Gita Gopinath, IMF's First Deputy Managing Director, said that financial sanctions imposed on Russia threaten to gradually dilute the dominance of the U.S. dollar and could result in a more fragmented international monetary system.

Russia has been hit with a plethora of sanctions from the United States and its allies for its late-February invasion of Ukraine. Russia has called the invasion a 'special operation' to disarm its neighbour.

Gopinath said, "The dollar would remain the major global currency even in that landscape but fragmentation at a smaller level is certainly quite possible." She added that some countries are already renegotiating the currency in which they get paid for trade. The war will also spur the adoption of digital finance, from cryptocurrencies to stablecoins and central bank digital currencies.

As per her, the greater use of other currencies in global trade would lead to further diversification of the reserve assets held by national central banks. She had earlier said the sanctions against Russia do not foreshadow the demise of the dollar as the reserve currency and that the war in Ukraine will slow global economic growth but will not cause a global recession.