The author is a senior fellow at Harvard Kennedy School and chief economist at Kroll

Like Capistrano’s swallow, the dollar’s doomsayer is back. Sanctions against Russia over Russia’s war with Ukraine are based on denying Russia access to foreign currency, especially the U.S. dollar, which dominates global trade and investment. It must therefore be followed that countries wishing to avoid a similar fate will seek to diversify away from the dollar. There is some logic to this, but the reality is that the dollar cannot be avoided and it will remain the dominant currency in trades and transactions.

Central banks have been diversifying their reserves and this will continue to be the case. The dollar’s share of foreign exchange reserves fell from 71% in 2000 to 59% in the third quarter of 2021. But that’s still about three times as much as the second-placed euro. A quarter of ex-dollar reserves flowed into the renminbi.this The rest goes to smaller economies Such as Australia, Canada, Singapore, South Korea and Sweden.

With the exception of China, all of these economies have joined the sanctions against Russia. It is difficult to imagine a future geopolitical conflict involving serious divisions among these allies. Given the size of their economies, switching reserves into Canadian dollars, South Korean won or krona is unlikely to provide a way to circumvent financial sanctions. In any event, in an emergency, all of these currencies are ultimately protected by dollar swap lines.

China has yet to formally join the sanctions, leading some to believe the yuan could be a way to circumvent the weaponization of U.S. finance. But just because China didn’t impose sanctions in this case doesn’t mean it wouldn’t in other cases — Ask Lithuania. While the renminbi accounts for less than 3% of global foreign exchange reserves, some see the Russian invasion as an opportunity to increase this reserve.Credit Suisse’s Financial Plumbing Specialist Zoltan Poza It is suggested that China can buy cheap Russian commodities and deploy them alongside Chinese commodities to create a global financial system centered on the commodity-backed yuan.

Even if China wants to do so, there are significant obstacles.Some Chinese banks have Russian Commodity Financing Restricted, worried about secondary sanctions. It is difficult for China and Russia to trade only in rubles and yuan. RMB is not convertible overseas. What will China do with rubles? before the war, the vast majority Russian exports to China are denominated in dollars and euros.

Finally, how will China find the funds to buy large quantities of Russian goods? It could sell its holdings of U.S. Treasuries, but that would erode the value of China’s remaining U.S. debt. Alternatively, it could print money, but that would trigger inflation at a time when the Communist Party is trying to stabilize economic growth.

Beyond that, China has little interest in giving up micromanaging its economy by pegging its currency to commodities beyond its control. The gold standard failed for a reason. Pegging a currency to a commodity is, on the one hand, supporting the central bank behind the scenes in terms of supporting growth or fighting inflation.

Fully convertible and open capital accounts are also required for the renminbi as a global reserve currency. China is unlikely to relinquish control of the financial system and capital account as it tries to balance long-term goals such as financial stability, shared prosperity and climate change with short-term economic growth.

Instead, China appears to have an enduring commitment to the dollar, selling dollar-denominated sovereign bonds five consecutive yearsTo this end, the government is creating an offshore dollar bond market of various maturities to make it easier for Chinese companies to borrow dollars.

If there is no fiat currency or government-issued currency that can usurp the dollar, what about digital currencies?Cryptocurrencies as a whole are worth approximately 2 tons Today – who knows how many tomorrow. This is just over 15% of global foreign exchange reserves. Digital wallets are bulky and still can’t be used to buy groceries or pay taxes, let alone a tanker full of oil. Meanwhile, stablecoins can actually boost the dollar. According to Bloomberg, there are more than a dozen stablecoins with market caps pegged to the U.S. dollar. Their growth will only increase the demand for dollars.

as bossa says, “Empires rise and fall. Currencies fall and rise. Wars have winners and losers.” That’s true. In a multipolar world, we may end up talking about alternatives to the dollar. But we will not replace it.