Today, the world's reserve currency is USD. At the start of the 20th century, the reserve currency was the British Pound GBP.

Using U.S as an example to narrow the scope, what are the advantages and disadvantages Americans face with the USD being the reserve currency today?

  • $\begingroup$ For one thing, the US government essentially has no practical limit on how much debt it could issue. This has a direct positive impact on American living standard. US firms has ready access to foreign capital, simply by issuing USD denominated bonds. In contrast, firms domiciled in other countries suffer from home bias of investors from other countries, $\endgroup$ – Michael Jul 27 '18 at 14:12

I cannot believe no one answered this. Someone could have easily given a one phrase answer, its called Triffins Paradox.

The core of Triffin's Paradox is that the issuer of a reserve currency must serve two entirely different sets of users: the domestic economy, and the international economy, but you will not be able to make both sets of users happy.

So our Federal Reserve needs to print USD to meet global demand for US dollars, but this money printing can lead to the devaluation of the currency which hurts the people of the issuing country by losing purchasing power, but does help foreign governments to be able to make their debt payments in USDs and certainly the people of these other nations like to stockpile USD in case their local currency goes kaput, but to meet their needs, you then have Americans who have to pay $4 a gallon for gas and are seeing prices in other commodities go up.

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