This paper links the U.S. dollar's exchange rate to the convenience yield foreign investors receive from holding U.S. safe assets, particularly Treasuries. They show that a widening Treasury basis, indicating a higher convenience yield for foreign investors, coincides with dollar appreciation, supporting the U.S.'s unique role as a safe asset provider and the dollar's status as a reserve currency.

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This paper presents a novel theory and compelling empirical evidence linking the USD's value to the convenience yield derived from holding U.S. safe assets. While there are some limitations, the research is strong and contributes significantly to the literature.