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Does it make sense to say that, in a way, US Treasury bonds are more liquid than USD? I think this because the value of all the bonds in circulation is way greater than all the dollars in circulation, so the largest purchase that bonds could facilitate is much greater than the largest purchase USD could facilitate. For example if you wanted to buy $5 trillion worth of oil, there's not enough USD in existence to pay the bill, but there is enough bonds to do the deal.

edit: To clarify, I'm not talking about physical cash I'm talking about M1. I'm also only talking about liquidity for very large transactions with the idea that, for example, $1 is more liquid than $1 trillion in the sense that you can "sell" it (for oil or other goods) at less of a discount. The key idea/question is that liquidity of an asset (USD) is relative to the quantity you want to sell. Even if the oil purchase, in the example I gave, was less than the value of all USD in circulation, buying then selling huge amounts of it would come at a cost that's greater than if treasury bonds were used. And buying or selling huge amounts would also effect it's intrinsic value just like any financial asset.

Jonah
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Liquidity is about how easily something can be converted to cash not how much of it is circulating. So dollars (or other plausible currencies) are by definition the most liquid possible asset.

There are plenty of relatively illiquid assets whose total value exceeds the amount of physical dollars in circulation. The total value of all real estate in the United States, for example, dwarfs the number of dollars in circulation. That doesn't make real estate more liquid than dollars.

Justin Cave
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This is complementary to @Justin Cave answer to explain why US Treasury bonds are bought by many countries.

Cash is a convenient medium of trade for the local economy, but it is a bad trade medium for a large amount of international trade.

Just take the $100 billions value of oil example, if an oil export country takes the $100 billions US dollar home, it will generate demand pressure on the country currency and cause dollars to plunge. This will create 2 effects:

  1. Make the dollar cheap and the country will lose money on exchange rates.
  2. Cause the local currency to shoot up and create inflation. This will create a domino effect on local productions and bank interest rates.

To shield the country from the negative effect, one way is to buy a lot of US goods to balanced the trade. Another way is much simpler, just buying US treasury bonds and slowly trade it out (e.g. pay for the imported product). Since US is the biggest consumption country in the world, there will be no short of demands on US treasury bond trades.

Taking the US dollar and putting into any USA bank account is unrealistic. First, FDIC only insured up to $250,000, and transaction via bank wired for such amount is insane.

Just go check out the biggest US treasury bond holders, you will notice most of them have a huge trade surplus against USA.

mootmoot
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