follow to avoid being next.

“The war also increases the risk of a more permanent fragmentation of the world economy into geopolitical blocks with distinct technology standards, cross-border payment systems, and reserve currencies,” IMF chief economist Pierre-Olivier Gourinchas said last week as he delivered a grim set of global economic forecasts in the wake of the invasion of Ukraine.

He said this “tectonic shift” where trade and standards separate into blocks would be a “disaster” for the global economy. It would be “a major challenge to the rules-based framework that has governed international and economic relations for the last 75 years”, Gourinchas added.