How Big Is the US Dollar Market and Which Countries Use USD?

The US Dollar (USD): How did it become the global currency？ 

After World War II, the US dollar gained prominence as a worldwide currency, a position it attained through the establishment of the IMF and World Bank during the 1944 Bretton Woods Conference. As part of this agreement, countries opted to link their currencies to the dollar, which was itself convertible to gold. 

Nevertheless, in the 1960s, the United States encountered a scarcity of gold, leading to the suspension of dollar convertibility in 1971 and the eventual demise of the Bretton Woods system. Presently, the prevailing system primarily operates with flexible exchange rates, although certain countries do manage their rates or peg them to the US dollar. 

Despite these changes, the US dollar continues to maintain its dominance, both in terms of global reserves and international trade. Various factors contribute to its ongoing supremacy, such as its stable value, a resilient US economy, significant geopolitical influence, and the distinct US Treasury market. The presence of US Treasuries as the leading reserve asset worldwide provides the dollar with a competitive advantage. 

Find out what the strong US dollar has to do with the global Economy! 

Countries that use US Dollars instead of their own currency: 

The US dollar market stands out as a highly stable currency globally, benefitting not only Americans but also numerous other nations. Various countries in South America, Africa, and the Pacific have adopted the US dollar as their official currency.  

Instead of having a distinct local currency, the following countries and territories have embraced the US dollar: 

• Puerto Rico 

• Ecuador 

• Panama 

• Somalia 

• El Salvador 

• Turks and Caicos Islands 

• Guam 

• U.S. Virgin Islands 

• Timor-Leste 

• British Virgin Islands 

• Marshall Islands 

• American Samoa 

• Federated States of Micronesia 

• Northern Mariana Islands 

• Caribbean Netherlands 

• Bonaire 

The following countries and territories extensively use the USD alongside their respective local currencies: 

• Belize 

• Barbados 

• Costa Rica 

• Nicaragua 

• Panama 

• Myanmar 

• Cambodia 

• Liberia 

• St. Kitts and Nevis 

• Aruba, Bonaire, Curacao, Sint Maarten, Sint Eustatius, and Saba (territories of the Netherlands) 

• Bermuda and Cayman Islands (territories of the United Kingdom) 

This signifies that over 350 million individuals worldwide rely on the dollar as their primary form of currency, facilitating economic transactions exceeding $17 trillion. 

The Currency Peg: How It Works and Why Its Done 

Currency pegging involves a country attaching or pegging its exchange rate to either another currency, a collection of currencies, or an alternative value measurement. This practice, also known as a fixed exchange rate, aims to establish stability for a currency by linking its worth, according to a predetermined ratio, to a different, more stable currency.  

What Currencies Are Pegged to the US Dollar Market？ 

There are more than 66 countries that have their currencies tied to the US dollar. These currencies are fixed rate tethered to the US dollar, which means their value is always equal to a certain amount of US dollars. 

• East Caribbean dollar (XCD) 

• Bahamian dollar (BSD) 

• Bahraini dinar (BHD) 

• Brunei dollar (BND) 

• Cayman Islands dollar (KYD) 

• Cook Islands dollar (NZD) 

• Djiboutian franc (DJF) 

• Eritrean nakfa (ERN) 

• Hong Kong dollar (HKD) 

• Jordanian dinar (JOD) 

• Kuwaiti dinar (KWD) 

• Liberia dollar (LRD) 

• Maldivian rufiyaa (MVR) 

• Namibian dollar (NAD) 

• Omani rial (OMR) 

• Qatari riyal (QAR) 

• Saudi riyal (SAR) 

• Solomon Islands dollar (SBD) 

• United Arab Emirates dirham (AED) 

• Turks and Caicos Islands dollar (TCI) 

Caribbean nations like the Bahamas, Bermuda, and Barbados peg their currencies to the US dollar due to their dependence on tourism, which is conducted mainly in dollars. This ensures economic stability and reduces vulnerability to shocks. Oil-producing countries like Oman, Saudi Arabia, and Qatar also peg their currencies to the dollar to maintain stability, as the US is their major oil trading partner.

