When it comes to international transactions, the US Dollar is one of the most used currencies and one of the world’s primary reserves. It may surprise people that the US dollar was adopted by many countries as the official currency or even unofficially, as an additional currency to their local currency.
The globalization of the US Dollar followed World War II when the Bretton Woods system was initiated. This system was a policy to fix the rate of exchange for all foreign currencies, and to which all the world’s most developed countries had participated. The Bretton Woods agreement referred to an international monetary system, combining a full set of rules, institutions, and procedures. The necessity of such a system rose from the international economy, which had been struck by World War II, and needed to be rebuilt.
The Power of the US Dollar
The US Dollar became the standard; nowadays, there are many large economies that not only trade in dollars globally – most of them for oil – but also keep large deposits, in dollars, within their Treasury Funds.
The US Dollar is a powerful currency, and the very base of its strength is the US economy. As a big, and a relatively strong economy, which boosted the US financial markets and transformed the US into an attractive destination for foreign capital. There are more dollars coming in, thanks to the drop in oil prices, which facilitated the increase in exports and the decrease in imports. There are high-interest rates, which enhanced foreign investment’s attractiveness.
Countries that use the US Dollar as the official Currency
The use of the US Dollar comes in parallel with their local currency Balboa (PAB). The adoption of the US Dollar occurred in 1903, after its independence from Colombia. This comes as an implication of the USA in building the Panama Canal and even maintaining it for quite a long period, until 2000.
The US Dollar has been Ecuador’s official local currency since 2000. The country has a history of jumping between currencies until 1884 when it settled to its own currency – Sucre (ECS). The adoption of US Dollar came as a result of Sucre’s depreciation impact on Ecuador’s economic collapse.
Like the case of Ecuador, the official local currency is the US Dollar, but the adoption came in the context of a stable economic environment and was the result of internal debates.
Turks and Caicos
This is a destination known not only for its breathtaking sites but also known as an offshore financial centre and tax paradise. Being a British territory, the US dollar adoption as the official local currency was a strategic decision that boosted attractiveness among tourists and businesses alike.
In 2009, after a period of horrific hyperinflation and political turmoil, the government discontinued their own currency, the Zimbabwean dollar (ZWL), in favour of the US Dollar, in order to prevent a complete economic collapse.
Quasi-Use of the U.S. Dollar
The US Dollar is used as a quasi-currency of exchange; it is widely used in both Canada and Mexico, but is also accepted in numerous tourist destinations like Commonwealth of the Bahamas, Barbados, Bermuda, the Cayman Islands, Sint Maarten, St Kitts, and Nevis, the ABC Islands of Aruba, Bonaire, Curacao, the BES Islands (which also includes the island of Bonaire), Sint Eustatius and Saba, now collectively known as the Caribbean Netherlands.
Some of the well-known retirement destinations for US citizens, like Belize, Panama, and Costa Rica, are also using the US Dollar; or if you prefer even more exotic destinations, it’s good to know that the USD is accepted in places like the Philippines, Republic of the Union of Myanmar (Burma), Cambodia, Liberia, the major cities of Vietnam, and the Old City of Jerusalem.