[CraigJPerry]

I, a foreign entity, have sold something to an american and now have 10 dollars and zero treasuries.

I purchase a treasury. I have zero product, zero dollars and one treasury.

At some point in future i have zero product, maybe 12 dollars and zero treasuries. Presumably i now either repeat the cycle or use my winnings to spend on us output.

GP’s version checks out, your assertion about dollars staying abroad doesnt track? What am i misunderstanding - How did these dollars get abroad, how did they repatriate to buy treasuries, how did a treasury become a reserve, how did the dollars still exist abroad after being exchanged for treasuries?

[carbonguy]

> I, a foreign entity, have sold something to an american and now have 10 dollars and zero treasuries.

Or you sold something to a non-American entity in a dollar-based market, eg. oil. The dollars do come from America to begin with, but once they get "out there" they work as a medium of exchange for whoever wants to use them for that purpose.

[direwolf20]

Which is why the US historically bombed any country that sold oil for other currencies, but now china is negotiating the petroyuan and it's working.

[DangitBobby]

> Presumably i now either repeat the cycle or use my winnings to spend on us output.

What you are missing is that these dollars can be circulated indefinitely in the global economy without ever repatriating, because they are valuable and useful as actual currency. They may never come back to the US.

[AdamN]

They also don't have to circulate - they can be used as collateral for debts.

[ezconnect]

Because the world trades using US dollars. Country A needs to buy something from Country B. Country A needs to buy/get dollars to buy stuff from Country B. Country B will not accept anything but dollars or gold for its products because it also needs to buy other stuff like oil in dollars from other countries.

[direwolf20]

It could accept any credible currency if it was connected enough. Euros, yuan, rupees and yen aren't going anywhere for at least 20 years. Each one is a separate system and countries mostly connect to just one, which is USD, but that doesn't have to be the case forever.

India won't accept euros because it's not part of the ECB, not because it doesn't believe in their value. But India has accounts at US banks in dollars.

Banks do this, not countries. Most banks in the world have accounts at US banks to accept dollars with, they don't have accounts at eurozone banks to accept euros with, or Japanese banks to accept yen with. It doesn't matter in everyday practice because it's easy to exchange euros in eurozone banks or yen in yenzone banks with dollars in dollarzone banks. There's plenty of infrastructure for that. It matters in long–term economic trajectories because all those banks are holding US dollars and the US exports inflation to them and they're not holding euros and then ECB can't.

[raincole]

> Presumably i now either repeat the cycle

Most of the time this is exactly (foreign or not) institutions do.

Think about it, if the 10-dollar treasury is due and you got your money back, the US debt will go down by 10 dollars. However, in our reality, the total amount of US debt almost never goes down.

Of course some interest will be used in other ways, like spending on the US goods or staying as cash to provide liquidity. But at the end of the day, the most popular way to spend the money got from due treasuries is... to buy more treasuries.