- The US dollar faces no serious threats from the yuan or cryptocurrencies, Kroll's chief economist Megan Greene said.
- "The reality is the dollar can't be avoided and it will remain the dominant currency in trading and transactions," she wrote in an FT op-ed.
- The Harvard fellow noted the yuan isn't convertible outside China, and digital wallets are complex to use.
"King Dollar" is at no risk of losing dominance in the global markets because of its influence in trading, according to Kroll Institute's chief economist Megan Greene.
In a Financial Times op-ed on Tuesday, Greene said the US dollar, the most widely-used currency in global financial markets, trade, and central bank reserves, won't lose its status, even though its dominance has come into question because of sanctions leveled against Russia.
Many of the Western sanctions imposed against Russia hold power because they are based on access to the US dollar, but some warn that weaponizing the greenback like this could erode its dominance and make smaller currencies like the yuan gain a bigger role.
"There is a certain logic to that, but the reality is the dollar can't be avoided and it will remain the dominant currency in trading and transactions," Greene, a senior fellow at Harvard Kennedy School, who is known for her early prediction of the eurozone crisis in 2008, wrote.
Central banks will continue to diversify their reserves, but this doesn't pose a threat to the reserve currency, she said. She noted the dollar's share in foreign exchange reserves, which has fallen 12% in the last two decades, is roughly three times that of the euro, in second place.
While some dollar share has flowed into the renminbi, the rest has gone into the currencies of smaller economies like Australia, Canada, Singapore, South Korea, and Sweden, Greene said. Among those names, China is the only nation that hasn't imposed sanctions on Russia.
"It is difficult to imagine future geopolitical conflicts involving a serious split among these allies," she wrote. "Given the size of their economies, shifting reserves into the loonie, won or krona is unlikely to offer a way around financial sanctions. Anyway, in an emergency, all these currencies are ultimately protected by US dollar swap lines."
Credit Suisse strategist Zoltan Pozsar said in March that the Ukraine war, which has led to a global commodities crisis, will weaken the Eurodollar system and pave the way for a much stronger renminbi.
But there are major obstacles to that idea, according to Greene.
Two of China's largest state-owned banks have restricted financing for purchases of Russian commodities, especially in dollars, in fear of violating sanctions.
"It would be difficult for China and Russia to transact just in roubles and renminbi," Greene said. "The Chinese currency isn't convertible outside the country. And what would China do with roubles?"
For the renminbi to become a global reserve currency, it would require full convertibility and an open capital account. Further, it would be a big task for China to find the money to purchase hordes of Russian commodities without sacrificing the value of its remaining US debt, she said.
"Alternatively, it could print the money, but this would generate inflation at a time when the Communist party is trying to stabilise economic growth," Greene added.
China also appears committed to create an offshore dollar bond market to make it easy for Chinese companies to borrow in dollars, the economist said.
Cryptocurrencies too aren't a logical replacement to the US dollar.
Using digital wallets is "cumbersome and still can't be used to buy groceries or pay taxes, let alone a tanker full of oil," she said. "Stablecoins, meanwhile, could actually bolster King Dollar."