It is not unusual to see news articles, blog posts, and social media posts from all over the world that discuss major business deals and even small purchases with the cost listed in US dollars, even when the US is not involved in the transaction. The US dollar is viewed by many as the “unofficial world currency”. The reasons behind this have a long history.
US Dollar History
Up until the end of World War II the British Pound was one of the world’s dominant currencies and was frequently used in international business transactions. However, the war significantly weakened the British economy and the scope of the British Empire. Due to its stability and the fact that the US dollar was backed by gold reserves, it quickly proved a popular choice for countries to tie their exchange rates to.
As we’ve mentioned on this blog before, foreign exchange values place a significant value on political and economic stability. Since the US has a long history of both, the designation remained even after the US abandoned the gold standard in the 1970s. The US dollar has never been devalued and all currency that has ever been issued by the US government remains legal tender.
Another factor in the worldwide use of the dollar is the currency’s acceptance. The currencies of many wealthy countries, including Russia and China, are not accepted worldwide. This greatly limits the ability to use the ruble and yuan for international transactions. The same criteria can be used for many of the currencies of the oil rich Middle Eastern countries. It is estimated that as much of as 80% of all transactions in Asia are made in dollars.
Countries That Use the US Dollar as Their Main Currency
It comes as a surprise to many that various countries do not have their own currency and instead use US dollars for all transactions. The official currency of the following countries is the US dollar.
- Commonwealth of Puerto Rico
- Republic of El Salvador
- Republic of Zimbabwe
- US and British Virgin Islands
- Democratic Republic of Timor-Leste
- American Samoa
- Commonwealth of the Northern Mariana Islands
- Federated States of Micronesia
- Republic of Palau
There are also a number of countries where most shops and businesses will readily accept US dollars. They include:
- Canada- especially cities near the US border
- Panama – Panama actually has two “official” currencies, the Panamanian balboa and the US dollar. Both are equal in value.
- The Bahamas – Like Panama, the Bahamas have two official currencies. The currency of the Bahamas is also called the “dollar.” The two currencies are equal in value.
- Turks and Caicos Islands
- Vietnam – Merchants have long accepted US dollars however the Vietnam State Bank is attempting to crack down on businesses that accept or list prices in US dollars.
Many of the islands in the Caribbean also will accept US dollars as payment.
It should be noted that, although the US dollar is very prevalent, it is not the only currency that has fairly wide acceptance. The South African rand, the Australian and New Zealand dollar and the euro also are accepted outside their countries. Even the Russian ruble, which is not widely accepted, is still used and accepted in some of the former Soviet Union countries.