The US dollar is still the unrivalled global reserve currency. But its share has dropped from 65% to 60% over the past five years, and it was over 70% in 2000.
Increased foreign policy weaponisation of the US dollar (ie US sanctions) does weaken its appeal as a reserve currency and, separately, the use of the Chinese renminbi will increase in global trade.
But the key long-term risk is the US Federal Reserve policy credibility and that too only if a better alternative presents itself. Both the euro (disunity in the EU and the lack of a coordinated fiscal policy) and renminbi (trust, rightly or wrongly, in Chinese rule of law) have their own institutional credibility challenges.
A long-term global shift to three segregated trading and financial blocs centred around the US, the EU and China obviously challenges this thesis and the 'nuclear' response of sanctions on Russia's central bank might have brought that shift closer.
Yet, Russia's efforts to shift its foreign reserves away from the US dollar have effectively failed, precisely because of US-EU unity on those sanctions. This is likely a message that other sovereigns, who might otherwise have planned their escape from the grip of the US dollar, will heed.
Adoption of non-central bank-backed cryptocurrencies by sovereigns seeking an alternative to the US dollar, assuming those cryptocurrencies have the capacity to absorb sovereign scale positions and assuming they offer a store of value in the first place, may simply trigger greater regulatory control of those cryptocurrencies.
Russia in ruins, 28 Feb 2022
US Dollar's reserve currency status is fading, but it's still dominant, May 2021