Currency substitution is the use of a foreign

currency A currency is a standardization of money in any form, in use or circulation as a medium of exchange, for example banknotes and coins. A more general definition is that a currency is a ''system of money'' in common use within a specific envi ...

in parallel to or instead of a domestic currency. Currency substitution can be full or partial. Full currency substitution can occur after a major economic crisis, such as in

Ecuador Ecuador, officially the Republic of Ecuador, is a country in northwestern South America, bordered by Colombia on the north, Peru on the east and south, and the Pacific Ocean on the west. It also includes the Galápagos Province which contain ...

El Salvador El Salvador, officially the Republic of El Salvador, is a country in Central America. It is bordered on the northeast by Honduras, on the northwest by Guatemala, and on the south by the Pacific Ocean. El Salvador's capital and largest city is S ...

, and

Zimbabwe file:Zimbabwe, relief map.jpg, upright=1.22, Zimbabwe, relief map Zimbabwe, officially the Republic of Zimbabwe, is a landlocked country in Southeast Africa, between the Zambezi and Limpopo Rivers, bordered by South Africa to the south, Bots ...

. Some small economies, for whom it is impractical to maintain an independent currency, use the currencies of their larger neighbours; for example,

Liechtenstein Liechtenstein (, ; ; ), officially the Principality of Liechtenstein ( ), is a Landlocked country#Doubly landlocked, doubly landlocked Swiss Standard German, German-speaking microstate in the Central European Alps, between Austria in the east ...

uses the

Swiss franc The Swiss franc, or simply the franc, is the currency and legal tender of Switzerland and Liechtenstein. It is also legal tender in the Italian exclave of Campione d'Italia which is surrounded by Swiss territory. The Swiss National Bank (SNB) iss ...

. Partial currency substitution occurs when residents of a country choose to hold a significant share of their financial assets denominated in a foreign currency. It can also occur as a gradual conversion to full currency substitution; for example,

Argentina Argentina, officially the Argentine Republic, is a country in the southern half of South America. It covers an area of , making it the List of South American countries by area, second-largest country in South America after Brazil, the fourt ...

and

Peru Peru, officially the Republic of Peru, is a country in western South America. It is bordered in the north by Ecuador and Colombia, in the east by Brazil, in the southeast by Bolivia, in the south by Chile, and in the south and west by the Pac ...

were both in the process of converting to the U.S. dollar during the 1990s.

Name

"Dollarization", when referring to currency substitution, does not necessarily involve use of the

United States dollar The United States dollar (Currency symbol, symbol: Dollar sign, $; ISO 4217, currency code: USD) is the official currency of the United States and International use of the U.S. dollar, several other countries. The Coinage Act of 1792 introdu ...

. The major currencies used as substitutes are the US dollar and the

euro The euro (currency symbol, symbol: euro sign, €; ISO 4217, currency code: EUR) is the official currency of 20 of the Member state of the European Union, member states of the European Union. This group of states is officially known as the ...

Origins

After the

gold standard A gold standard is a backed currency, monetary system in which the standard economics, economic unit of account is based on a fixed quantity of gold. The gold standard was the basis for the international monetary system from the 1870s to the ...

was abandoned at the outbreak of

World War I World War I or the First World War (28 July 1914 – 11 November 1918), also known as the Great War, was a World war, global conflict between two coalitions: the Allies of World War I, Allies (or Entente) and the Central Powers. Fighting to ...

and the

Bretton Woods Conference The Bretton Woods Conference, formally known as the United Nations Monetary and Financial Conference, was the gathering of 730 delegates from all 44 allied nations at the Mount Washington Hotel, in Bretton Woods, New Hampshire, United States, to ...

following

World War II World War II or the Second World War (1 September 1939 – 2 September 1945) was a World war, global conflict between two coalitions: the Allies of World War II, Allies and the Axis powers. World War II by country, Nearly all of the wo ...

, some countries sought

exchange rate In finance, an exchange rate is the rate at which one currency will be exchanged for another currency. Currencies are most commonly national currencies, but may be sub-national as in the case of Hong Kong or supra-national as in the case of ...

regimes to promote global economic stability, and hence their own prosperity. Countries usually peg their currency to a major

convertible currency Convertibility is the quality that allows money or other financial instruments to be converted into other liquid stores of value. Convertibility is an important factor in international trade, where instruments valued in different currencies mu ...

. "Hard pegs" are exchange rate regimes that demonstrate a stronger commitment to a fixed parity (i.e. currency boards) or relinquish control over their own currency (such as currency unions) while "soft pegs" are more flexible and floating

regimes. The collapse of "soft" pegs in

Southeast Asia Southeast Asia is the geographical United Nations geoscheme for Asia#South-eastern Asia, southeastern region of Asia, consisting of the regions that are situated south of China, east of the Indian subcontinent, and northwest of the Mainland Au ...

and

Latin America Latin America is the cultural region of the Americas where Romance languages are predominantly spoken, primarily Spanish language, Spanish and Portuguese language, Portuguese. Latin America is defined according to cultural identity, not geogr ...

in the late 1990s led to currency substitution becoming a serious policy issue. A few cases of full currency substitution prior to 1999 had been the consequence of political and historical factors. In all long-standing currency substitution cases, historical and political reasons have been more influential than an evaluation of the economic effects of currency substitution.Yeyati (2003) at 3.

