What does it mean being the world's reserve currency?
Why does that help us?
We're seen as a very stable currency, and T-Bills are seen as one of the safest investments in the entire world.
So when we buy imports from other countries, and we send money to foreign producers, those foreign producers can either buy American products or they can convert the currency into their local currency to buy local products.
If they buy American products or services, great, we get exports and the money comes back. Of course, that increases demand for American products (raising prices) and returns the money back into our economy (raising inflation). But it also increases employment because we're producing/providing something.
If they exchange dollars for local currency, their own government will retain that money in a sovereign wealth fund and/or buy American debt. If they're retaining it as cash assets, basically it's the equivalent of them stuffing it under a mattress--it hides any inflationary pressures of that money existing. Essentially if they buy our debt, it reduces the interest rates we need to charge to sell debt (making our debt cheaper) allowing us to provide government services at a lower societal cost to us.
And if the dollar is the world's reserve currency, it inextricably links other nations to our success. If they're holding our dollars or our debt, they don't want to see our economy fail. If we go hyperinflationary, their dollar reserves are worthless. If we have an issue and renege on our debt, their T-bills are worthless. So they win when we succeed.
That's why China wants to displace us as the world's reserve currency. It will tie other nations' economies to their success.
