A major part of understanding macroeconomics is to understand the geopolitical landscape of the world. Any Economic policy of a country is directly affected by foreign policy as it aids the export and import of goods and services.
With COVID-19 and the Russia-Ukraine War, the world has undergone a major change and the ramifications of this change will be noticed throughout this decade.
Many geopolitical analysts suggest that the ramifications will be negative for the world including the leading powers on the world stage mainly the West.
West which includes- the USA, Europe, Japan, Australia, and New Zealand all are very powerful as they have a huge influence in the world and the main reason for the influence is the control over the financial institutions.
The US Dollars is the world’s reserve currency which allows the USA to remain in the control of finances of a country.
Some countries use the US Dollars as their currency instead of printing their currency.
In this article, we will find out How Many Countries Use the US Dollar, the growing demand for de-dollarization, and much more.
But first, let’s understand what is World’s reserve currency.
What is Official Currency?
The official Currency is the currency which is by law recognized by the Government of the country to be used as a legal tender for the exchange of goods and services. It is issued by the Country’s central bank and is used for trading and commerce.
How Many Countries Use the US Dollar?
The following are the countries that use the US Dollar as their official currency–
United States of America
US Dollars is printed by the Federal Reserve Bank and the value of the dollars is fixed which makes it easy for the other countries to trade.
This also gave the USA a lot of leverage against other economies and pushed the USA to become the largest economy in the world with $20 Trillion Dollars.
Ecuador is a South American Country that uses dollars as its official currency. Ecuador adopted the US dollar in 2000 due to a financial crisis that made the previous currency, the sucre, collapse. Ecuador relies on tourism, borrowing, and international trade to earn its dollars and push the currency into the Ecuadorian economy.
El Salvador is a nation located in Central America and recognizes the US dollar as their official currency. It was adopted in the year 2001 replacing the Salvadoran colon to stabilize the economy, attract foreign investment, and lower inflation.
Due to the lack of a Central bank in the Marshall Islands, the Marshall Islands have used the US dollars as their legal tender since their Independence in the year 1979.
The government recognizes the US dollars and can be used to settle any financial obligation. However, things may change as they are currently working on issuing a sovereign currency in digital form using blockchain technology.
The Federated States of Micronesia (FSM) recognizes the US dollar as their official currency providing its citizens flexibility to settle financial obligations using this currency.
It was adopted in the year 1979, FSM was administered by the US from 1947 to 1989, however, they chose to keep the US dollar as their official currency.
The Palauan government recognizes the US dollar as a legal tender that can be used in the country for trade and settlement. It is been in use since 1994. The Palauan did not had any currency prior and hence, adopted US dollars as their currency.
The US dollar has been the official currency of East Timor since 2000, located in Located in between Southeast Asia and the South Pacific, it is an island nation.
Due to the Hyperinflation of the Zimbabwe dollar, the US dollar was used to curb the rising inflation. It was adopted in the year 2009 due to US dollar stability and acceptance worldwide.
What Is De-Dollarization?
De-dollarization is a process wherein countries from around the world avoid using dollars as a medium for international trade.
This poses a threat to US hegemony as well as their control over the financial system which in turn could affect the US economy badly.
When countries stop trading using US dollars, the demand for US Dollars will go down which devalues the currency, and the investment countries make in the US Federal Reserves will be lowered.
Due to lower investment of countries in the US Fed, the interest rate offered by the bank will also go up making it difficult for the people to borrow money from the bank which in turn will make the US economy shrink.
Many geopolitical pundits say that de-dollarization is inevitable and that the US place on the global stage will be similar to that of Britain when the Pax-Americana. Just like how Britain started losing its grip over the world, the US will also lose its Superpower status.
What is Reserve Currency?
A Reserve Currency is a currency used by the Central banks of various countries to manage trade, investments, transactions, and other financial obligations.
Currently, the US Dollar is the world’s Reserve currency and is the result Bretton Woods Agreement signed by various countries in 1944. After the signing of the agreement the USD which was backed by the world’s largest gold reserves became the world’s reserve currency.
All the countries in the world started to do their trade and commerce with one another using the dollar, for this USA promised financial security, free market access to its domestic market, and various other perks.
Some countries also started accumulating their primary reserves as US Dollars in the US banks instead of gold. In the 1970s, the USA struck a deal with Saudi Arabia to sell its crude oil only for the US Dollars which further strengthened the USA’s hegemony as the World’s Reserve Currency. Almost 90% of trade in the world happens using the US dollars.
Reason for De-dollarization
The usage of dollars is not only limited to official currency but is also a Reserved currency due to various geopolitical reasons, the world is shifting towards de-dollarization. The following are the reasons why de-dollarization is increasing-
The USA is notorious for using financial power to blackmail and sanction countries. The latest example of this is the Russian Sanction. Russia is by far the most sanctioned country in the world after Iran and North Korea.
A responsible country only accepts the sanctions of the United Nations which is decided on the ground of countries. However, the USA’s bad habit of sanctioning that country that did not agree with them made many countries wonder how powerful the USA could be and how much control the USA has over the dollars.
This motivated many countries to strike bilateral deals with partner countries to mutual currency agreements to use each other’s currency for trade. China, India, Russia, Saudi Arabia, etc. are the biggest countries that recently joined the club and started avoiding US Dollars.
USA’s Double Standards for Rules-Based Order
USA’s Double standards are yet another reason why countries want to do away with the US dollar. The USA has a history of military interventions throughout the globe to serve its geopolitical interests.
War in Iraq, Syria, Cuba, Vietnam, etc. are some of the examples where the USA indulges itself into the war to serve its geopolitical reasons. Millions of people died due to these unnecessary wars resulting in problems that exist to this day.
Apart from this, the USA also plays good terrorism and bad terrorism against hostile countries. ISIS is a big example of this. Many believe that the USA is behind the formation of the ISIS Terrorist organization, Al-Qaeda, Taliban, etc.
After the 9/11 attacks, the USA cut support from these organizations and started its War on Terror campaign attacking Afganistan.
All these actions were a direct attack on the Rule’s Based Order which America is a founding member of. These double standards motivated many countries’ security advisors to keep the financial system safe from any US influence.
The de-dollarization is not only a result of the declining US as a world power however, it is also due to the result of other power rising.
The biggest rise which is noticed is China’s Rise as a contender of the Number-1 or an alternative to the USA. Other significant powers in Geopolitical chessboards are Russia and India.
Out of these three, only India is a country where every factor to become a superpower is perfectly aligned. After 60 years of Pax-Americana, the world could experience a change in global order which could be led by India as Pax-Indica.
India is projected to be third third-largest economy by 2030 and a developed country by 2050. India also has a huge population and a big military. With some problems ahead like poverty, bureaucracy, unemployment, etc. the road ahead is long and rocky but, the chances of India making it are very very high which is the reason why the USA is also very keen to partner with India.
Rising Racial Tensions within the USA
Racial discrimination, gun violence, and racism are some of the fault lines in American society which is breaking the USA’s societal fabric.
The reduction of the family value system further deepens the divide between people. Groups in America are on the rise people start associating themselves with the group. These groups engage in fights with each other resulting in the destabilization.
US dollars are used across the world by many countries as their official currency and by many countries as a reserve currency.
The US Dollar has a huge impact on everyone’s life. Everyone has dreamt about going to the US to become a part of the American Dream but, with growing geopolitical tensions, it USA is becoming a not-so-great destination for immigration.
The US was able to become the World’s dominant currency due to the stability of the currency and its ability to make it acceptable to everyone, this is despite not being the Highest currency in the world.