[anticristi]

I'm confused. Isn't the US dollars something like a legally-backed "we-owe-you" of US goods and services? Why else do non-US residents value the USD? And why does EURUSD vary with relative economic output of the two countries?

I can issue fiat money myself. Here: "I owe you 5 CKD." What is the value of that? Zero. You don't know me, you have no reason to trust me, you cannot take my IOU to court and force my property to be seized. Your 5 CKD is worthless, in contrast to 5 USD.

[lottin]

> I'm confused. Isn't the US dollars something like a legally-backed "we-owe-you" of US goods and services?

Not at all. You can't take your dollars to the issuer (the Federal Reserve) and have them redeemed for goods and services. They are not redeemable, hence not "backed". Fiat simply means not backed.

> Why else do non-US residents value the USD?

Do you mean why they demand USD? For different reasons. One reason is to pay for goods and services imported from the US. Another reason is to use it as reserve currency.

> And why does EURUSD vary with relative economic output of the two countries?

It doesn't.