In July 1944, just weeks after the successful Allied invasion of Normandy, hundreds of delegates from around the world gathered in Bretton Woods, New Hampshire to determine the future of the global financial system.
The vision was simple: America would be the center of the universe, and every other nation would revolve around the US.
This arrangement ultimately led to the US dollar being the world’s dominant reserve currency which still remains today.
Whenever a Brazilian merchant pays a Korean supplier, that deal is negotiated and settled in US dollars.
Oil. Coffee. Steel. Aircraft. Countless commodities and products across the planet change hands in US dollars, so nearly every major commercial bank, central bank, multi-national corporation, and sovereign government must hold and be able to transact in US dollars.
This system provides a huge incentive for the rest of the world to hold trillions of dollars worth of US assets – typically deposits in the US banking system, or US government bonds.
It’s what makes US government debt the most popular ‘investment’ in the world, why US government bonds are considered extremely liquid ‘cash equivalents’.
This post was published at Sovereign Man on August 23, 2016.