Oh, dear. I’m starting to notice a shift in the scare talk. Cries that we’re about to turn into Greece, Greece I tell you are getting a bit fainter, maybe because of what I’ve been writing. But taking their place are dire warnings that we’re endangering the dollar’s role as a reserve currency.

Urk. People who talk like this generally have no idea what they mean — that is, they have no idea what the dollar’s role really is, what might endanger that role, and why it matters (to the extent it does). In fact, I’d suggest that there’s almost a Godwin-like principle here, which is that any extended economic discussion ends up with people invoking the need to defend the dollar’s international role — which is in effect a concession that they’ve lost the rest of the argument.

So, what is the dollar’s international role? It is, in a sense, to other currencies the way money is to other assets, filling to some extent the classic three functions of medium of exchange, unit of account, and store of value. In talking about these roles you also want to distinguish between the role in private decisions and the role in official actions. So you get a matrix that looks like this:

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The dollar is, first of all, a vehicle currency (mainly in the interbank market) thanks to thick markets: if a bank wants to convert bolivars into zlotys, it will generally trade the bolivars for dollars, then the dollars for zlotys, rather than try to find someone wanting to make the reverse trade. It is the currency many though by no means all international transactions are invoiced in. And to some extent people hold dollars or dollar-denominated assets because the dollar is more liquid than other currencies.

Meanwhile, governments trying to prop their currencies up or hold them down often do so with trades against the dollar, even if they’re trying to affect some other exchange rate, again because of those thick markets. Some countries peg to the dollar, although not too many these days. And governments hold dollar-denominated reserves.

To some extent the dollar’s role here reflects self-sustaining increasing returns: people use dollars because the markets are thicker and more liquid, and the markets are thicker and more liquid because people use dollars. This circular nature of the position also arguably means that historical accident matters: the pound remained the world’s leading currency long after Britain had ceased to be the world’s leading economy (although Britain did do a lot of trade, so the case isn’t actually all that clear.) The same factor suggests that a temporary period of inflation or instability could dethrone the dollar more or less permanently.

But is this something we should worry about? First of all, it’s hard to see who really poses a threat to the dollar. You need free movement of capital, which rules out China for now, and deep financial markets; the euro used to look like a viable alternative, but its bond markets are now fragmented along national lines, which makes it much less plausible.

And even if the dollar loses some of its dominance, why should we get bent out of shape? There is no evidence that America is able to borrow dramatically more cheaply because of the dollar’s role (and anyway more foreign borrowing is not necessarily a good thing.) You often hear claims that we’ve only been able to run persistent trade deficits because of the special role of the dollar; this is just false, since other countries like Britain and Australia have been able to do the same thing.

What is true is that the large holdings of US currency outside the United States — largely in the form of $100 bills, held for obvious reasons — represent, in effect, a roughly $500 billion zero-interest loan to America. That’s nice, but even in normal times it’s only worth around $20 billion a year, or roughly 0.15 percent of GDP. And anyway, the euro has done well on that front too. If you like, South American drug lords hold dollars, Russian beeznessmen hold euros, and in both cases it’s a trivial subsidy to rich, huge economies.

The bottom line is that while saying “the international role of the dollar” sounds very sophisticated and important, the more you know about all this the less you care. This is simply not a big deal.