1 of 3
WorldGov
  • 780
  • 6
  • 27

How is the rest of the word making the US an interest free loan by holding US currency?

In the book "Macroeconomics" by Olivier Blanchard & David R. Johnson, the following appears:

"In yet other countries, people who have emigrated to the United States bring home U.S. dollar bills; or tourists pay some transactions in dollars, and the bills stay in the country. This is, for example, the case for Mexico or Thailand.

The fact that foreigners hold such a high proportion of the dollar bills in circulation has two main macroeconomic implications. First, the rest of the world, by being willing to hold U.S. currency, is making in effect an interest-free loan to the United States of $500 billion"

By holding US bills of 500 billion, the rest of the world is making the US an interest free loan of $500 billion --could you please explain me how?

WorldGov
  • 780
  • 6
  • 27