View source for Currency substitution

{{Short description|Use of a foreign currency in parallel to or instead of a domestic currency}}
{{Use American English|date = February 2019}}
{{Use dmy dates|date=January 2022}}
{{More citations needed|date=January 2014}}
[[File:Foreign currency uses and pegs.svg|right|400px|thumb|Worldwide official use of [[:Category:Fixed exchange rate|foreign currency or pegs]]:
{{Legend|#006000|[[United States dollar]] users, including the United States}}
{{Legend|#00E000|Currencies pegged to the United States dollar}}
{{Legend|#0000FF|[[Euro]] users, including the [[Eurozone]]}}
{{Legend|#00A0FF|Currencies pegged to the euro}}
<br />
{{Legend|#FFA000|[[Australian dollar]] users, including Australia}}
{{Legend|#808000|[[Indian rupee]] users and pegs, including India}}
{{Legend|#804000|[[New Zealand dollar]] users, including New Zealand}}
{{Legend|#FF0000|[[Pound sterling]] users and pegs, including the United Kingdom}}
{{Legend|#808080|[[Russian ruble]] users, including Russia and other territories}}
{{Legend|#400080|[[South African rand]] users ([[Common Monetary Area|CMA]], including South Africa)}}
<br />
{{Legend|#800080|Three cases of a country using or pegging the currency of a neighbor}}]]

'''Currency substitution''' is the use of a foreign [[currency]] in parallel to or instead of a domestic currency.<ref>New estimates of U.S. currency abroad, the domestic money supply and the unreported Economy Edgar L. Feige September 2011.</ref>

Currency substitution can be full or partial. Full currency substitution can occur after a major economic crisis, such as in [[Ecuador]]. Some small economies, for whom it is impractical to maintain an independent currency, use the currencies of their larger neighbours; for example, [[Liechtenstein]] uses the [[Swiss franc]].

Partial currency substitution occurs when residents of a country choose to hold a significant share of their financial assets denominated in a foreign currency or use it as exchange currency, as is currently the case in [[Venezuela]].<ref>{{Cite web |last=Moleiro |first=Alonso |date=2025-01-18 |title=Venezuela grapples with economic collapse |url=https://english.elpais.com/international/2025-01-18/venezuela-grapples-with-economic-collapse.html |access-date=2025-10-20 |website=EL PAÍS English |language=en-us}}</ref> It can also occur as a gradual conversion to full currency substitution; for example, [[Argentina]] was in the process of converting to the [[United States dollar|U.S. dollar]] during the 1990s.{{Citation needed|date=October 2025}}

==Name==

"Dollarization", when referring to currency substitution, does not necessarily involve use of the [[United States dollar]].{{r|Berg 2000}} The major currencies used as substitutes are the US dollar and the [[euro]].

==Origins==

{{main|Bretton Woods system}}
[[File:Exchange rate arrangements map.png|thumb|Map of current exchange rate regimes (2018). ''De facto'' exchange-rate arrangements in 2018 as classified by the [[International Monetary Fund]]:
{{Legend|#66c2a5|[[floating exchange rate|Floating]] (''floating'' and ''free floating'')}}
{{Legend|#8da0cb|Soft pegs (''[[fixed exchange rate|conventional peg]]'', ''stabilized arrangement'', ''[[crawling peg]]'', ''crawl-like arrangement'', ''[[currency band|pegged exchange rate within horizontal bands]]'')}}
{{Legend|#fc8d62|Hard pegs (''no separate legal tender'', ''[[currency board]]'')}}
{{Legend|#e78ac3|Residual (''other managed arrangement'')}}
]]

After the [[gold standard]] was abandoned at the outbreak of [[World War I]] and the [[Bretton Woods Conference]] following [[World War II]], some countries sought [[exchange rate]] regimes to promote global economic stability, and hence their own prosperity. Countries usually peg their currency to a major [[convertible currency]]. "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 [[exchange rate]] regimes.<ref>Yeyati (2003) at 1.</ref> The collapse of "soft" pegs in [[Southeast Asia]] and [[Latin America]] in the late 1990s led to currency substitution becoming a serious policy issue.<ref>{{cite book|last=Rochon|first=Louis-Philippe|title=Dollarization Lessons from Europe and the Americas|url=https://archive.org/details/dollarizationles00roch|url-access=limited|year=2003|publisher=Routledge|location=London and New York|pages=[https://archive.org/details/dollarizationles00roch/page/n13 1]|isbn=9780415298780 }}</ref>

