<p>Note carefully what Friedman says:</p>
<blockquote>
<p>&quot;If the (foreign) compan<strong>ies</strong> want to sell goods to Americans in dollars, they will have to spend those dollars in America&quot;</p>
</blockquote>
<p>Company can only sell dollars on foreign exchange market if there is some other willing company to buy those dollars. Dollars (aside from few dollarized countries) can pretty much be reliably used only in the US, so any company that buys those dollars is buying them with intention to buy something from the US.</p>
<p>There is no way how to convert the currency unless there is second willing party to buy that currency. Since money are intrinsically worthless, and (with rare exceptions) dollars can only be used in the US, any willing counterparty will want to buy something in the US (or will be an intermediary for another firm that wants to buy something in the US).</p>
<p>Consequently, virtually all US dollars collected by foreign companies via sales of products is also spend in the US to buy something (assets or other products). However, note we are talking about companies in aggregate. Of course, there can be single company that never buys anything in the US and just sells its dollars to another company that does not sell anything in the US but wants to buy something there. Hence, individual compan<strong>y</strong> might not spend all its US sales in  the US, but in aggregate virtually all dollars have to be spend in the US. Otherwise the companies would be just accumulating intrinsically worthless pictures of dead presidents and important historical figures.</p>

CC BY-SA 4.0
2022-09-18T21:44:41.013Z
On Friedman's second point - "as foreigners use the dollars to buy U.S. goods, the price of the dollar in terms of the foreign currency will adjust until the total flows of dollars in both directions will be the same". I don't doubt this is true, but again the logic goes over my head slightly. If foreigners sell to U.S. consumers, what exactly happens to the U.S. dollar in that scenario? What mechanism ensures this?
Toby Meyrick
CC BY-SA 4.0
2022-09-19T07:05:42.813Z
@TobyMeyrick foreign exchange supply and demand. As you said some companies do not want to buy anything in the US so they will sell US dollars - that shifts supply of US dollars to the right. In turn this causes US dollar to depreciate. Cheaper dollar makes US goods more attractive giving extra incentives for foreigners to buy US dollars. Also note Friedman was describing equilibrium that would occur eventually of course it does not happen instantaneously, but what he is saying is true in a sense that is the equilibrium economy will be headed to
1muflon1
CC BY-SA 4.0
2022-09-17T11:22:46.867Z
2022-09-17T11:28:19.300Z
2022-09-17T11:28:19.300Z
1muflon1
<p><a href="https://www.youtube.com/watch?v=fkHdq_2EUk4&amp;ab_channel=FreeToChooseNetwork" rel="nofollow noreferrer">https://www.youtube.com/watch?v=fkHdq_2EUk4&amp;ab_channel=FreeToChooseNetwork</a></p>
<p>I'm currently studying international trade at the undergraduate level. I feel like I should understand this, but Milton Friedman says, in defence of free trade, &quot;If the (foreign) companies want to sell goods to Americans in dollars, they will have to spend those dollars in America&quot;.</p>
<p>Perhaps this says a lot about my naivety, but why wouldn't those companies simply convert the currency back to the Yen or Euro, then there would be balancing? I really want to understand this but have no way of simply framing the question. Please help.</p>

<international-trade><balance-of-payments>
What does Milton Friedman mean by - "if they sell things to us in dollars then they are going to spend those dollars back here" (link below)
Toby Meyrick
# What does Milton Friedman mean by - "if they sell things to us in dollars then they are going to spend those dollars back here" (link below)

(Asked by: username_0 on 2022-09-16)

<https://www.youtube.com/watch?v=fkHdq_2EUk4&ab_channel=FreeToChooseNetwork>

I'm currently studying international trade at the undergraduate level. I feel like I should understand this, but Milton Friedman says, in defence of free trade, "If the (foreign) companies want to sell goods to Americans in dollars, they will have to spend those dollars in America".

Perhaps this says a lot about my naivety, but why wouldn't those companies simply convert the currency back to the Yen or Euro, then there would be balancing? I really want to understand this but have no way of simply framing the question. Please help.

**Tags:** international-trade, balance-of-payments


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## 1 answers

### Answer by username_1 on 2022-09-17. Score: 3 | Accepted answer

Note carefully what Friedman says:

> "If the (foreign) compan**ies** want to sell goods to Americans in dollars, they will have to spend those dollars in America"

Company can only sell dollars on foreign exchange market if there is some other willing company to buy those dollars. Dollars (aside from few dollarized countries) can pretty much be reliably used only in the US, so any company that buys those dollars is buying them with intention to buy something from the US.

There is no way how to convert the currency unless there is second willing party to buy that currency. Since money are intrinsically worthless, and (with rare exceptions) dollars can only be used in the US, any willing counterparty will want to buy something in the US (or will be an intermediary for another firm that wants to buy something in the US).

Consequently, virtually all US dollars collected by foreign companies via sales of products is also spend in the US to buy something (assets or other products). However, note we are talking about companies in aggregate. Of course, there can be single company that never buys anything in the US and just sells its dollars to another company that does not sell anything in the US but wants to buy something there. Hence, individual compan**y** might not spend all its US sales in the US, but in aggregate virtually all dollars have to be spend in the US. Otherwise the companies would be just accumulating intrinsically worthless pictures of dead presidents and important historical figures.

> **Comments:**
> **username_0**: On Friedman's second point - "as foreigners use the dollars to buy U.S. goods, the price of the dollar in terms of the foreign currency will adjust until the total flows of dollars in both directions will be the same". I don't doubt this is true, but again the logic goes over my head slightly. If foreigners sell to U.S. consumers, what exactly happens to the U.S. dollar in that scenario? What mechanism ensures this?  
> **username_1**: @TobyMeyrick foreign exchange supply and demand. As you said some companies do not want to buy anything in the US so they will sell US dollars - that shifts supply of US dollars to the right. In turn this causes US dollar to depreciate. Cheaper dollar makes US goods more attractive giving extra incentives for foreigners to buy US dollars. Also note Friedman was describing equilibrium that would occur eventually of course it does not happen instantaneously, but what he is saying is true in a sense that is the equilibrium economy will be headed to  

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