system
Given the following post, respond as if you're commenting on Reddit:
human
What benefits and drawbacks are there for the US and her citizens due to USD being the world reserve currency?

I'm not really asking about what would change if the dollar lost its status as the reserve currency. Just the differences between the country who mints the reserve currency and countries who purchase the reserve currency.
gpt
Great question! The topic is complex and has a large literature, but I’ll point out a couple of interrelated issues that arise from the dollar’s position as the world reserve currency. 

- Excess returns: US assets, and in particular government debt, are seen as extra safe and extra liquid, which ramps up global demand for them. This means that investors are fine investing in them even if they have low yields (particularly in times of crisis and when risk appetite is low). As a consequence of this, in the balance of payments framework, the US pays lower interest on its debt vis a vis the rest of the world than most countries. On the flip side, American investments abroad often have a rates of return much higher than local debt. This leads to excess returns on US assets vs its liabilities. As such, the US receives positive net investment income on it’s negative net international investment position (this is called the income puzzle in the literature). Long story short, the large outside demand for dollar denominated assets means the US has to worry less about it’s net debt to the rest of the world, and only a catastrophic structural change could cause confidence in the dollar to  plummet to the point where a default could happen.

- On the other hand, precisely because of this demand for dollars, the US ends up “being forced to” run a current account deficit in the long run, which might not be desirable under certain circumstances. As such, there can be a conflict between domestic and international policy goals. This is known as the Triffin dilemma, and although it dates back to Keynes’ complaints about the system that was set up at Bretton Woods, it also has some modern iterations. This is the main reason why some people advocate for a global reserve currency nowadays (the IMF has SDRs, which are the closest thing but still far from being widely used).