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.<ref name="Yeyati 2003 3">Yeyati (2003) at 3.</ref> [[Panama]] adopted the US dollar as [[legal tender]] after independence as the result of a constitutional ruling.<ref name="Savastano 1996 7"/> [[Ecuador]] and [[El Salvador]] became fully dollarized economies in 2000 and 2001 respectively, for different reasons.<ref name="Yeyati 2003 3"/> 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]] adopted the euro (€) as its common currency and sole [[legal tender]] 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.<ref>Yeyati (2003) at 5.</ref>

==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]] 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.<ref name="Savastano 1996 7">Savastano at 7.</ref>

==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 [[legal tender]] there.<ref>{{cite journal|last=Balino|author2=Berensztein|title=Monetary Policy in Dollarized Economies|journal=IMF Occasional Paper 171|year=1999}}</ref> 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 [[exchange rate]]. There are a small number of countries adopting a foreign currency as [[legal tender]].

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]] as a stable currency compared to the national one.<ref>{{cite journal |last=Mundell |first=R. A. |year=1961 |title=A Theory of Optimum Currency Areas |journal=[[American Economic Review]] |volume=51 |issue=4 |pages=657–665 |jstor=1812792 }}</ref> 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 [[legal tender]] alongside the domestic currency.<ref name="Bogetic 179–213">{{cite journal|last=Bogetic|title=Official Dollarization: Current Experiences and Issues|journal=Cato Journal|year=200|volume=20|issue=2|pages=179–213}}</ref>

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]] (private and public) denominated in foreign currencies of the economy.<ref name="Bogetic 179–213"/><ref>{{cite journal |last1=Berkmen |first1=S. Pelin |first2=Eduardo |last2=Cavallo |title=Exchange Rate Policy and Liability currency substitution: What Do the Data Reveal about Causality? |journal=Review of International Economics |volume=18 |issue=5 |year=2010 |pages=781–795 |doi=10.1111/j.1467-9396.2010.00890.x |s2cid=154678349 |url=http://elibrary.imf.org/view/IMF001/02183-9781451865974/02183-9781451865974/02183-9781451865974.xml }}</ref> 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.<ref>{{cite book|last=Pinon|first=Marco|title=Macroeconomic Implications of Financial currency substitution The Case of Uruguay|year=2008|publisher=International Monetary Fund|location=Washington DC|pages=22}}</ref>

==Effects==

===On trade and investment===

One of the main advantages of adopting a strong foreign currency as sole [[legal tender]] is to reduce the transaction costs of trade among countries using the same currency.<ref name="Alesina 2001 381–385">{{cite journal|last=Alesina|first=Alberto|author2=Barro|title=Dollarization|journal=The American Economic Review|year=2001|volume=91|issue=2|pages=381–385|jstor=2677793|doi=10.1257/aer.91.2.381}}</ref> 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.<ref name="Yeyati 2003 22">Yeyati (2003) at 22.</ref> Economic integration with the rest of the world becomes easier as a result of lowered transaction costs and stabler prices.{{r|Berg 2000}} Rose (2000) applied the [[gravity model of trade]] 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.<ref>{{cite journal|last=Rose|first=Andrew|title=One Money, One Market: the effect of common currencies on trade|journal=Economic Policy|volume=15|issue=30|pages=8–0|year=2000|doi=10.1111/1468-0327.00056}}</ref>

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.{{r|Berg 2000}} 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.<ref>{{cite journal|last=Honohan|first=Patrick|title=Dollarization and Exchange Rate Fluctuations|journal=World Bank Policy Research Working Paper|year=2007|issue=4172|doi=10.1596/1813-9450-4172|series=Policy Research Working Papers|hdl=10986/7252|url=http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2007/03/14/000016406_20070314160847/Rendered/PDF/wps4172.pdf |hdl-access=free}}</ref>

