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[–] GOMAD_OR_GFYAD ago  (edited ago)

I didn't expect this to turn into a monetary policy discussion, but the USD as a reserve currency doesn't really affect this topic. You're correct that the US$ is often used as the medium of exchange when people are using other currencies to purchase goods and services. What that means is that it will increase the baseline demand for US$ to higher than what it would be otherwise. However, it does not mean that we are immune to the effects that would come from increasing the money supply - it would still increase inflation and weaken the US$ in foreign exchange markets.

The idea of printing money to pay for infrastructure investment is something that was done historically, but that is not the mechanism that the fed uses to change the monetary supply. Money put into the economy through infrastructure investment can not be taken back out of the economy when necessary, which is why the fed changes monetary policy by buying and selling treasuries to banks.

[–] [deleted] ago 

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[–] GOMAD_OR_GFYAD ago  (edited ago)

Nobody is forcing anyone to do anything. The rest of the world uses USD to trade oil and other commodities because the USD is the most liquid currency on the planet and has historically been the safest and most stable currency to hold as cash, mostly because it has been the largest, safest, and most stable economy and financial markets. America also doesn't regulate capital flows in the way that some foreign countries do.

If Saudi Aramco sells to oil to an Australian refiner and accepts payment in AUD, what are they going to do with that AUD? They could use it to buy goods and services from sellers who will accept payment in the form of AUD or invest it in stocks and bonds that are denominated in AUD, but over time they're going to run out of things to buy and invest in. Then what? America's economy is over 15x as big so way more options. If they want to convert their AUD to USD at that point then it will cost them money to exchange one currency for the other. They're better off just starting in USD and then if they want to buy something from a company that will not accept USD they can pay that exchange fee only on whatever the amount is that they must convert into AUD.

America's economy is only 6x as big as India's, but India is less stable politically and economically. It also has far less diverse exports available to foreigners than America does. India also has restricted the flow of money for capital investments into and out of their country as an attempt to stabilize their markets. If Saudi Aramco is going to suddenly have 450 million USD worth of Indian Rupiah's (Rp) after the sale, these capital controls (this is a completely made up example) may say that if they want to put it into treasuries they can not buy more than 50 million USD worth per day, they are not allowed to sell any of it until they've owned it for 180 days, and once they've passed that mark they are not allowed to sell more than 5 million USD worth per day. Meanwhile, if that money was actually denominated in USD they could take that $450 million and stick it all into treasuries immediately and earn one or two million in interest until they need the money for something else, then they can wait until the last minute to liquidate their treasuries and cash out all at once to maximize the amount of interest they'd be able to earn on it.

I mean, it's all more complicated than that but those are some examples of why the USD has not been unseated by Gold, Euro, Yen, Ruble, Pound, Yuan, or anything else. Some of those other options may be competitive with the USD in on respect or another, but nothing is as good across the board.