Financially reliant nations such as Hong Kong, Singapore, and Malaysia peg their currencies to the US dollar for protection against forex market fluctuations. Similarly, countries engaged in trade with China peg their currencies to the dollar to stay competitive in the Chinese market and align export prices with the Chinese yuan.

Why do Countries peg their currencies to the US Dollar？ 

Given that the US dollar (USD) is the most prevalent reserve currency globally, it is no surprise that many currencies are pegged to it. Here are why countries peg their currencies to the US dollar market: 

• Stabilizing Exchange Rates: When a country pegs its currency to the US dollar, it aims to keep the value of its currency low. This enables the countrys exports to be priced competitively, making them more appealing in foreign markets. 

• Importing Price Stability: Import price stability can be improved by pegging to a stable currency, such as the US dollar. It eliminates the possibility of unexpected variations in currency rates, which can make imported items more expensive. 

• Inflation Control: A currency peg may also help in keeping track of inflation. Countries can reduce the impact of inflation on their economies by pegging their currency to a more stable currency. 

• Competitive Advantage: Countries can acquire a competitive edge in international commerce by pegging their currency to the US dollar. A weaker currency makes their exports cheaper to overseas customers, hence strengthening their export businesses. 

• Trade Tensions: A too-low currency peg, however, could hinder living standards, cause trade conflicts, promote import overconsumption, and create inflation post-collapse. Currently, 14 nations have their currencies pegged to the US dollar, which is favored for its stability and reputation as a global reserve currency. 

Understanding currency pegs is crucial for forex traders as they hold considerable importance in trading, and gaining knowledge about them can be advantageous for traders as well.  

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Would the US dollar be dethroned？ 

Despite speculation about the US dollar‘s replacement, it continues to hold its position as the world’s currency. While the Euro showed potential, the dollars prevalence remained strong. The European Union, with its economic strength, seemed like a possible contender, but replacing the dollar overnight would disrupt the global economy.  

Nevertheless, ambitious countries such as China and Russia have sought alternatives. They called for a new global currency independent of any nations interests but were met with rejection. China has been gradually reducing its reliance on the dollar and even managed to include the Chinese Yuan as a reserve currency. Both China and Russia have been accumulating gold to weaken the dominance of the US dollar over time. 

From USD to Yuan: countries signaling shift in global currency usage？ 

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What might the US dollar‘s future look like？ 

The group of countries known as BRICS, comprising Brazil, Russia, India, China, and South Africa, is in the process of developing a new currency to rival the US dollar (USD). Moscow and Beijing are leading efforts to move away from the dollar, aiming to safeguard national central banks against geopolitical risks associated with the dollar’s status as the worlds reserve currency. 

Numerous factors contribute to the emergence of de-dollarization, but the ongoing tensions between Russia and Ukraine have provided impetus to the de-dollarization movement. The initiative gained momentum after Alexander Babakov, a Russian lawmaker and deputy chairman of the lower chamber of the Federal Assembly, claimed that the BRICS countries were collaborating on a new payment system. De-dollarization involves reducing the dollars indispensability in international trade, with increased investment in BRICS countries expected to drive spending and foster economic development. 



It is important to note that, despite perceived concerns about the US economy, the dollar has not significantly weakened. Even digital currencies have not presented a viable alternative to the dollar. However, it is essential to acknowledge that no currency is immune to challenges. Dominant currencies can collapse, but this typically requires a significant trigger such as a major political or economic event that disrupts the domestic economy. 

A historical example is the decline of the British pound's global prominence following the devastation of the local economy after World War I. The US dollar replaced it and solidified its position after World War II. For the dollar to experience a significant decline, a comparable catastrophic event or severe domestic instability would likely be required.

Disclaimer: This post is from Aximdaily and it is considered a marketing publication and does not constitute investment advice or research. Its content represents the general views of our editors and does not consider individual readers personal circumstances, investment experience, or current financial situation.