===On monetary and exchange rate policies===

Official currency substitution helps to promote fiscal and monetary discipline and thus greater macroeconomic stability and lower [[inflation]] rates, to lower real exchange rate volatility, and possibly to deepen the financial system.<ref name="Yeyati 2003 22"/> 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 [[legal tender]] will help to "eliminate the inflation-bias problem of discretionary monetary policy".<ref>{{cite journal|last=Alesina|first=Alberto|author2=Barro|title=Dollarization|journal=The American Economic Review|year=2001|volume=91|issue=2|pages=382|jstor=2677793|doi=10.1257/aer.91.2.381}}</ref> Secondly, official currency substitution imposes stronger financial constraint on the government by eliminating deficit financing by issuing money.<ref>Yeyati (2003) at 23.</ref> An empirical finding suggests that inflation has been significantly lower in economies with full currency substitution than nations with domestic currencies.<ref>{{cite journal |last1=Edwards |first1=Sebastian |last2=Magendzo |first2=I. Igal |title=Dollarization And Economic Performance: What Do We Really Know? |journal=International Journal of Finance and Economics |year=2003 |volume=8 |issue=4 |pages=351–363 |doi=10.1002/ijfe.217 |citeseerx=10.1.1.557.6231 }}</ref> 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.<ref name="Berg 2000">{{cite journal|last=Berg|first=Andrew|author2=Borensztein, Eduardo|title=The Pros and Cons of Full Dollarization|journal=IMF Working Paper; Full Dollarization |year=2000|issue=/50 |url=http://www.imf.org/external/pubs/ft/issues/issues24/index.htm |publisher=IMF |access-date=13 October 2011}}</ref>

On the other hand, currency substitution leads to the loss of [[seigniorage]] revenue, the loss of monetary policy autonomy, and the loss of the [[exchange rate]] instruments. Seigniorage revenues are the profits generated when monetary authorities issue currency. When adopting a foreign currency as [[legal tender]], 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 [[exchange rate]] policies, even in times of financial emergency.{{r|Berg 2000}}<ref name="Broda and Levy Yeyati (2003)">{{cite journal|last=Broda, Levy Yeyati|first=Christian, Eduardo|title=Endogenous deposit dollarization|url=https://ideas.repec.org/p/fip/fednsr/160.html|publisher=Federal Reserve Bank of New York|year=2003}}</ref> For example, former chairman of the [[Federal Reserve]] [[Alan Greenspan]] has stated that the central bank considers the effects of its decisions only on the US economy.<ref name="jcmb1999fall">{{cite journal|url=http://www.drclas.harvard.edu/revista/articles/view/473|title=Dollarization in Latin America: Is it desirable?|author=Moreno-Bird, Juan Carlos|journal=ReVista: Harvard Review of Latin America|date=Fall 1999|access-date=27 June 2012|archive-url=https://web.archive.org/web/20110811035231/http://www.drclas.harvard.edu/revista/articles/view/473|archive-date=11 August 2011|url-status=dead}}</ref> In a full currency substituted economy, [[exchange rates]] are indeterminate and monetary authorities cannot devalue the currency.<ref>{{cite journal|last=John|first=Kareken|author2=Wallace|title=On the Indeterminacy of Equilibrium Exchange Rates|journal=Quarterly Journal of Economics|year=1981|volume=96|issue=2|pages=207–222|doi=10.2307/1882388|jstor=1882388}}</ref> In an economy with high currency substitution, [[devaluation]] policy is less effective in changing the [[real exchange rate]] because of significant pass-through effects to domestic prices.<ref name="Berg 2000"/> 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.<ref name="Alesina 2001 381–385"/> In addition, monetary authorities in economies with currency substitution diminish the liquidity assurance to their banking system.<ref name="Berg 2000"/><ref name="Levy Yeyati (2006)">{{cite book |chapter=Liquidity Insurance in a Financially Dollarized Economy |first=Eduardo Levy |last=Yeyati |title=Financial Markets Volatility and Performance in Emerging Markets |editor-last=Edwards |editor2-last=Garcia |publisher=University of Chicago Press |year=2008 |pages=185–218 |chapter-url=https://www.nber.org/chapters/c4778 |isbn=978-0-226-18495-1 }}</ref>

