The world loves the U.S. dollar.
When, say, a buys supplies from China, he pays in U.S. dollars. When central banks , they favor dollars. And, all over the world, when things start to get crazy, people start putting $100 bills under the mattress.
In fact, as of 2011, roughly two-thirds of all $100 bills were held outside the U.S., according to an by Ruth Judson, an economist at the Fed.
In a on foreign demand for U.S. currency, Judson writes:
The U.S. currency people mostly want overseas is $100s, and the U.S. has been printing more and more $100s to satisfy that demand: In the past 20 years, the number of $100 bills in circulation has grown much, much faster than the number bills of smaller denominations.
As the graph below shows, the rise has been going on for decades. It isn't driven by the Fed's recent aggressive monetary policy, quantitative easing, which is mostly about the kind of money that only shows up on computers. When we say the Fed is "printing money, we're speaking metaphorically.
It's a good thing for the U.S. that the world wants our money. As Bruce Bartlett recently , when foreigners hold U.S. dollars, they are effectively giving the U.S. government an interest-free loan.
More broadly, foreign demand for U.S. currency (and U.S. Treasury bonds) in times of crisis is a sign that people in the rest of the world still see the U.S as the home of one of the safest, most stable economies on the planet.
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