Just imagine, you travel to a new country and there you don’t have to exchange their currency for your own. You can simply land in that country and just go about doing your business as usual.
Some countries accept US Dollars as their official currency and you can use US dollars to purchase goods and services.
US dollars is the biggest export that comes out of the United States of America which also provides a huge geopolitical power and control over the financial institution.
US dollars is also the world Reserve currency meaning the majority of the countries use US dollars as a medium for trading amongst themselves.
In this article, we will discuss how many countries use the US Dollars, the problem with US Dollars, and much more.
But first, let’s understand What do you mean by Official Currency?
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What do you mean by Official Currency?
Official Currency is a legal tender minted by a country’s Central Bank for citizens of the country to use the money for purchasing goods and services. Central Bank prints money as per their monetary policy and the requirement of the Government. For instance- India uses Rupee as its official currency printed and minted by the Reserve Bank of India (Central Bank).
Some countries do not have a centralized financial system and outsource this to a major regional/globalist country like the United States of America, China, India, etc.
Since the US Dollar is also a global reserve currency, therefore, many countries do not have their currency but use US dollars as their own.
How Many Countries Use the US Dollars?
Apart from the USA itself, 11 countries use US dollars as their official currency. The following are the countries that use the US Dollars as their official currency-
Ecuador
Ecuador is a Latin American country with an 18 million population which uses US Dollars as their official currency.
It is a famous tourist destination for US citizens and tourism is one of the sectors in the country that helps the country to earn US dollars apart from industry and services.
In the year 2000, the financial crisis hit the country resulting in scraping off the old currency Sucre. After that, Ecuador uses US Dollars as their official currency.
El Salvador
El Salvador is the Central American Republic with a population of 6 million and has used the US Dollar as their official currency since 2001 and has recognized Bitcoin as a legal tender as well.
US dollars were instigated after the collapse of the Salvadoran colon to lower inflation and improve the economy.
Zimbabwe
Zimbabwe is a Southern African country with 16 million population and uses multiple currencies as legal currency. Some of the currency that you can find in Zimbabwe is the Euro, United States dollar, Pound sterling, South African rand, Botswana pula, Australian dollar, Chinese yuan, Indian rupee, and Japanese yen.
The Zimbabwean dollar was suspended indefinitely from 12 April 2009 due to hyperinflated currency which made an economic impact on the population resulting in the adoption of these currencies.
US dollars are the main currency which is used here with other higher currencies being traded. The government tried to introduce the Zimbabwean dollar again but failed and had to continue with the US dollar till 2025.
The British Virgin Islands
The British Virgin Islands is a British Overseas Territory in the Caribbean with a population of 30,000. It is a very small island nation with a small population and adopted US dollars in the year 2009.
The Turks and Caicos
The Turks and Caicos is an Archipelago of small islands in the Atlantic Ocean with a population of roughly 57,000 individuals.
The country uses US Dollars as its official currency and you can use USD as legal tender for purchasing goods and services in the country.
Timor and Leste
Timor and Leste is a small Southeast Asian island country with a population of 3 million and USD has been the official currency of the nation since 2000.
Bonaire
Bonaire is an island nation and is an overseas territory of the Netherlands. The population of the nation is less than 25,000 making it a very small nation. Bonaire uses US Dollars as their official currency as a medium of trade and commerce.
Micronesia
Micronesia is a sub-region of Oceania with 2000+ insland and has a population of 100,000+ people. The official currency used by the island nation is the United States Dollar for trade and commerce.
Palau
Palau is an island country in the Micronesia subregion of Oceania in the western Pacific. The official currency of the country is US Dollars and the total population of the country is 18,204.
Marshall Islands
Marshal Islands is an island nation in the Micronesia region in the Northwestern Pacific Ocean. The population here is 42,418 and uses United States dollars as their official currency.
Panama
Panama is a transcontinental country in Central America with two official currencies, United States Dollars (USD) and Balboa (PAB). It is a small island nation with a population of 4,337,768 and is known for the Panama Canal which connects the Pacific Ocean and the Atlantic Ocean.
How does Reserve Currency work?
Reserve Currency is nothing but a reserve of funds that various countries hold in another country’s Central Bank for trade and commerce purposes. For instance- every country in the world has a USD bond and fund in the portfolio that they hold in USA Bank.
The reason for this is complex and need a deeper understanding of History and geopolitics but in simpler terms, it can be understood that people trust the United State of America to safeguard their money and since the country trade in USD, it is smart to keep USD with itself whenever needed.
This gives the USA tremendous opportunity to develop and grow wealth as since many nations keep their fund in the USA, US banks have huge capital to invest in their business and increase their GDP exponentially.
Problem with Dollar
A variety of factors contributed to the de-dollarization which is a popular term for countries wanting to opt out of the present system of Global Economy.
The following are some of the reasons why the problem with the dollar is increasing-
High-Debt based
The United States of America is sitting at a huge debt of $33 Trillion as of 2023 which is 121.6% and this number will rise further especially looking at the world Economic outlook.
Before the Bretton Woods Agreement, the currency of a country was backed by a tangible asset like Gold but since the agreement came to be, the gold standards were removed, and what further became debt-driven growth.
With the rise of geopolitical tension and internal and external conflicts that the United States finds itself in, many countries are looking for options to avoid trading in dollars which could increase the risk of de-dollarization.
Weaponization of Dollars
The United States of America is infamous for weaponizing dollars by sanctioning any state that they deemed. This conduct puts a lot of questions on the trustworthiness of the dollar and increases the push towards de-dollarization.
Rise of China
China’s rise as a big market of both consumption and production has motivated its leader to look beyond dollars in conducting international trade and further strengthen its own currency Yuan by trading with other countries using this currency.
Many countries are already conducting trade in the Chinese Yuan and providing an alternative for dollars. It is not as big as the Euro or other currencies but with a huge market and manufacturing powerhouse status, the Chinese Yuan has everything that a currency needs for it to become a global reserve currency, except the trust of the world.
Conclusion
US dollars have been used by various countries in the past especially the countries that do not have their own Central Banks.
Many countries use dollars as their official currency but with the slow demise of the currency, the chances of these countries trying to introduce their currency is increasing.
USD is also a reserved currency and is used by almost all countries for trade and commerce because of the stability and trustworthiness of the dollar.
I’m Shiv Kumar, a graduate with a passion for finance, marketing, and technology. My journey into finance started with a desire to understand money management and investing.
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