If Russian Currency Reserves Aren’t Money, the World Is in for a Shock

I've seen a lot of speculation like this article, something to the effect of "these sanctions will weaken the international power of the U.S. dollar by forcing more countries to consider non-dollar monetary systems."

It's a reasonable concern. But I think it's important to consider the reasons why that might not happen.

Alan Cole from Full Stack Economics provides a couple good general thoughts on sanctions here [1], but I'll highlight my favorite:

> The fact is that the US has most of the world’s largest economies on its side. China is the world’s second largest economy at nominal exchange rates, and Russia is about eleventh. The top ten also include Japan, Germany, the UK, France, Italy, Canada, and South Korea, all of which are actively participating in the anti-Russia sanctions.

> Financial commentators love talking about the dollar losing its status as reserve currency, because it gives them a permission structure to wildly speculate. But there is little constituency for a Russia-friendly financial system among the world’s largest economies. And for countries seeking a relatively neutral and rules-based system free of geopolitics, China isn’t a very good alternative anyway. (It has a variety of idiosyncratic foreign policy demands of its own, and regularly uses economic might to help reinforce them.)

The fact is that a huge majority of the world's GDP is actively in support of of these sanctions. This is not some arbitrary, capricious act – Russia is engaged in the unprovoked invasion of a sovereign state. If you want to look at things from a purely economic standpoint, there is very little that is more destructive to global economic prosperity than large-scale, boots-on-the-ground war.

[1] https://fullstackeconomics.com/five-reasons-the-sanctions-ar...

It's also worth pointing out that Russia's currency reserve lock is due to war. Only Iran and North Korea are in the same box for qualitatively the same reasons. China isn't Russia reckless. And as others have pointed out in comments the exempted economies are relatively small. This argument gives emphasis then to the why so that, hopefully, China would not separate, for example because it would never be in the Russia box.

Russian currency will eventually bounce back some as it trades into other asian currencies. Not to mention the currency is still backed effectively by natural resources. But nobody wants to rush to those exchanges because that currency is going to be wrecked. BUT there will be a firesale. Russian folks are going to be working for cheap and be dumping those resources to maintain.