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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

The writer is a senior associate at the Center for Strategic and International Studies and author of ‘King Dollar: The Past and Future of the World’s Dominant Currency’

Warnings are resounding anew about risks to the global dominance of the US dollar. The cause for this alarm is no great mystery. In his second term, President Donald Trump has taken a wrecking ball to institutions and norms that undergird American economic and financial strength — most recently his intensified assault on Federal Reserve independence and capricious tariff threats against allies.

Dollar supremacy is at its gravest juncture, the alarmists argue. Sinking confidence in US governance will lead to an unloading of dollar-denominated assets, in particular US Treasury bills and bonds. A new currency regime could eventually emerge.

Plausible as such scenarios may seem, they are misconceived. The dollar’s status rests on firmer foundations than the old adage that “there is no alternative”, which refers to the shortcomings of the greenback’s two main rivals, the euro and the Chinese renminbi. The US currency is not only entrenched in the global financial system; the depth of that entrenchment is greater than is commonly realised.

Anyone casually familiar with the dollar’s primacy is aware that it plays an outsize role in international transactions. Well over half (56 per cent at last count) of the foreign currency reserves held by the world’s central banks consist of US Treasuries and other dollar assets. The dollar comprises a similar share of cross-border trade, international bank loans and bond issuance.

Moreover, in foreign exchange markets, dollars are used in nearly 90 per cent of trades. Someone wishing to exchange, say, Malaysian ringgit for Chilean pesos will typically sell ringgit for dollars then exchange the dollars for pesos, because direct trading between the two non-US currencies is negligible.

Yet these metrics of dollar dominance, impressive as they are, only scratch the surface. For more insight into dollar durability consider the workings of the vast market for foreign exchange swaps.

Participants in this market are international banks, securities firms, multinational corporations, insurance companies and pension funds — the biggest private actors in the financial system. Their globe-girdling operations require the movement of immense amounts of money across borders on a constant basis. They use the market to hedge themselves against currency fluctuations by trading a pair of currencies (say, the dollar and Japanese yen) twice, first at the current exchange rate and then swapping back later at an agreed rate. Japanese life insurance companies, for example, invest their portfolios heavily in US Treasuries and other dollar securities. Because they have obligations in yen to their policyholders, they need to protect themselves against movements in the yen-dollar rate and they use swaps to do so.

These sorts of transactions occur at such a huge scale that, according to data from the Bank for International Settlements, the amount of outstanding swaps currently stands above $100tn. Some 90 per cent involve the dollar, reflecting the myriad ways it is used. Unwinding all of this activity and subbing in another currency would be staggeringly costly and difficult.

This should dispel claims that the dollar is in danger of losing its place atop the currency hierarchy. No matter how fed up the world gets with the US, efforts to de-dollarise will encounter major obstacles.

There is an alternative, weaker version of dollar doomsaying that envisions it remaining the world’s top currency but by a significantly reduced margin. This would diminish the most important advantage Washington gets from dollar dominance — its ability to use the greenback as a sanctions weapon.

Wrong again. Sanctions work because banks all over the world need to be able to transact in dollars. The US government can threaten to sever any bank, anywhere in the world, from the dollar-based system if it handles business with a sanctions target. As long as the dollar remains the most-used currency in international trade and finance the sanctions threat will remain potent.

Distress over the recklessness of Trump’s policies is warranted. Treasuries could be dumped en masse by investors worldwide fearful of ever-increasing federal borrowing and a pliant Fed. Such a crisis, if it happens, will be all the worse because of the dollar’s centrality. But that is not the same as the dollar losing its centrality.

No good will come from indulging in fantasies that Washington’s financial weapon may soon self-destruct. The dollar is going to remain the world’s dominant currency.