Panama Panama, officially the Republic of Panama, is a country in Latin America at the southern end of Central America, bordering South America. It is bordered by Costa Rica to the west, Colombia to the southeast, the Caribbean Sea to the north, and ...

adopted the US dollar as

legal tender Legal tender is a form of money that Standard of deferred payment, courts of law are required to recognize as satisfactory payment in court for any monetary debt. Each jurisdiction determines what is legal tender, but essentially it is anything ...

after independence as the result of a constitutional ruling.

and

became fully dollarized economies in 2000 and 2001 respectively, for different reasons. Ecuador underwent currency substitution to deal with a widespread political and financial crisis resulting from massive loss of confidence in its political and monetary institutions. By contrast, El Salvador's official currency substitution was a result of internal debates and in a context of stable macroeconomic fundamentals and long-standing unofficial currency substitution. The

eurozone The euro area, commonly called the eurozone (EZ), is a Monetary union, currency union of 20 Member state of the European Union, member states of the European Union (EU) that have adopted the euro (Euro sign, €) as their primary currency ...

adopted the euro (€) as its common currency and sole

in 1999, which might be considered a variety of full-commitment regime similar to full currency substitution despite some evident differences from other currency substitutions.

Measures

There are two common indicators of currency substitution. The first measure is the share of foreign currency deposits (FCD) in the domestic banking system in the

broad money In economics, broad money is a measure of the amount of money, or money supply, in a national economy including both highly liquid "narrow money" and less liquid forms. The European Central Bank, the OECD and the Bank of England all have their own ...

including FCD. The second is the share of all foreign currency deposits held by domestic residents at home and abroad in their total monetary assets.Savastano at 7.

Types

Unofficial currency substitution or de facto currency substitution is the most common type of currency substitution. Unofficial currency substitution occurs when residents of a country choose to hold a significant share of their financial assets in foreign currency, even though the foreign currency is not

there. They hold deposits in the foreign currency because of a bad track record of the local currency, or as a hedge against inflation of the domestic currency. Official currency substitution or full currency substitution happens when a country adopts a foreign currency as its sole legal tender, and ceases to issue the domestic currency. Another effect of a country adopting a foreign currency as its own is that the country gives up all power to vary its

. There are a small number of countries adopting a foreign currency as

. Full currency substitution has mostly occurred in Latin America, the Caribbean and the Pacific, as many countries in those regions see the

United States Dollar The United States dollar (Currency symbol, symbol: Dollar sign, $; ISO 4217, currency code: USD) is the official currency of the United States and International use of the U.S. dollar, several other countries. The Coinage Act of 1792 introdu ...

as a stable currency compared to the national one. For example, Panama underwent full currency substitution by adopting the US dollar as legal tender in 1904. This type of currency substitution is also known as de jure currency substitution. Currency substitution can be used semiofficially (or officially, in bimonetary systems), where the foreign currency is

alongside the domestic currency. In literature, there is a set of related definitions of currency substitution such as external liability currency substitution, domestic liability currency substitution, banking sector's liability currency substitution or deposit currency substitution, and credit dollarization. External liability currency substitution measures total

external debt A country's gross external debt (or foreign debt) is the liabilities that are owed to nonresidents by residents. The debtors can be government, governments, corporation, corporations or citizens. External debt may be denominated in domestic or f ...

(private and public) denominated in foreign currencies of the economy. Deposit currency substitution can be measured as the share of foreign currency deposits in the total deposits of the banking system, and credit currency substitution can be measured as the share of dollar credit in the total credit of the banking system.

Effects

On trade and investment

One of the main advantages of adopting a strong foreign currency as sole

is to reduce the transaction costs of trade among countries using the same currency. There are at least two ways to infer this impact from data. The first is the significantly negative effect of exchange rate volatility on trade in most cases, and the second is an association between transaction costs and the need to operate with multiple currencies.Yeyati (2003) at 22. Economic integration with the rest of the world becomes easier as a result of lowered transaction costs and stabler prices. Rose (2000) applied the

gravity model of trade The gravity model of international trade in international economics is a model that, in its traditional form, predicts bilateral trade flows based on the economic sizes and distance between two units. Research shows that there is "overwhelming e ...

and provided empirical evidence that countries sharing a common currency engage in significantly increased trade among them, and that the benefits of currency substitution for trade may be large. Countries with full currency substitution can invoke greater confidence among international investors, inducing increased investments and growth. The elimination of the currency crisis risk due to full currency substitution leads to a reduction of country risk premiums and then to lower interest rates. These effects result in a higher level of investment. However, there is a positive association between currency substitution and interest rates in a dual-currency economy.

