Not true. The fact that you're somewhat informed on these matters is working against you here.

If the US Gov't stopped collecting taxes -- or had some other substantial liquidity crisis -- the very real issue is debt service. Since the USD is the global reserve currency, we are in the rather unique situation of having our debt denominated in our own currency under control of our own central bank. This is where the "full faith and credit" of the USA enters the discussion of our currency. If we had issues servicing our public debt, the government has the option of devaluing our currency. In other words, inflating away our debt. In such a scenario, the value of USD plunges against foreign currencies, and there would be a massive effort by everybody with substantial USD holdings to sell.

This, among other reasons, is why Keynes envisioned a super-national reserve currency traded among central banks. If the US public debt was denominated in Bancor, the option of inflating it away wouldn't exist.

First, I think the interesting question is just about fiat currencies, not the US in particular. The global reserve currency aspect is a secondary effect. Let's concentrate on a generic fiat currency issued by a government.

So you're saying that "full faith and credit" just means "The gov't promises not to crazily inflate the money by printing lots of it". Fine. (That doesn't explain what process determines the street value, it just acknowledges that the government can destroy it.)

I don't really see how the rest of what you are talking about applies to my comment. Are you claiming that fiat currencies are impossible in countries without debt?

No, you don't have to have debt to have good credit.

It sounds like you are suggesting that fiat currency functions like debt, but I've never understood this claim.

That situation is not rather unique at all. Most developed nations issue debt in a currency controlled by their central bank, with the notable exception of the Eurozone.

Your point is a little misleading I think. How big is the list of "most developed nations" after you remove the US and Euro Zone from the list?

Yes, every country CAN issue national debt. But issuing sovereign debt is more common largely because investors prefer it.

Either way, I didn't mean to sound misleading by calling it "rather unique." Thanks for helping me clarify.

Japan, South Korea, Taiwan, Singapore, England, Russia, Canada, Australia, Switzerland, Iceland, Israel, Sweden, Norway, Denmark, New Zealand, and arguably PRC, Brazil, Argentina, Turkey, India, Mexico, Indonesia, Qatar, and Chile, are all developed nations not in the US or Eurozone.

You are, however, correct that most of these countries issue their debt in US dollars ("sovereign debt") rather than their national currencies.

"it doesn't have any meaning for dollars, unless it were to mean that the gov't would exchange it for gold, which of course is false."

It means, "The government will accept it for tax payment," and for the payment of various other debts and fees.

it means it is not backed by a hard asset or a promise - the dollar is not redeemable for anything.