Why is per-capita U.S. currency demand so large? Who is holding large amounts of U.S. currency and why are they doing so? Should U.S. policymakers be concerned about this? Why?

What will be an ideal response?

Currency demand is large mostly because foreigners hold many dollars. They do so because of inflation or political instability in their countries. Policymakers shouldn't be very concerned, since foreigners' dollar holdings represent an interest-free loan to the United States. However, a cause for concern may be that fluctuations in our money supply may reflect conditions abroad that are unrelated to the U.S. economy.