On monetary and exchange rate policies

Official currency substitution helps to promote fiscal and monetary discipline and thus greater macroeconomic stability and lower

inflation In economics, inflation is an increase in the average price of goods and services in terms of money. This increase is measured using a price index, typically a consumer price index (CPI). When the general price level rises, each unit of curre ...

rates, to lower real exchange rate volatility, and possibly to deepen the financial system. Firstly, currency substitution helps developing countries, providing a firm commitment to stable monetary and exchange rate policies by forcing a passive monetary policy. Adopting a strong foreign currency as

will help to "eliminate the inflation-bias problem of discretionary monetary policy". Secondly, official currency substitution imposes stronger financial constraint on the government by eliminating deficit financing by issuing money. An empirical finding suggests that inflation has been significantly lower in economies with full currency substitution than nations with domestic currencies. The expected benefit of currency substitution is the elimination of the risk of exchange rate fluctuations and a possible reduction in the country's international exposure. Currency substitution cannot eliminate the risk of an external crisis but provides steadier markets as a result of eliminating fluctuations in exchange rates. On the other hand, currency substitution leads to the loss of

seigniorage Seigniorage , also spelled seignorage or seigneurage (), is the increase in the value of money due to money creation minus the cost of producing the additional money. Monetary seigniorage is where government bonds are exchanged for newly create ...

revenue, the loss of monetary policy autonomy, and the loss of the

instruments. Seigniorage revenues are the profits generated when monetary authorities issue currency. When adopting a foreign currency as

, a monetary authority needs to withdraw the domestic currency and give up future seigniorage revenue. The country loses the rights to its autonomous monetary and

policies, even in times of financial emergency. For example, former chairman of the

Federal Reserve The Federal Reserve System (often shortened to the Federal Reserve, or simply the Fed) is the central banking system of the United States. It was created on December 23, 1913, with the enactment of the Federal Reserve Act, after a series of ...

Alan Greenspan Alan Greenspan (born March 6, 1926) is an American economist who served as the 13th chairman of the Federal Reserve from 1987 to 2006. He worked as a private adviser and provided consulting for firms through his company, Greenspan Associates L ...

has stated that the central bank considers the effects of its decisions only on the US economy. In a full currency substituted economy,

exchange rates In finance, an exchange rate is the rate at which one currency will be exchanged for another currency. Currencies are most commonly national currencies, but may be sub-national as in the case of Hong Kong or supra-national as in the case of ...

are indeterminate and monetary authorities cannot devalue the currency. In an economy with high currency substitution,

devaluation In macroeconomics and modern monetary policy, a devaluation is an official lowering of the value of a country's currency within a fixed exchange-rate system, in which a monetary authority formally sets a lower exchange rate of the national curre ...

policy is less effective in changing the

real exchange rate In finance, an exchange rate is the rate at which one currency will be exchanged for another currency. Currencies are most commonly national currencies, but may be sub-national as in the case of Hong Kong or supra-national as in the case of ...

because of significant pass-through effects to domestic prices. However, the cost of losing an independent monetary policy exists when domestic monetary authorities can commit an effective counter-cyclical monetary policy, stabilizing the business cycle. This cost depends adversely on the correlation between the business cycle of the client country (the economy with currency substitution) and the business cycle of the anchor country. In addition, monetary authorities in economies with currency substitution diminish the liquidity assurance to their banking system.

On banking systems

In an economy with full currency substitution, monetary authorities cannot act as

lender of last resort In public finance, a lender of last resort (LOLR) is a financial entity, generally a central bank, that acts as the provider of liquidity to a financial institution which finds itself unable to obtain sufficient liquidity in the interbank ...

to commercial banks by printing money. The alternatives to lending to the bank system may include taxation and issuing government debt. The loss of the lender of last resort is considered a cost of full currency substitution. This cost depends on the initial level of unofficial currency substitution before moving to a full currency substituted economy. This relation is negative because in a heavily currency substituted economy, the central bank already fears difficulties in providing liquidity assurance to the banking system. However, literature points out the existence of alternative mechanisms to provide liquidity insurance to banks, such as a scheme by which the international financial community charges an insurance fee in exchange for a commitment to lend to a domestic bank. Commercial banks in countries where saving accounts and loans in foreign currency are allowed may face two types of risks: #Currency mismatch risk: Assets and liabilities on the balance sheets may be in different denominations. This may arise if the bank converts foreign currency deposits into local currency and lends in local currency or vice versa. #Default risk: Arises if the bank uses the foreign currency deposits to lend in foreign currency. However, currency substitution eliminates the probability of a

currency crisis A currency crisis is a type of financial crisis, and is often associated with a real economic crisis. A currency crisis raises the probability of a banking crisis or a default crisis. During a currency crisis the value of foreign denominated deb ...

that negatively affects the banking system through the

balance sheet In financial accounting, a balance sheet (also known as statement of financial position or statement of financial condition) is a summary of the financial balances of an individual or organization, whether it be a sole proprietorship, a business ...

channel. Currency substitution may reduce the possibility of systematic liquidity shortages and the optimal reserves in the banking system. Research has shown that official currency substitution has played a significant role in improving bank liquidity and asset quality in Ecuador and El Salvador.

