It doesn't matter what you see as true. "They" (other countries/governments) MUST pay in USD for those things priced and subsequently purchased in USD. This includes many NECESSITIES such as certain food, energy, and industrial commodities. Reserve currency status FORCES the reserve currency to be held explicitly by nations and governments. No soup for you.
seriously we need to get down to facts here. What where and when are you saying currency can't be crossed and why? When is against the law or at least the the currency reserve rules to set up a contract which requires payment in Euros or CAD or AD. When would it be against the law to have a bank cross the currency as the wire was being made? perhaps there is a big reserve currency international law I do not know about. But its odd because I think I would have learned about when I was studying international law in school.
Why all the riggamorro with having paper units in this modern digital era? Wouldn't a new worldwide paperless currency using embedded digital chips so they could not be lost or stolen make a whole lot of sense?? No more counterfeit, no more storage, no more brinks trucks, no more speculation .... Revelation Rennick out
Perhaps you have heard the term "counter party risk". If you are purchasing let's say 1M barrels of oil, at specified price expressed in USD, YOU, not the seller assume the risk. You have either bonded, escrowed, or have acceptable, unencumbered proof of the needed USD funds required to execute the transaction, or you have made other (usually OTC-type/like) transaction arrangements directly with the seller. In these type transactions ANY DAMN THING can be used as currency, if agreed. Of course, you as buyer assume the counter party risk associated with delivery of 1M barrels of oil paid for with river-rocks and salt as was agreed upon.
I have not negotiated for oil, but I have other contracts... there are all sorts of risk that are negotiated via contract and bills of lading. Who bears the insurance risk and when? When does the customer assume freight loss or damage and theft risk. When does the money get paid from where to where. Where is the delivery. You need a bank. You use a big bank and they cross the money. Are oil deals different? I am asking I really do not understand this reserve currency argument? so I have he same question... I understand that it is argued on the internet that the U.S. made a deal with Saudi Arabia that oil be only priced in dollars. But I keep saying so what? Why does it matter? I just want one person to tell me a benefit of being a reserve currency....
If they wanted to they could agree on a unicurrency which would act as basket for participating countries. No more currency wars.
Reserve currency status is a byproduct of being a AAA rated country, first, that, secondly, is the dominant economic power. You get to borrow money at lower interest rates, and that's because your bonds are considered risk-free. You can basically issue as many as you like as long as you don't go completely crazy, and they will be bought. Also, you get to issue them in your own currency. This isn't exclusive to having the reserve currency though. As Mundell noted, as increasing amounts of a currency are used as a reserve, your inflation rate stays lower than it would otherwise be because the currency is valued more highly than would otherwise be the case, so the cost of imported goods is lower than it is for countries with weak currencies. There are some things that are assigned to having the reserve currency that are actually the result of having the dominant economy: oil being priced in dollars is only important because the US was the dominant consumer of oil, so it set the price and others had to take that price. China is now the largest consumer of a lot of commodities, and that means they are now setting the price for these commodities, regardless of the fact the yuan is not a reserve currency. The cost to having a reserve currency is the flip side of the above: since others will take as many bonds as you can issue, you can wind up with interest rates that are too low to provide the proper macroeconomic feedback into your economy, resulting in asset bubbles like the recently demised one in real estate. Also, of course, it results in a currency that is chronically overvalued because demand for assets backed by it - government bonds - is higher than it would otherwise be because its used as a reserve asset by other countries, which results in chronic current account deficits.