4 min read.Updated: 31 May 2022, 12:44 AM ISTAjit Ranade
The resultant inflation erodes its actual value but governments benefit from reduced real debt burdens
Here is a stylized fact that never goes out of fashion. More than 85% of the value of all currency in circulation issued by the US is in $100 bills. And of those, eight out of ten bills circulate outside the US. This ‘fact’ is based on empirical estimates since exact data is almost impossible to capture. High-denomination notes of the US are more useful to foreigners transacting among themselves than to residents of America. A 1996 research paper published in the Federal Reserve Bulletin estimated that between $200 billion and $250 billion of US currency was abroad, out of $375 billion then in circulation outside banks. That was more than half of all currency. This has been steadily rising since then and has been verified by other researchers as well. Foreign demand for US currency has grown three times faster than domestic demand. This confirms the maxim, “In the almighty dollar we all trust." The changing geopolitical landscape of present times and tendency of central banks to diversify away from the US dollar might change some of the above statistics. Why foreigners continue to trust the dollar or why much of all global invoicing is still in US dollars is a topic for another column.
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