Determinants of the process

The dynamics of the flight from domestic money

High and unanticipated inflation rates decrease the demand for domestic money and raise the demand for alternative assets, including foreign currency and assets dominated by foreign currency. This phenomenon is called the "flight from domestic money". It results in a rapid and sizable process of currency substitution.Savastano. In countries with high inflation rates, the domestic currency tends to be gradually displaced by a stable currency. At the beginning of this process, the store-of-value function of the domestic currency is replaced by the foreign currency. Then, the unit-of-account function of the domestic currency is displaced when many prices are quoted in a foreign currency. A prolonged period of high inflation will induce the domestic currency to lose its function as

medium of exchange In economics, a medium of exchange is any item that is widely acceptable in exchange for goods and services. In modern economies, the most commonly used medium of exchange is currency. Most forms of money are categorised as mediums of exchange, i ...

when the public carries out many transactions in foreign currency. Ize and Levy-Yeyati (1998) examine the determinants of deposit and credit currency substitution, concluding that currency substitution is driven by the volatility of inflation and the real exchange rate. Currency substitution increases with inflation volatility and decreases with the volatility of the real exchange rate.

Institutional factors

The flight from domestic money depends on a country's institutional factors. The first factor is the level of development of the domestic financial market. An economy with a well-developed financial market can offer a set of alternative financial instruments denominated in domestic currency, reducing the role of foreign currency as an inflation hedge. The pattern of the currency substitution process also varies across countries with different foreign exchange and capital controls. In a country with strict foreign exchange regulations, the demand for foreign currency will be satisfied in the holding of foreign currency assets abroad and outside the domestic banking system. This demand often puts pressure on the parallel market of foreign currency and on the country's international reserves. Evidence for this pattern is given in the absence of currency substitution during the pre-reform period in most transition economies, because of constricted controls on foreign exchange and the banking system. In contrast, by increasing foreign currency reserves, a country might mitigate the shift of assets abroad and strengthen its external reserves in exchange for a currency substitution process. However, the effect of this regulation on the pattern of currency substitution depends on the public's expectations of macroeconomic stability and the sustainability of the foreign exchange regime.

Anchor currencies

Australian dollar

* (since 1943; also uses its own coins) * (since 1914; also issues non-circulating Nauran collector coins pegged to the Australian dollar) * (since 1892; also uses its own coins) * (alongside the

South African rand The South African rand, or simply the rand, (currency sign, sign: R; ISO 4217, code: ZAR) is the official currency of South Africa. It is subdivided into 100 Cent (currency), cents (sign: "c"), and a comma separates the rand and cents. The Sou ...

Botswana pula The Pula (also known as the Botswana dollar) is the currency of Botswana. It has the ISO 4217 code ''BWP'' and is subdivided into 100 ''thebe''. ''Pula'' literally means "rain" in Setswana, because rain is very scarce in Botswana—home to much o ...

Japanese yen The is the official currency of Japan. It is the third-most traded currency in the foreign exchange market, after the United States dollar and the euro. It is also widely used as a third reserve currency after the US dollar and the euro. Th ...

, several other currencies and U.S. dollar-denominated bond coins and bond notes of the Real Time Gross Settlement (RTGS) dollar)

Euro

* (formerly

French franc The franc (; , ; currency sign, sign: F or Fr), also commonly distinguished as the (FF), was a currency of France. Between 1360 and 1641, it was the name of coins worth 1 livre tournois and it remained in common parlance as a term for this amoun ...

and

Spanish peseta The peseta (, ) was the currency of Spain between 1868 and 2002. Along with the French franc, it was also a de facto currency, ''de facto'' currency used in Andorra (which had no national currency with legal tender). Etymology The name of the ...

; issued non-circulating Andorran diner coins; issues its own euro coins). Since 1278, Andorra has used its neighbours' currencies, at the time the Counties of Foix, in present-day France, and of Urgell, in Catalonia. * (

Sovereign Base Areas of Akrotiri and Dhekelia Akrotiri and Dhekelia (), officially the Sovereign Base Areas of Akrotiri and Dhekelia (SBA), is a British Overseas Territory made of two non-contiguous areas on the island of Cyprus. The areas, which include British military bases and instal ...

); formerly used the

Cypriot pound The pound, or lira (, plural , and , , from the Latin language, Latin via the Italian language, Italian ; Currency symbol, sign: £, sometimes £C for distinction), was the currency of Cyprus, including the Sovereign Base Areas in Akrotiri and D ...

) * (used in the overseas territories of the French Southern Territories,

Saint Barthélemy Saint Barthélemy, officially the Collectivité territoriale de Saint-Barthélemy, also known as St. Barts (English) or St. Barth (French), is an overseas collectivity of France in the Caribbean. The island lies about southeast of the island ...

, and

Saint Pierre and Miquelon Saint Pierre and Miquelon ( ), officially the Territorial Collectivity of Saint Pierre and Miquelon (), is a self-governing territorial overseas collectivity of France in the northwestern Atlantic Ocean, located near the Canada, Canadian prov ...