===In banking systems===

In an economy with full currency substitution, monetary authorities cannot act as [[lender of last resort]] to commercial banks by printing money. The alternatives to lending to the bank system may include taxation and issuing government debt.<ref>{{cite journal|last=Bencivenga|first=Valerie|author2=Huybens, Smith|title=Dollarization and the Integration of International Capital Markets: a Contribution to the Theory of Optimal Currency Areas|journal=Journal of Money, Credit and Banking|year=2001|volume=33|issue=2, Part 2|pages=548–589|jstor=2673916|doi=10.2307/2673916}}</ref> 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.<ref>{{cite journal|last=Broda|first=Christian|author2=Yeyati|title=Dollarization and the Lender of Last Resort|journal=Book: Dollarization|year=2001|pages=100–131}}</ref> 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.<ref>Yeyati (2003) at 31.</ref>

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.<ref name="Kutan, Rengifo Ozsoz(2010)">{{cite web|last=Kutan, Rengifo, Ozsoz|first=Ali, Erick, Emre|title=Evaluating the Effects of Deposit Dollarization in Bank Profitability|url=http://stage.web.fordham.edu/images/academics/graduate_schools/gsas/economics/dp2010_07_kutan_rengifo_ozsoz.pdf|publisher=Fordham University Economics Department}}{{Dead link|date=July 2019 |bot=InternetArchiveBot |fix-attempted=yes }}</ref>
However, currency substitution eliminates the probability of a [[currency crisis]] that negatively affects the banking system through the [[balance sheet]] channel. Currency substitution may reduce the possibility of systematic liquidity shortages and the optimal reserves in the banking system.<ref>Yeyati (2003) at 34.</ref> Research has shown that official currency substitution has played a significant role in improving bank liquidity and asset quality in Ecuador and El Salvador.<ref>{{Cite web |url=http://www.frbatlanta.org/filelegacydocs/erq306_quispe.pdf |title=Federal Reserve Bank of Atlanta, ''Official Dollarization and the Banking System in Ecuador and El Salvador'', 2006 |access-date=14 September 2012 |archive-url=https://web.archive.org/web/20121019203853/http://www.frbatlanta.org/filelegacydocs/erq306_quispe.pdf |archive-date=19 October 2012 |url-status=dead }}</ref>

==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.<ref name="Savastano 1996">Savastano.</ref> 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]] when the public carries out many transactions in foreign currency.<ref name="Sahay Vegh">{{cite journal |last1=Sahay |first1=Ratna |last2=Vegh |first2=Carlos |author-link2=Carlos A. Vegh |title=Dollarization in Transition Economies: Evidence and Policy Implications |journal=IMF Working Paper No. 95/96 |date=September 1995 |ssrn=883243 |url=https://www.imf.org/en/Publications/WP/Issues/2016/12/30/Dollarization-in-Transition-Economies-Evidence-and-Policy-Implications-1905 }}</ref>{{rp|1}}

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.<ref>{{cite journal |last1=Catão |first1=Luis |last2=Terrrones |first2=Marco E. |title=Determinants of Dollarization: The Banking Side |journal=IMF Working Paper No. 00/146 |date=August 2000 |ssrn=879949 |url=https://www.imf.org/en/Publications/WP/Issues/2016/12/30/Determinants-of-Dollarization-The-Banking-Side-3721 |page=5}}</ref>

===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.<ref name="Savastano 1996"/> 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.<ref name="Sahay Vegh" />{{rp|13}} 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.<ref name="Savastano 1996"/>

