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There’s no doubt that the U.S. dollar has immense power. Its value is determined by the strength of the American economy, which is one of the reasons why it’s the world’s dominant currency.
Not only is it the world’s most commonly used currency, but it’s also the world’s reserve currency, meaning it’s held in large quantities by central banks around the globe. Commonly known as the greenback, it’s also one of the most commonly traded currencies on the foreign exchange market.
Key Takeaways
- The first Federal Reserve Note was issued one year after the Federal Reserve was formed.
- Five U.S. territories and 11 foreign nations use the U.S. dollar as their official currency.
- The U.S. dollar is also used in conjunction with local currencies in several different popular destinations for American tourists.
- Under the Bretton Woods Agreement, other currencies were pegged to the U.S. dollar to promote an efficient international monetary system.
- Although the Bretton Woods Agreement terminated approximately 30 years after ratification, the U.S. dollar remains the reserve currency for most nations.
Understanding the Countries That Use the U.S. Dollar
While its strength as a powerhouse may not be a shock, it may come as a surprise that the dollar is also the official currency of a host of U.S. territories and other sovereign nations around the world. It’s also the quasi-official currency of many other nations that commonly accept U.S. dollars, in addition to their local currency.
If you’re an avid traveler, someone who does business overseas, or an ex-pat, you’ll want to keep reading. We’ve compiled a comprehensive list of places around the world that use the greenback as an official currency.
Official Use of the U.S. Dollar
The U.S.’s first Federal Reserve note, a $10 bill, was printed in 1914, one year after the Federal Reserve Bank was created. Although the $1 U.S. note was issued in 1862, it wasn’t until 1963 when the $1 Federal Reserve note, featuring George Washington, was issued.
In 1944, the United States and its allies formed the Bretton Woods Agreement to create a new international trade and monetary system. Under the agreement, the International Monetary Fund (IMF) and the World Bank were created, and the U.S. dollar was established as the world’s reserve currency. The world’s central banks would use fixed exchange rates between the U.S. dollar and their currencies.
By 1973, the Bretton Woods Agreement terminated. However, the U.S. dollar remained the reserve currency of many nations. The U.S. dollar remains the primary reserve currency because it is the most traded currency, the United States has a stronger economy compared to other nations, and many nations hold large reserves of cash.
As of December 31, 2020, approximately 50% of the value of the U.S. currency—$1.02 trillion—is circulating outside of the U.S.
More than 65 countries peg their currencies to the U.S. dollar while five U.S. territories and eleven foreign nations use it as their official currency of exchange. The table below provides an overview of the U.S. territories and independent sovereign nations that use the U.S. dollar as their official medium of exchange.
| Countries Where the U.S. Dollar is the Official Currency | ||||
|---|---|---|---|---|
| U.S. Territory or Foreign Country | Relationship with United States | Geographic Location | Population (2020) | Gross Domestic Product (2020) |
| United States of America | Federal Republic | North America | 329,484,123 | $20.95 Trillion |
| Commonwealth of Puerto Rico | Unincorporated territory of the U.S. | Northeastern Caribbean | 3,194,030 | $103.14 Billion |
| Ecuador | Independent country | Northwestern South America | 17,643,060 | $98.81 Billion |
| Republic of El Salvador | Independent country | Central America | 6,486,200 | $24.63 Billion |
| Republic of Zimbabwe | Independent country | Southeast Africa | 14,862,930 | $18.05 Billion |
| Guam | Unincorporated territory of the U.S. | Western Pacific Ocean | 168,780 | $5.84 Billion |
| The Virgin Islands of the United States | Insular area territory of the U.S. | Caribbean | 106,290 | $4.07 Billion (2019) |
| The British Virgin Islands | British Overseas Territory | Caribbean | 30,240 | Not Available |
| Democratic Republic of Timor-Leste | Independent country | Maritime Southeast Asia | 1,318,440 | $1.90 Billion |
| Bonaire | Kingdom of Netherlands Municipality | Caribbean | 20,915 | $428 Million (2017) |
| American Samoa | Unincorporated territory of the U.S. | South Pacific Ocean | 55,200 | $807.10 Million |
| Commonwealth of the Northern Mariana Islands | Unincorporated territory of the U.S. | Western Pacific Ocean | 57,560 | $1.18 Billion (2019) |
| Federated States of Micronesia | Six Sovereign Countries | Subregion of Oceania | 115,020 | $410.08 Million |
| Republic of Palau | Island Country | Western Pacific Ocean | 18,090 | $257.70 Million |
| Marshall Islands | Island Country | Near Equator in the Pacific Ocean | 59,190 | $244.46 Million |
| Panama | Independent Country | Central America | 4,314,770 | $53.98 Billion |
| Turks and Caicos | British Overseas Territory | Caribbean | 38,720 | $924.58 Million |
Although British territories, The British Virgin Islands and The Turks and Caicos adopted the U.S. dollar as their official currency because of their close relationship with the United States.
Quasi-Use of the U.S. Dollar
The U.S. dollar is also widely used throughout the world as a quasi-currency of exchange. While it should be no surprise that the U.S. dollar is widely accepted for commerce in both Canada and Mexico, the U.S. dollar is also accepted in a host of tourist destinations including the Bahamas, Barbados, Bermuda, the Cayman Islands, Sint Maarten, St Kitts and Nevis, the ABC Islands of Aruba, Bonaire, Curacao, and the BES Islands including Bonaire, Sint Eustatius, and Saba—now collectively known as the Caribbean Netherlands.
The U.S. dollar is also used as a quasi-currency in a variety of popular U.S. retirement destinations such as Belize and Panama, and some areas of Costa Rica. In Panama, for instance, the U.S. dollar is legal tender alongside the national currency, the Balboa, which is also worth US$1. The greenback is also widely accepted in Nicaragua. People in the U.S. military can likely attest that the U.S. dollar is gaining widespread popularity throughout the Philippines.
For the truly adventurous traveler, the acceptance of the greenback can be tested in countries such as Myanmar, Cambodia, Liberia, major cities in Vietnam, and the Old City of Jerusalem.
Which Countries Use the U.S. Dollar As Their Official Currency?
In addition to five U.S. territories, 11 countries adopted the U.S. dollar as their official currency: Ecuador, El Salvador, Zimbabwe, The British Virgin Islands, The Turks and Caicos, Timor and Leste, Bonaire, Micronesia, Palau, Marshall Islands, and Panama.
What Strategies Does the U.S. Use To Deal With Countries That Undervalues Its Currency?
The U.S. government can impose tariffs and anti-subsidy duties on imported products to counter nations undervaluing its currency.
Is the U.S. Dollar Still the World’s Reserve Currency?
The U.S. dollar is still considered the world’s reserve currency as the dollar is widely used globally and many nations hold large reserves of cash.
The Bottom Line
The U.S. dollar is the most widely used currency in the world because of its stability. Barring some unforeseen catastrophe, the U.S. dollar will likely remain the global currency of choice until such a futuristic time when a global digital money system is invented and accepted.
People planning on using the U.S. dollar outside the United States should notify their banking and credit card companies as a precaution from having their accounts frozen due to suspicious overseas activities. Consumers should also reach out to their bank and credit cards to clarify any foreign currency transaction fees.