. Euro is used in the French overseas and department region of

Guadeloupe Guadeloupe is an Overseas departments and regions of France, overseas department and region of France in the Caribbean. It consists of six inhabited islands—Basse-Terre Island, Basse-Terre, Grande-Terre, Guadeloupe, Grande-Terre, Marie-Galant ...

) ** (pegged to the

CFP franc The CFP franc (French language, French: , called the ''franc'' in everyday use) is the currency used in the France, French overseas collectivity, overseas collectivities (, or COM) of French Polynesia, New Caledonia, and Wallis and Futuna. The i ...

at a fixed exchange rate) ** (pegged to the

at a fixed exchange rate) * (formerly

German mark The Deutsche Mark (; "German mark"), abbreviated "DM" or "D-Mark" (), was the official currency of West Germany from 1948 until 1990 and later of unified Germany from 1990 until the adoption of the euro in 2002. In English, it was typically c ...

and

Yugoslav dinar The dinar ( sh-Cyrl, динар) was the currency of Yugoslavia. It was introduced in 1920 in the Kingdom of Serbs, Croats and Slovenes, which was replaced by the Kingdom of Yugoslavia, and then the Socialist Federal Republic of Yugoslavia. Th ...

) * (formerly

from 1865 to 2002 and Monégasque franc; issues its own euro coins) * (formerly

and

) * (alongside the Chinese renminbi,

North Korean won The Korean People's won, more commonly known as the North Korean won (currency symbol, symbol: ₩; ISO 4217, code: KPW; ) and sometimes known as the Democratic People's Republic of Korea won (), is the official currency of North Korea. It is ...

, and

) * (formerly

Italian lira The lira ( , ; : lire, , ) was the currency of Italy between 1861 and 2002. It was introduced by the Kingdom of Italy (Napoleonic), Napoleonic Kingdom of Italy in 1807 at par with the French franc, and was subsequently adopted by the different s ...

and

Sammarinese lira The lira (plural ''lire''; abbreviation: SML) was the currency of San Marino from the 1860s until it was replaced by the euro on 1 January 2002. It was equivalent and Peg (currency), pegged to the Italian lira. Coins of the Italian lira, Italian c ...

; issues its own euro coins) * (issues non-circulating

Maltese scudo The Italian scudo, scudo (plural ''scudi'') is the official currency of the Sovereign Military Order of Malta and was the currency of Malta during the rule of the Order over Malta, which ended in 1798. It is subdivided into 12 ''tarì'' (singula ...

coins at €0.24 = 1 scudo) * (formerly

and Vatican lira; issues its own euro coins) * (alongside the

, several other currencies and U.S. dollar-denominated bond coins and bond notes of the Real Time Gross Settlement (RTGS) dollar)

Indian rupee

* (alongside the Bhutanese ngultrum, pegged at par with the rupee) * (alongside the Nepali rupee, pegged at ₹0.625) * (alongside the

, several other currencies and U.S. dollar-denominated bond coins and bond notes of the Real Time Gross Settlement (RTGS) dollar)

New Zealand dollar

* ( issues its own coins and some notes.) * (also issues its own non-circulating commemorative and collector coins minted at the New Zealand Mint, pegged to the New Zealand dollar.) * (also issues its own non-circulating commemorative and collector coins pegged to the New Zealand dollar.) * (also issues its own non-circulating commemorative and collector coins pegged to the New Zealand dollar.)

Pound sterling

British Overseas Territories using the pound, or a local currency pegged to the pound, as their currency: *' (issues non-circulating collector coins for the British Antarctic Territory.) * (''de jure'', U.S. dollar used ''de facto''; also issues non-circulating collector coins for the British Indian Ocean Territory.) * (alongside the

Falkland Islands pound The pound is the currency of the Falkland Islands, a British Overseas Territory in the South Atlantic Ocean. The symbol is the pound sign, £. The ISO 4217 currency code is ''FKP''. The Falkland Islands pound has always been Fixed exchange rate, ...

) * (alongside the

Gibraltar pound The pound ( sign: £; ISO code: GIP) is the currency of Gibraltar. It is pegged to – and exchangeable with – British pound sterling at par value. Coins and banknotes of the Gibraltar pound are issued by the Government of Gibraltar. His ...

) * (Tristan da Cunha; alongside the

Saint Helena pound The Saint Helena pound is the currency of the Atlantic islands of Saint Helena and Ascension, which are constituent parts of the British Overseas Territory of Saint Helena, Ascension and Tristan da Cunha. It is fixed at parity with sterling, ...

