“Holding non-dollar reserves means reliance on counterparties to exchange them against a means of payment,” said Belaisch, whose firm oversees $391 billion. “One cannot pay with gold bullion, like one cannot pay at scale with bitcoins. At the start and the end of the chain are dollars.”

Yuan Challenge
That’s not stopping attempts to create challengers to the dollar, with China’s efforts to internationalize the yuan gaining greater attention.

At a Senate Banking Committee hearing this month, Fed Chair Jerome Powell said the war in Ukraine may accelerate Beijing’s efforts to develop alternatives to dollar-dominated international payments infrastructure. Goldman Sachs sees the yuan overtaking the yen and pound to become the world’s third-largest reserve currency by 2030, and Morgan Stanley sees the Chinese currency accounting for up to 10% of global forex assets in the coming decade.

The U.S. decision to weaponize the greenback is accelerating the shift to alternatives such as the yuan, said Benjamin Jones, director of macro research at Invesco Ltd., which oversees $1.5 trillion. While the Chinese currency may not overtake the dollar, it could become “the other reserve asset that will work side by side through time,” he said.

Others are unconvinced. Allowing a currency to trade freely is essential for global status and Beijing’s influence over the yuan is seen as an obstacle. China’s emerging-market status is also proving to be a hindrance, as the world’s second-largest economy trails the West in developed financial infrastructure.

The yuan’s share of payments over the Swift global system stands at just 3%, compared with 40% for the dollar and 37% for the euro.

Yuan share of SWIFT payments a fraction of dollar and euro
Even news that Saudi Arabia was considering pricing some sales of oil to China in yuan has failed to impress investors.

“China has the economic power to match the old hegemonic power of the U.S., however it has yet to build the infrastructure to become a financial powerhouse,” said Anders Faergemann, senior portfolio manager for global fixed income at PineBridge Investments. “The renminbi still feels like an afterthought in financial markets” for now, he said.

That’s a sentiment shared by Steven Barrow at Standard Bank in London.

“The problem in China’s case is that the very capital controls that help insulate the currency and the financial system from the vagaries of Fed policy and dollar volatility, are the same ones that prevent the renminbi becoming a serious rival to the dollar,” said Barrow, who is head of currency strategy.