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> A big part of the reason that the US has been able to run a trade deficit and still maintain a strong currency is because there is demand for the currency, it

> A big part of the reason that the US has been able to run a trade deficit and still maintain a strong currency is because there is demand for the currency, itself No. It's a measure of much foreigners trust the Us economy and it's political and judicial system. What drives the demand for the dollar is the will of people to invest money in American securities and on the American capital market. Chinese investors invest on the Chinese market in Yuans. Rich Chinese investors invest on the US market with US dollars.

mpweiher 3y ago
>> because there is demand for the currency, itself > No. Actually, what the OP wrote is true: the use of the dollar as both a reserve currency and as a trading currency between non-US countries means there is a demand for the currency itself without actually wanting to buy goods and services from the US or invest there. What you describe, investing in the US, also happens. But it isn't the only thing that happens, the demand for dollars without such investment also happens, and as far as I know is the larger part. If it didn't happen the de-dollarization that the fine article talks about couldn't be happening.
- 908B64B197 3y ago
  > as a trading currency between non-US countries If country A trades with country B, it'll either get paid or pay with country B's currency. Country A might not be interested in country B's currency, so it can use the US dollar and a US institution as a proxy between the two. But that doesn't do anything to affect the value of the three currencies. It's simply a matter of convenience (these US dollars get exchanged back into currency A or B seconds after being purchased). What matters is how confident people are of their respective government, laws and institutions compared to the US. Would they prefer to hold assets in the United States or their own country, or country A or B.
  - mpweiher 3y ago
    Once again: no, they are not (just) holding US assets, they are also holding currency in order to trade. And no, your idea that they change money into dollars, execute the trade and then change right back is an interesting theory, but not actually what happens.
  - benj111 3y ago
    If I have chickens to trade and you have wheat and the only thing we can agree to trade in is leaves, do leaves not gain value in this arrangement?

mpweiher 3y ago

>> because there is demand for the currency, itself > No. Actually, what the OP wrote is true: the use of the dollar as both a reserve currency and as a trading currency between non-US countries means there is a demand for the currency itself without actually wanting to buy goods and services from the US or invest there. What you describe, investing in the US, also happens. But it isn't the only thing that happens, the demand for dollars without such investment also happens, and as far as I know is the larger part. If it didn't happen the de-dollarization that the fine article talks about couldn't be happening.

908B64B197 3y ago
> as a trading currency between non-US countries If country A trades with country B, it'll either get paid or pay with country B's currency. Country A might not be interested in country B's currency, so it can use the US dollar and a US institution as a proxy between the two. But that doesn't do anything to affect the value of the three currencies. It's simply a matter of convenience (these US dollars get exchanged back into currency A or B seconds after being purchased). What matters is how confident people are of their respective government, laws and institutions compared to the US. Would they prefer to hold assets in the United States or their own country, or country A or B.
- mpweiher 3y ago
  Once again: no, they are not (just) holding US assets, they are also holding currency in order to trade. And no, your idea that they change money into dollars, execute the trade and then change right back is an interesting theory, but not actually what happens.
- benj111 3y ago
  If I have chickens to trade and you have wheat and the only thing we can agree to trade in is leaves, do leaves not gain value in this arrangement?