We recently compiled a list of the 16 Countries that use the US Dollar in the World and in this article we will list the top country along with an analysis of the US Dollar as the world’s reserve currency.
The US Dollar is the World’s Reserve Currency
The US dollar has been the world’s reserve currency since the Bretton Wood Agreement in 1944. A reserve currency is held by major central banks in large quantities and is used for investments, international trade, transactions, and to influence the domestic exchange rates of a country. Before the start of World War II, delegates from 44 Allied countries met in Bretton Wood to develop a system of foreign exchange. During this meeting, the Bretton Wood Agreement was signed and the delegation countries pegged the world’s currencies to the US dollar instead of the gold. According to the IMF, Currency Composition of the Official Foreign Exchange Reserve (COFER), 58.41% of the total foreign reserves around the globe were stored in US dollars in 2023. The foreign reserve share of the US dollar is more than the combined share of all other major currencies, including the Euro, Chinese, Renminbi, Japanese Yen, Pounds Sterling, and Canadian Dollar.
In addition to paper banknotes, a huge amount of official dollar reserves are held in the form of US Treasury Securities around the globe and are in high demand by both official and private investors. According to the US Federal Reserve, 31% of the marketable Treasury securities outstanding, amounting to $7.4 trillion, were held by foreign investors at the end of 2022. Moreover, the value of US dollar banknotes held by foreign investors has increased over the last two decades. According to the US Federal Reserve Bank, US banknotes worth more than $1 trillion were held by foreigners at the end of 2022. This value was roughly half of the total US dollar banknotes outstanding.
The US dollar being the reserve currency of the world is also a dominant and preferred currency for international trade and transactions. According to the US Federal Reserve, from 1999 to 2019, the dollar accounted for approximately 79% of the world’s trade invoices. On a regional level, the dollar accounted for 96% of the trade in the Americas and 74% in the Asia Pacific. It was however not the dominant trade currency in Europe, where the Euro dominated the trade invoices by holding a share of approximately 66%.
Is US Dollar Hegemony in Threat?
As discussed above, the US Dollar is the primary reserve currency of the world, however, its hegemony has come under question, especially after the Russia-Ukraine crisis. The US sanctions on Russia have left other countries questioning too much dependence on the dollar. Moreover, as interest rates rose across the globe, the US dollar became expensive for emerging nations. According to JPMorgan Chase & Co. (NYSE:JPM), in July 2023 Bolivia, a South American country decided to pay its import and export bills using the Chinese renminbi. Previously Brazil and Argentina, two other South American countries, had also decided to opt for the Chinese renminbi for international trade instead of the US dollar.
There are a few signs of marginal de-dollarization in the currency markets. Although the share of the US dollar in the total international federal reserves has remained well above the combined share of all other currencies, it has decreased over the last decade from 61.28% in 2013 to 58.41% in 2023. While no other currency has the global footprint to dethrone the US dollar from its position as the global reserve currency, China has been trying to internationalize its renminbi. The Chinese renminbi has improved its share in the total international federal reserves from 1.08% in 2016 to 2.29% in 2023, however, it remains below the shares of the Euro, Japanese yen, pound sterling, and the Canadian dollar.
On April 18, Reuters reported that Morgan Stanley (NYSE:MS) said, the dollar’s dominant currency status is likely to endure the rivalry with the Chinese, Russia-Ukraine crisis, and rising debt ceiling and debt levels, as other alternatives fall short as credible challengers. The report by Morgan Stanley (NYSE:MS) further stated that it did not expect the currency dominance to change soon, stating that the US dollar has a strong influence on the global economy and other financial metrics.
Now that we have discussed the role of the US dollar as the international reserve currency and the threats of de-dollarization let’s take a look at the 16 countries that use the US dollar in the world.
The Biggest Country that Uses the US Dollar
Our Methodology
To compile the list of 16 countries that use the US dollar in the world, we relied on the World Bank’s Development Indicator 4.16, Exchange rates and Prices. We looked at the DEC alternative conversion factor and official exchange rates and shortlisted countries that had an exchange rate of 1. Next, we searched the internet to ensure that the shortlisted countries used the US dollar as their official currency. We have ranked the countries that use the US dollar by their GDP at current prices, as of 2024.
Please note that the GDP at current prices was sourced from the IMF, however, for countries where the IMF had no data, we used the World Bank’s latest GDP figures. The year of the GDP has been mentioned for each country. We have also included economic performance of the countries sourced from the financial institutions of these countries.
Note: The list also includes commonwealth and unincorporated territories of the United States and the United Kingdom.
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The Biggest Country that Uses the US Dollar
United States
GDP Current Prices (2024): $28.78 trillion
The United States ranks as the biggest country that uses the US dollar in the world. The country has a GDP of $28.78 trillion and has a population of approximately 337.12 million people as of 2024. According to the IMF, the GDP of the United States is forecasted to grow at 2.7% in 2024. Moreover, the country has a GDP per capita of $85.37 thousand during the current year.
On March 28, Reuters reported that the US economy grew faster than the previous estimates for the fourth quarter. The GDP growth for the quarter was estimated at 3.4%. The stronger-than-expected growth of the country was attributed to strong consumer spending and business investments in the healthcare industrial sectors.
The United States ranks as the biggest country that uses the US dollar. To learn about other countries that use the US dollar as their official currency, you can read our report on 16 Countries that use the US Dollar in the World.
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