US depends on the global demand for the dollar. The more global demand the dollar has, the higher the deficits the US can run without having its currency weaken.
It gives the US the ability to print dollars and buy its own bonds to drive down interest rates while still having low inflation. Inflation is exported to the rest of the world.
If countries start to denominate its exports in their own currencies instead of the dollar, that will cause a massive shortage of demand for the dollar and force the Federal Reserve to raise interest rates to reduce the supply of dollars to fight inflation in the US.
World exports amount to $18 trillion in 2013.
As countries use the dollar as payment for its exports, dollars accumulate from trade surpluses and becomes a large part of foreign exchange reserves.
This is what is usually meant by reserve currency.
The US is already fucked. Fact is US economy is white washed, it does not have 17 trln GDP, it uses same bullshit corruption into its GDP like UK does with Drugs and Prostitution and counts it into GDP not even knowing what else they count to their GDP. Chinas GDP is higher than any other country, also US dies immidiatley when petrodollar is rejected in resourceful countries, that means hyperinflation and then you end up buying a loaf of bread with wheelbarrows like Germany did at the big recession. All the floating dollars are then calculated on only 310 mln people instead of on over 4 bln people.
US economic size is overinflated due to its currency having artificial demand as its a reserve currency.
Normally the value of a currency depends on the current account balance. If you run trade deficits, your currency weakens to bring your trade into balance.
As your currency weakens, the size of your economy shrinks.
But since the dollar has such massive demand globally, the US can run massive current account deficits without having to worry about the dollar weakening vs other currencies.
The exports of other countries essentially become American exports since those countries use dollars as payment for its exports. This is why the dollar has such demand and America can go into big twin deficits with low interest rates, low inflation and strong currency.
Dollar is the foundation which the American empire is built. Without it, the American empire will shrivel up like a dead monkey's pen*s.
