The View | China’s national wealth remains vulnerable to Western financial sanctions, no matter what it does
- Sanctions on Moscow show that foreign reserves held by central banks are never truly ‘safe’, which is bound to make Beijing uncomfortable
- Yet when it comes to shifting away from Western currencies, the alternatives – gold, the yuan and foreign infrastructure investment – struggle to match up
While this financial war will undoubtedly hurt the Russian economy badly, it will also produce many long-lasting consequences for the global financial system.
The US dollar, the euro and many other Western currencies have long been considered global reserve currencies, used to store up the national wealth of other nations.
They are often regarded as safe havens – they are not only fully convertible and free floating, but their underlying assets also enjoy protection under the rule of law. As a result, over 95 per cent of global reserve assets are held in Western currencies, the US dollar in particular.
The financial sanctions following the Russian invasion of Ukraine have profoundly shaken many of these fundamental assumptions and principles. They have demonstrated that financial assets of Western adversaries should never be considered “safe” because they can be easily confiscated or turned into weapons of financial destruction.