==Anchor currencies==

===Australian dollar===

{{Main|Australian dollar}}

*{{Flag|Kiribati}} (since 1943; also uses [[Kiribati dollar|its own coins]])<ref name="Edwards 2001">{{cite journal|last=Edwards|first=Sebastian|date=May 2001|title=Dollarization and Economic Performance: An Empirical Investigation|journal=NBER Working Paper No. 8274|doi=10.3386/w8274|doi-access=free}}</ref>{{rp|17}}
*{{Flag|Nauru}} (since 1914; also issues non-circulating Nauran collector coins pegged to the Australian dollar)<ref name="Edwards 2001" />{{rp|17}}<ref>[https://en.numista.com/catalogue/nauru-1.html Catalog of the coins of Nauru] Numista (https://en.numista.com). Retrieved on 2023-02-17.</ref>
*{{Flag|Tuvalu}} (since 1892; also uses [[Tuvaluan dollar|its own coins]])<ref name="Edwards 2001" />{{rp|17}}
*{{Flag|Zimbabwe}} (alongside the [[United States dollar]], [[South African rand]], [[Botswana pula]], [[Japanese yen]], several other currencies and the [[Zimbabwean ZiG]])

===Euro===

{{Main|Euro|International status and usage of the euro}}

*{{Flag|Andorra}} (formerly [[French franc]] and [[Spanish peseta]]; issued non-circulating [[Andorran diner]] coins; issues [[Andorra and the euro|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.<ref name="Edwards 2001" />{{rp|17}}
*{{Flag|Akrotiri and Dhekelia}} ([[Akrotiri and Dhekelia|Sovereign Base Areas of Akrotiri and Dhekelia]]); formerly used the [[Cypriot pound]])
*{{Flag|France}} (used in the [[special territories of members of the European Economic Area#Overseas countries and territories|overseas territories]] of the [[French Southern and Antarctic Lands|French Southern Territories]], [[Saint Barthélemy]], and [[Saint Pierre and Miquelon]]. Euro is used in the French overseas and department region of [[Guadeloupe]])
**{{Flag|French Polynesia}} (pegged to the [[CFP franc]] at a fixed exchange rate)
**{{Flagcountry|NCL|local}} (pegged to the [[CFP franc]] at a fixed exchange rate)
**{{Flagcountry|WLF|local}} (pegged to the [[CFP franc]] at a fixed exchange rate)
*{{Flag|Kosovo}} (formerly [[Deutsche Mark|German mark]] and [[Yugoslav dinar]])
*{{Flag|Monaco}} (formerly [[French franc]] from 1865 to 2002 and [[Monégasque franc]];<ref name="Edwards 2001" />{{rp|17}} issues [[Monégasque euro coins|its own euro coins]])
*{{Flag|Montenegro}} (formerly [[Deutsche Mark|German mark]] and [[Yugoslav dinar]])
*{{Flag|North Korea}} (alongside the [[renminbi|Chinese renminbi]], [[North Korean won]], and [[United States dollar]])<ref name="reuters" />
*{{Flag|San Marino}} (formerly [[Italian lira]] and [[Sammarinese lira]]; issues [[Sammarinese euro coins|its own euro coins]])
*{{Flag|Sovereign Military Order of Malta}} (issues non-circulating [[Maltese scudo]] coins at €0.24 = 1 scudo)
*{{Flag|Vatican City}} (formerly [[Italian lira]] and [[Vatican lira]]; issues [[Vatican euro coins|its own euro coins]])
*{{Flag|Zimbabwe}} (alongside the [[United States dollar]], [[South African rand]], [[Botswana pula]], [[Japanese yen]], several other currencies and the [[Zimbabwean ZiG]].

===Indian rupee===

{{Main|Indian rupee}}

* {{Flag|Bhutan}} (alongside the [[Bhutanese ngultrum]], pegged at par with the rupee)
* {{Flag|Nepal}} (alongside the [[Nepalese rupee|Nepali rupee]], pegged at ₹0.625)
*{{Flag|Zimbabwe}} (alongside the [[United States dollar]], [[South African rand]], [[Botswana pula]], [[Japanese yen]], several other currencies and the [[Zimbabwean ZiG]]

