In recent times, the U.S. dollar's status as the global reserve currency has been questioned, more so now that the reach of U.S. sanctions capabilities has been expanded to seize foreign government dollar assets. But despite the risk of having assets confiscated, in addition to recent efforts to diversify from the greenback, we continue to believe the U.S. dollar will remain the global reserve currency for the foreseeable future. Sanctions capabilities could also have a significant impact on China as official sector assets seem to have material exposure to the U.S. dollar and Western financial markets more broadly. U.S.-China geopolitical tensions, theoretically, should prompt China to make a concerted effort to move away from dollar and other advanced economy assets; however, China will face challenges in shifting away from the greenback.
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