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.

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    If you go to the market to buy a pear can you pay with a treasury bond?
    – quid
    Commented Sep 3, 2019 at 20:44
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    You also need to clarify just what you mean by "dollars in circulation", Do you mean actual physical currency? Google says about $1.7 trillion of that, which is M0 in Federal Reserve terms. But then there's M1, which is M0 plus electronic money in checking accounts &c, M2 which adds savings & money market accounts, and more. M1 is currently around $3.85 trillion, M2 is $14.87 trillion. So if you want to buy $5 trillion worth of oil, you need to do an electronic transfer from your money market account, not haul in a truckload of $100 bills :-)
    – jamesqf
    Commented Sep 4, 2019 at 3:16
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    If you can only buy something if there are enough "real" USDs to pay for it, what are you going to pay for that 5 trillion dollar's-worth of bonds with?
    – TripeHound
    Commented Sep 4, 2019 at 7:25
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    @quid If you wanted this pear blossom creation – made by Fabergé and valued at over £1M when shown on the UK's Antique Roadshow – it might be useful to use a treasury bond. You might even need a pair of them :-)
    – TripeHound
    Commented Sep 4, 2019 at 7:35
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    @quid Acceptability and liquidity aren't the same thing.
    – xiaomy
    Commented Sep 4, 2019 at 18:47

2 Answers 2


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.

  • I suspect the reason countries buy US Treasury bonds is the same reason that private investors buy them: unlike $100 bills, they are a reasonably safe investment, and pay interest.
    – jamesqf
    Commented Sep 5, 2019 at 16:11
  • @jamesqf US Treasury bonds are safe, but few private investors are able to purchase it on issuance value. You will notice the bond market mostly show a negative yield.
    – mootmoot
    Commented Sep 6, 2019 at 8:40
  • I'm confused. A quick search shows T-bills currently paying around 1.5-2%: treasury.gov/resource-center/data-chart-center/interest-rates/… I'd agree that few private investors buy them directly, but instead own them as part of mutual funds &c.
    – jamesqf
    Commented Sep 9, 2019 at 4:26
  • @jamesqf Those yield you see is only possible if you are able to buy them directly from the treasury, but usually institution fund already scoops up most of them and only available in the secondary market. Please check out this link explain the payout jargon related to bond: investopedia.com/terms/c/coupon-rate.asp
    – mootmoot
    Commented Sep 9, 2019 at 7:41
  • @mootmoot So much misinformation... 1. Yields are not negative in US (yet). 2. These referenced yields are derived based on secondary market quotes, as explained in the footnotes.
    – xiaomy
    Commented Sep 13, 2019 at 16:34

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.

  • Real estate is a good example to illustrate your point but t-bonds are a totally different animal. All securities are, by some definitions, money. They can be easily transferred and used as payment unlike land
    – Jonah
    Commented Sep 4, 2019 at 20:44
  • Value in circulation is relevant for large transactions like the example i gave. I think the question comes down to how much oil you could get for, say, $1T vs how much you could get for bonds with the same market value. Whichever gets you more oil is more liquid
    – Jonah
    Commented Sep 4, 2019 at 21:26
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    @Jonah - That's not what liquidity means. Practically, of course, no one would ship pallets of $100 bills to make a purchase. You'd make an electronic transfer of dollars from one account to another. The practicality of making the transfer has nothing to do with liquidity. If it did, you could make dollars more liquid by minting a handful of trillion dollar coins (en.wikipedia.org/wiki/Trillion-dollar_coin) Commented Sep 4, 2019 at 21:30
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    @Jonah - That's not really part of the standard definition of liquidity. If one central bank wants to electronically transfer a billion dollars to another central bank, there is no discount. The intrinsic value of the dollar might change as a result of the transaction. But that has zero impact on its liquidity. Now, perhaps you are trying to suggest an alternate definition of "liquidity" but in the textbook definition, cash is the most liquid possible asset. investopedia.com/terms/l/liquidity.asp Commented Sep 4, 2019 at 21:37
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    @Jonah Justin Cave is correct in the definition of liquidity. You might actually be asking "Is there more treasury bonds than USD?" or "Are treasury bonds a better medium of exchange than USD for extremely large transactions?" which are interesting questions but different than the original.
    – Earth
    Commented Sep 4, 2019 at 22:28

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