We develop a model of the global financial cycle with one key ingredient: the demand for safe dollar assets. The model matches patterns of dollar borrowing and currency mismatch, the U.S. external balance sheet, low U.S. interest rates and exorbitant privilege, spillovers of the U.S. monetary policy to the rest of the world, and the dollar as a global risk factor. In doing so, we lay out a novel transmission mechanism through which the U.S. monetary
policy affects the currency market and the global economy. Our model also helps resolve the reserve-currency paradox of Maggiori (2017), reconciling how dollar appreciation in a crisis can satisfy both the financial market and the goods market equilibria.