Saint Helena Saint Helena (, ) is one of the three constituent parts of Saint Helena, Ascension and Tristan da Cunha, a remote British overseas territory. Saint Helena is a volcanic and tropical island, located in the South Atlantic Ocean, some 1,874 km ...

and Ascension; also issues non-circulating collector coins for Saint Helena, Ascension and Tristan da Cunha.) * (alongside the

; also issues non-circulating collector coins for South Georgia and the South Sandwich Islands.) The

Crown Dependencies The Crown Dependencies are three dependent territory, offshore island territories in the British Islands that are self-governing possessions of the The Crown, British Crown: the Bailiwick of Guernsey and the Jersey, Bailiwick of Jersey, both lo ...

use a local issue of the pound as their currency: * (

Guernsey pound The pound is the currency of Guernsey. Since 1921, Guernsey has been in currency union with the United Kingdom and the Guernsey pound is not a separate currency but is a local issue of sterling banknotes and coins, in a similar way to the banknot ...

) ** (issues non-circulating Alderney pound collector coins, backed by both the Pound sterling and Guernsey pound.) * (

Manx pound The pound (abbreviation: IMP; sign: £), or Manx pound (; in order to distinguish it from other similar-named currencies), is the currency of the Isle of Man, at parity with sterling. The Manx pound is divided into 100 pence. Notes and coins ...

) * (

Jersey pound The pound (, Jèrriais: ''Louis d'Jèrri''; abbreviation: JEP; sign: £) is the currency of Jersey. Jersey is in currency union with the United Kingdom, and the Jersey pound is not a separate currency but is an issue of banknotes and coins by t ...

) Under plans published in the Sustainable Growth Commission report by the

Scottish National Party The Scottish National Party (SNP; ) is a Scottish nationalist and social democratic party. The party holds 61 of the 129 seats in the Scottish Parliament, and holds 9 out of the 57 Scottish seats in the House of Commons of the United Kingdom, ...

, an independent Scotland would use the pound as their currency for the first 10 years of independence. This has become known as sterlingisation. Other countries: * (alongside the

, several other currencies and U.S. dollar-denominated bond coins and bond notes of the Real Time Gross Settlement (RTGS) dollar)

South African rand

* (alongside the Swazi lilangeni) * (alongside the Lesotho loti) * (alongside the

Namibian dollar The Namibia dollar (currency symbol, symbol: $ or N$; ISO 4217, code: NAD) has been the currency of Namibia since 1993. It is normally abbreviated with the dollar sign ($), or alternatively N$ to distinguish it from other currencies called “d ...

) * (alongside the

, several other currencies and U.S. dollar-denominated bond coins and bond notes of the Real Time Gross Settlement (RTGS) dollar)

United States dollar

Used exclusively

* (also issues non-circulating British Virgin Islands collector coins pegged to the U.S. dollar) *

Caribbean Netherlands The Caribbean Netherlands (, ) is a geographic region of the Netherlands located outside of Europe, in the Caribbean, consisting of three special municipalities. These are the islands of Bonaire, Sint Eustatius, and Saba (island), Saba,"Bonair ...

(since 1 January 2011) * (issued non-circulating collector coins of the Marshall Islands pegged to the U.S. dollar since 1986) * (since 1944) * (since 1944; issued non-circulating Palauan collector coins pegged to the U.S. dollar since 1992) * (issued non-circulating Turks and Caicos Islands collector coins denominated in "Crowns" and pegged to the U.S. dollar since 1969)

Used partially

* (the

is used for major purchases such as buying properties) * ( Bahamian dollar pegged at 1:1 but the United States dollar is accepted) * ( Barbadian dollar pegged at 2:1 but the United States dollar is accepted) * ( Belizean dollar pegged at 2:1 but the United States dollar is accepted) * (

Bermudian dollar The Bermudian dollar (symbol: $; code: BMD; also abbreviated BD$; informally called the Bermuda dollar) is the official currency of the British Overseas Territory of Bermuda. It is subdivided into 100 cents. The Bermudian dollar is not n ...

pegged at 1:1 but the United States dollar is accepted) * (uses the Cambodian riel for many official transactions but most businesses deal exclusively in dollars for all but the cheapest items. Change is often given in a combination of U.S. dollars and Cambodian riel. ATMs yield U.S. dollars rather than Cambodian riel) * (a modest amount of United States coinage circulates alongside the

Canadian dollar The Canadian dollar (currency symbol, symbol: $; ISO 4217, code: CAD; ) is the currency of Canada. It is abbreviated with the dollar sign $. There is no standard disambiguating form, but the abbreviations Can$, CA$ and C$ are frequently used f ...

and is accepted at par by most retailers, banks and coin redemption machines) * (many institutions accept both the Congolese franc and U.S. dollars) * (uses alongside the Costa Rican colón) * (since 2000; also uses its own coins) * (uses alongside

bitcoin Bitcoin (abbreviation: BTC; Currency symbol, sign: ₿) is the first Decentralized application, decentralized cryptocurrency. Based on a free-market ideology, bitcoin was invented in 2008 when an unknown entity published a white paper under ...

) (see Bitcoin Law and

Bitcoin in El Salvador El Salvador became the first country in the world to use bitcoin as legal tender, after it was adopted as such by the Legislative Assembly of El Salvador in 2021. It has been promoted by Nayib Bukele, the president of El Salvador, who claimed that ...

