The US dollar, generally considered to be the world’s leading reserve currency, has enormous influence on global finance and trade. The International Monetary Fund reported that the US dollar comprised roughly 59% of global foreign exchange reserves held by central banks in the third quarter of 2023. This translates to nearly $6.5 trillion and far exceeds the euro’s share (19.5%) and the Japanese yen’s (5.5%).
The US dollar’s position is a result of factors, including the economic strength and stability of the United States, the liquidity and depth of its financial markets, and the perceived reliability of its legal and institutional framework. These factors have established the US dollar as a safe haven during periods of market turbulence and attracted international investors, creating demand for dollar-denominated assets.
The dollar’s rise to global reserve currency status began with the Bretton Woods Agreement of 1944, which pegged the US dollar to gold and other currencies to the US dollar, establishing the dollar as the sole currency directly convertible to gold. While the gold standard ended in 1971, the dollar’s momentum persisted, fueled by the American economy’s continued resilience and the lack of a viable alternative.
Though the dollar’s role in global finance is currently secure, the rise of other countries such as China—and the increasing popularity of alternative reserve assets, including the euro and Special Drawing Rights—suggest a future where the dollar’s grip might loosen. The emergence of cryptocurrencies also presents a potential challenge, though their volatility and regulatory unknowns remain distinct hurdles.
As the global economy evolves, the dollar’s position will depend on its ability to remain flexible, responsive, and attractive to a changing world of finance. Below, we’ll cover the dollar’s overall role in the global economy, as well as a list of the countries where the US dollar is used.
What’s in this article?
- How the US dollar shapes the world economy
- Countries that use the US dollar
How the US dollar shapes the world economy
The US dollar is deeply ingrained in many aspects of the global economy, and the value of the dollar has far-reaching implications for the health and stability of global financial markets. The Federal Reserve’s monetary policy decisions affect the US economy and the global economy at large, impacting capital flows, inflation, and economic growth worldwide. The enormous influence of the dollar has extended the United States’ economic and political power, with the “dollarization” of an economy often resulting with that country aligning more closely with US policies and interests. The dollar’s status as a benchmark in global financial interactions and a sign of stability in the global economy has solidified the US as a financial power.
Here’s how the US dollar is used in global financial interactions:
Reserve currency: The US dollar is the world’s primary reserve currency. Central banks across the globe hold a substantial portion of their reserves in US dollars.
Global trade and transactions: A large portion of international trade transactions are conducted in US dollars, even between countries that do not use the dollar domestically. This standardized use simplifies transactions and reduces exchange rate risk.
Commodity pricing: Key commodities, such as oil and gold, are typically priced in US dollars. Fluctuations in the value of the dollar can have a direct impact on global commodity prices.
Investment currency: The US dollar is often the preferred currency for international investments and savings given its perceived stability.
Exchange rates: The value of the US dollar deeply influences global exchange rates. Movements in the dollar can have far-reaching effects on global trade, investment, and economic stability.
Loans and credits: Many international loans and credits, including sovereign debt, are denominated in US dollars.
Countries that use the US dollar
The US dollar is used in several countries and territories across the globe, both as a primary currency or alongside a local currency. In many parts of the world, particularly in nations with less stable local currencies or volatile economies, the US dollar is often used as a stable store of value or for high-value transactions such as real estate, luxury goods, and international trade. Even in countries with strong local currencies, the dollar is commonly accepted in major tourist areas, large hotels, and international shopping outlets.
Outside the countries where the US dollar is an official currency or widely accepted, its influence still permeates as a standard in global finance. The following countries and territories use the US dollar as currency:
Primary currency
Outside of the US itself and its territories, the following regions and countries use the US dollar as their main currency. These countries do so for several reasons, including economic stability, historical agreements, or simple practicality. US dollar usage is often found in territories with close political or economic ties to the US.
Bonaire, Sint Eustatius, and Saba: Bonaire, Sint Eustatius, and Saba are special municipalities of the Netherlands that adopted the US dollar in 2011 and use it alongside the euro.
Ecuador: Ecuador adopted the US dollar in 2000 after a financial crisis.
El Salvador: El Salvador switched to the US dollar in 2001 for economic stability.
