Foreigners play an outsized role in the U.S. dollar system. About 60% of the world’s foreign exchange reserves are held in U.S. dollars, about 80% of all cross-border trade (outside of Europe) is invoiced in U.S. dollars, about 60% of international and foreign currency banking assets and liabilities are denominated in U.S. dollars, and about 70% of foreign currency debts issued by companies is denominated in U.S. dollars. For perspective, the U.S. economy is worth only about 25% of the world economy. And at least 40% of the physical U.S. dollars in circulation by value, worth more than $1 trillion, are held outside the United States!
Put it together, and the choices of people in the rest of the world therefore have large effects on domestic U.S. financial conditions. That can benefit Americans under certain circumstances, but it also creates meaningful constraints that have to be…