) * (uses the U.S. dollar alongside its domestic currency, the gourde) * (uses alongside the Honduran lempira) * (alongside the

Iraqi dinar The Iraqi dinar (ISO 4217, code: IQD; ), ) is the currency of Iraq. The Iraqi dinar is issued by the Central Bank of Iraq (CBI). On 7 February 2023, the exchange rate with the US dollar was US$1 = 1300 dinars. History The Iraqi dinar entered ci ...

) * (alongside the

Lebanese pound The lira or pound is the currency of Lebanon. It was formerly divided into 100 piastres (or ''qirsh'' in Arabic) but, because of high inflation during the Lebanese Civil War (1975–1990), subunits were discontinued. The plural of lira is eithe ...

) * (exclusively used the U.S. dollar during the early PRC period, but the National Bank of Liberia began issuing five dollar coins in 1982; United States dollar still in common usage alongside the Liberian dollar) * (alongside the

, and

renminbi The renminbi ( ; currency symbol, symbol: Yen and yuan sign, ¥; ISO 4217, ISO code: CNY; abbreviation: RMB), also known as the Chinese yuan, is the official currency of the China, People's Republic of China. The renminbi is issued by the Peop ...

) * (since 1904; also uses its own coins) * (the main currency is the Peruvian sol) * (alongside the Somali shilling) * (alongside the

Somaliland shilling The Somaliland shilling (, ; abbreviation: Sl.Sh. or SLSH; symbol: Slash (punctuation), /-) is the official currency of the Republic of Somaliland, an List of states with limited recognition, unrecognised state in the Horn of Africa, recognised i ...

) * (uses its own coins) * (the main currency is the Uruguayan peso) * (alongside the

Venezuelan bolívar The bolívar is the official currency of Venezuela. Named after the hero of South American independence Simón Bolívar, it was introduced by President Antonio Guzmán Blanco, Guzman Blanco via the monetary reform of 1879, before which the Vene ...

; due to

hyperinflation In economics, hyperinflation is a very high and typically accelerating inflation. It quickly erodes the real versus nominal value (economics), real value of the local currency, as the prices of all goods increase. This causes people to minimiz ...

, USD is used for purchases such as buying electrical appliances, clothes, spare car parts, and food) * (alongside the

Vietnamese đồng The dong (; ; ; sign: ₫ or informally đ and sometimes Đ in Vietnamese; code: VND) is the currency of Vietnam, in use since 3 May 1978. It is issued by the State Bank of Vietnam. The dong was also the currency of the predecessor states of ...

) * (since 2020; alongside the

British pound Sterling (Currency symbol, symbol: Pound sign, £; ISO 4217, currency code: GBP) is the currency of the United Kingdom and nine of its associated territories. The pound is the main unit of account, unit of sterling, and the word ''Pound (cu ...

, several other currencies and U.S. dollar-denominated bond coins and bond notes of the Real Time Gross Settlement (RTGS) dollar)

Others

* Algerian dinar:

Sahrawi Arab Democratic Republic The Sahrawi Arab Democratic Republic (SADR), also known as the Sahrawi Republic and Western Sahara, is a partially recognized state in the western Maghreb, which claims the non-self-governing territory of Western Sahara, but controls only ...

(''de facto'' independent state, recognized by 45 UN member states, but mostly occupied by

Morocco Morocco, officially the Kingdom of Morocco, is a country in the Maghreb region of North Africa. It has coastlines on the Mediterranean Sea to the north and the Atlantic Ocean to the west, and has land borders with Algeria to Algeria–Morocc ...

; used in the Sahrawi refugee camps) *

: (alongside several other currencies and U.S. dollar-denominated bond coins and bond notes of the Real Time Gross Settlement (RTGS) dollar) * Brunei dollar: (alongside the

Singapore dollar The Singapore dollar (currency sign, sign: S$; ISO 4217, code: SGD) is the official currency of the Singapore, Republic of Singapore. It is divided into 100 cent (currency), cents (, , ). It is normally abbreviated with the dollar sign $, or ...

) *

: (alongside the

) * Chinese renminbi: (alongside several other currencies and U.S. dollar-denominated bond coins and bond notes of the Real Time Gross Settlement (RTGS) dollar) *

Colombian peso The Colombian peso (currency sign, sign: $; ISO 4217, code: COP) is the currency of Colombia. Its ISO 4217 code is ''COP''. The official sign is $, with ''Col$''. also being used to distinguish it from other peso- and dollar-denominated currencie ...

: (mainly in western states, alongside U.S. dollar) *

Danish krone The krone (; plural: ''kroner''; sign: kr.; code: DKK) is the official currency of Denmark, Greenland, and the Faroe Islands, introduced on 1 January 1875. Both the ISO code "DKK" and currency sign "kr." are in common use; the former precedes ...

: ** (also issues its own coins and some notes) ** *

Egyptian pound The Egyptian pound ( ; abbreviations: £, E£, £E, LE, or EGP in Latin alphabet, Latin, and in Arabic script, Arabic, ISO 4217, ISO code: EGP) is the official currency of Egypt. It is divided into 100 piastres, (or qirsh, ; ''plural'' ; abb ...

