Role of the U.S. Dollar in Foreign Markets

The U.S. Dollar has a preeminent role as a currency within the global1. This is because of the following factors:

  • Safety: dollar is baked by the U.S. military and economy while being maintained by the Fed.
  • Trade: global trade is often invoiced in dollars, even when neither party is american
  • Currency bloc: Many currencies peg to the dollar.
  • Lower cost: often loans are in dollars can be had for cheaper than other currencies
  • Liquidity: dollar market is deep and liquid compared to other currencies. This is why even less friendly nations may hold large amounts of US treasuries

References

1.
Wang, J. J. Central Banking 101. (Joseph, 2021).