Palau, the Marshall Islands, and the Federated States of Micronesia: Palau, the Marshall Islands, and the Federated States of Micronesia all use the US dollar as part of the Compacts of Free Association agreements.
Panama: Panama uses the US dollar as its main currency alongside the Panamanian balboa.
The British Virgin Islands, and Turks and Caicos Islands: The British Virgin Islands, and Turks and Caicos Islands—two British Overseas Territories—use the US dollar as their official currency.
Timor-Leste (East Timor): Timor-Leste has been using the US dollar since 2000.
Zimbabwe: Zimbabwe uses multiple currencies because of the hyperinflation of its own currency, with the US dollar being the primary currency.
Additional currency
The following countries and territories accept the US dollar alongside a local currency:
Aruba: Aruba uses the US dollar alongside the Aruban florin (AWG). Both florin and the US dollar are widely accepted.
The Bahamas: The Bahamas uses the US dollar alongside the Bahamian dollar (BSD). The US dollar is widely accepted and often used interchangeably with the Bahamian dollar at a 1:1 exchange rate.
Barbados: Barbados uses the US dollar alongside the Barbadian dollar (BBD). The US dollar is commonly accepted, especially in tourist areas, with exchange rates clearly posted.
Belize: Belize uses the US dollar alongside the Belize dollar (BZD). The US dollar is widely accepted, especially in tourist areas, at a fixed exchange rate of $2 BZD to $1 USD.
Bermuda: Bermuda uses the US dollar alongside the Bermudian dollar (BMD), especially in tourist areas.
Cambodia: Cambodia uses the US dollar alongside the Cambodian Riel (KHR). The US dollar is widely used for transactions including commerce and salaries.
Canada: Canada uses the US dollar alongside the Canadian dollar (CAD). The US dollar is widely accepted, especially in border areas and at major tourist destinations.
Cayman Islands: The Cayman Islands uses the US dollar alongside the Cayman Islands dollar (KYD), which is fixed to the US dollar at $1.25 USD to $1 KYD.
Costa Rica: Costa Rica uses the US dollar alongside the Costa Rican colón (CRC). The US dollar is commonly accepted, especially in the tourism sector.
Curaçao: Curaçao uses the US dollar alongside the Antillean guilder (ANG), which is fixed to the US dollar at $1 USD to about 1.80 ANG. The US dollar is commonly accepted across the island.
Guatemala: Guatemala uses the US dollar alongside the Guatemalan quetzal (GTQ). The US dollar is frequently accepted, particularly in tourist areas and larger cities.
Honduras: Honduras uses the US dollar alongside the Honduran lempira (HNL). US dollars are often accepted in tourist areas and for larger purchases.
Jamaica: Jamaica uses the US dollar alongside the Jamaican dollar (JMD). The US dollar is widely accepted in tourist areas and is often preferred for larger transactions.
Lebanon: Lebanon uses the US dollar alongside the Lebanese pound (LBP). Because of the Lebanese pound’s economic instability, the US dollar is widely used for many transactions.
Liberia: Liberia uses the US dollar alongside the Liberian dollar (LRD). The US dollar is widely accepted across the country.
Mexico: Mexico uses the US dollar alongside the Mexican peso (MXN). The US dollar is commonly accepted in tourist areas, border towns, and large cities.
Myanmar: Myanmar uses the US dollar alongside the Myanmar kyat (MMK). The US dollar is commonly accepted in tourist areas.
Nicaragua: Nicaragua uses the US dollar alongside the Nicaraguan córdoba (NIO). The US dollar is widely accepted, especially in the tourism and service industries.
Saint Kitts and Nevis: Saint Kitts and Nevis uses the US dollar alongside the East Caribbean Dollar (XCD). The US dollar is frequently accepted, particularly in tourist areas.
Sint Maarten: Sint Maarten uses the US dollar alongside the Antillean guilder (ANG), which is fixed to the US dollar at $1 USD to about 1.80 ANG. The US dollar is commonly accepted across the island.
Vietnam: Vietnam uses the US dollar alongside the Vietnamese dong (VND). The US dollar is widely accepted in many places, particularly in tourist areas and for larger purchases.