: (

Palestinian territories The occupied Palestinian territories, also referred to as the Palestinian territories, consist of the West Bank (including East Jerusalem) and the Gaza Strip—two regions of the former Mandate for Palestine, British Mandate for Palestine ...

) *

Hong Kong dollar The Hong Kong dollar (, sign: HK$; code: HKD) is the official currency of Hong Kong. It is divided into 100 cents. Historically, it was also divided into 1000 mils. The Hong Kong Monetary Authority is the monetary authority of Hong Kong an ...

: (alongside the Macanese pataca, pegged at $1.032) *

: (alongside several other currencies and U.S. dollar-denominated bond coins and bond notes of the Real Time Gross Settlement (RTGS) dollar) *

Jordanian dinar The Jordanian dinar (; ISO 4217, code: JOD; unofficially abbreviated as JD) has been the currency of Jordan since 1950. The dinar is divided into 100 qirsh (also called piastres) or 1000 fils (currency), fulus. Fils are effectively obsolete; howe ...

: (alongside the

New Israeli shekel The new Israeli shekel (, ; ; currency symbol, sign: Shekel sign, ₪; ISO 4217, ISO code: ILS; unofficial abbreviation: NIS), also known as simply the Israeli shekel (; ), is the currency of Israel and is also used as a legal tender in the Pa ...

) * Mauritanian ouguiya: (''de facto'' independent state, recognized by 45 UN member states, but mostly occupied by

; used in the Sahrawi refugee camps) *

Moroccan dirham The Moroccan dirham (, ; Currency symbol, sign: DH; code: MAD) is the official monetary currency of Morocco. It is issued by the Bank Al-Maghrib, the central bank of Morocco. One Moroccan dirham is subdivided into 100 ''santimat'' (singular: santi ...

: (''de facto'' independent state, recognized by 45 UN member states, but mostly occupied by

; used in claimed areas under Moroccan control; issues the non-circulating Sahrawi peseta for collectors) *

: (

) *

Russian ruble The ruble or rouble (; Currency symbol, symbol: ₽; ISO 4217, ISO code: RUB) is the currency of the Russia, Russian Federation. Banknotes and coins are issued by the Central Bank of Russia, which is Russia's central bank, monetary authority ind ...

: ** (''de facto'' independent state, but recognized as a part of

Georgia Georgia most commonly refers to: * Georgia (country), a country in the South Caucasus * Georgia (U.S. state), a state in the southeastern United States Georgia may also refer to: People and fictional characters * Georgia (name), a list of pe ...

internationally; issues non-circulating collector coins ( Abkhazian apsar) pegged to the Russian ruble) ** (''de facto'' independent state, but recognized as a part of

internationally; issues non-circulating collector coins ( South Ossetian zarin) pegged to the Russian ruble)Catalog of the coins of South Ossetia
Numista (https://en.numista.com). Retrieved on 2022-10-14. *

: (alongside the Brunei dollar) *

: ** (uses in the exclave of

Büsingen am Hochrhein Büsingen am Hochrhein (, ; Alemannic: ', ), often known simply as Büsingen, is a German municipality () in the south of Baden-Württemberg with a population of about 1,548 inhabitants. It is an exclave of Germany and Baden-Württemberg, and ...

, alongside the

) ** (uses in the enclave of

Campione d'Italia Campione d'Italia (; ) is a (municipality) of the Province of Como in the Italy, Italian region of Lombardy. Located on the shores of Lake Lugano, it is an enclave surrounded by the Switzerland, Swiss canton of Ticino. At its closest, the encla ...

, alongside the

) ** (also issues non-circulating collector coins) *

Turkish lira The lira (; Currency sign, sign: Turkish lira sign, ₺; ISO 4217, ISO 4217 code: TRY; abbreviation: TL) is the official currency of Turkey. It is also legal tender in the ''de facto'' state of the Turkish Republic of Northern Cyprus. One lira i ...

: (''de facto'' independent state, but recognized as a part of

Cyprus Cyprus (), officially the Republic of Cyprus, is an island country in the eastern Mediterranean Sea. Situated in West Asia, its cultural identity and geopolitical orientation are overwhelmingly Southeast European. Cyprus is the List of isl ...

by all UN member states except

Turkey Turkey, officially the Republic of Türkiye, is a country mainly located in Anatolia in West Asia, with a relatively small part called East Thrace in Southeast Europe. It borders the Black Sea to the north; Georgia (country), Georgia, Armen ...

)

References

Footnotes

Works cited

* * {{Authority control Dollar Foreign exchange market Monetary hegemony Monetary policy

Name

Origins

Measures

Types

Effects

On trade and investment

On monetary and exchange rate policies

On banking systems

Determinants of the process

The dynamics of the flight from domestic money

Institutional factors

Anchor currencies

Australian dollar

Euro

Indian rupee

New Zealand dollar

Pound sterling

South African rand

United States dollar

Used exclusively

Used partially

Others

See also

References

Footnotes

Works cited