So maybe China uses U.S. paper to buy oil from Saudi Arabia, which uses it to buy wheat from Ukraine, say, while the greenbacks used in daily U.S. transactions are devalued in accordance with the economy... I have no idea how you would make the division, though...
- Jake If you only spend 20 minutes of the rest of your life on economics, go spend them here.
Currencies make it a damn sight easier to trade but they aren't necessary for trade.
Even if, during a panic, a flight to the US$ is a flight to junk, US$ denominated assets are useful in such a situation.
i'd love to understand why, if you don't mind taking some time to explain... ~"When an inner situation is not made conscious, it appears outside as fate." Karl Jung~
Less flippantly, if most major market actors "know" that the US$ is "safe" then that is what they will buy during a panic.
Moreover, if everybody knows that everybody else "knows" that the US$ is "safe" then the US$ really will be safe during a panic, at least compared to everything else. That's an unstable sort of "safe," though, because any time a sufficiently serious actor decides to call the emperor on his nakedness, it stops being safe.
Oh, and then you have the fact that most transcontinental trade is denominated in US$, and it takes time to change denomination on all your trade contracts, so you want to have a war chest in order to avoid being squeezed between short-term contracts with your suppliers and long-term contracts with your customers, if the reference currency goes down (or vice versa if the reference currency goes up, but for the US$ that does not seem a serious prospect...).