===New Zealand dollar===

{{Main|New Zealand dollar}}

*{{Flag|Cook Islands}} ([[Cook Islands dollar|issues its own coins and some notes]].)
<!-- *{{Flag|Nauru}} (alongside the [[Australian dollar]] from 25 May 2013; also issues non-circulating Nauran collector coins.)<ref>{{cite web|title=New Zealand Dollar (NZD) Profile|url=http://currency7.com/NZD|publisher=currency7.com|access-date=13 December 2013}}</ref> -->
*{{Flag|Niue}} (also issues [[Niue dollar|its own non-circulating commemorative and collector coins]] minted at the [[New Zealand Mint]], pegged to the New Zealand dollar.)
*{{Flag|Pitcairn Islands}} (also issues [[Pitcairn Islands dollar|its own non-circulating commemorative and collector coins]] pegged to the New Zealand dollar.)
*{{Flag|Tokelau}} (also issues its own non-circulating commemorative and collector coins pegged to the New Zealand dollar.)

=== Pound sterling ===

{{Main|Pound sterling}}

British Overseas Territories using the pound, or a local currency pegged to the pound, as their currency:

*''{{Flag|British Antarctic Territory}}'' (issues non-circulating collector coins for the British Antarctic Territory.)<ref>[https://en.numista.com/catalogue/british-antarctic-territory-1.html Catalog of the coins of the British Antarctic Territory] Numista (https://en.numista.com). Retrieved on 2023-01-17.</ref>
*{{Flag|British Indian Ocean Territory}} (''de jure'', [[United States dollar|U.S. dollar]] used ''de facto''; also issues non-circulating collector coins for the British Indian Ocean Territory.)<ref>[https://en.numista.com/catalogue/british-indian-ocean-territory-1.html Catalog of the coins of the British Indian Ocean Territory] Numista (https://en.numista.com). Retrieved on 2023-01-17.</ref>
*{{Flag|Falkland Islands}} (alongside the [[Falkland Islands pound]])
*{{Flag|Gibraltar}} (alongside the [[Gibraltar pound]])
*{{Flag|Saint Helena, Ascension and Tristan da Cunha}} (Tristan da Cunha; alongside the [[Saint Helena pound]] in [[Saint Helena]] and [[Ascension Island|Ascension]]; also issues non-circulating collector coins for Saint Helena, Ascension and Tristan da Cunha.)<ref>[https://en.numista.com/catalogue/saint-helena-1.html Catalog of the coins of Saint Helena, Ascension and Tristan da Cunha] Numista (https://en.numista.com). Retrieved on 2023-01-17.</ref>
*{{Flag|South Georgia and the South Sandwich Islands}} (alongside the [[Falkland Islands pound]]; also issues non-circulating collector coins for South Georgia and the South Sandwich Islands.)<ref>[https://en.numista.com/catalogue/georgie-sandwich-1.html Catalog of the coins of South Georgia and the South Sandwich Islands] Numista (https://en.numista.com). Retrieved on 2023-01-17.</ref>

The [[Crown Dependencies]] use a local issue of the pound as their currency:

* {{Flag|Bailiwick of Guernsey|name=Guernsey}} ([[Guernsey pound]])
** {{Flag|Alderney}} (issues non-circulating [[Alderney pound]] collector coins, backed by both the Pound sterling and Guernsey pound.)<ref>[https://en.numista.com/catalogue/aurigny-1.html Catalog of the coins of Alderney] Numista (https://en.numista.com). Retrieved on 2023-01-17.</ref>
* {{Flag|Isle of Man}} ([[Manx pound]])
* {{Flag|Jersey}} ([[Jersey pound]])

Under plans published in the [[Sustainable Growth Commission]] report by the [[Scottish National Party]], an [[Scottish independence|independent Scotland]] would use the pound as their currency for the first 10 years of independence. This has become known as sterlingisation.

Other countries:

*{{Flag|Zimbabwe}} (alongside the [[United States dollar]], [[South African rand]], [[Botswana pula]], [[Japanese yen]], several other currencies and the [[Zimbabwean ZiG]]

=== South African rand ===
{{Main|Common Monetary Area}}

*{{Flag|Eswatini}} (alongside the [[Swazi lilangeni]])
*{{Flag|Lesotho}} (alongside the [[Lesotho loti]])
*{{Flag|Namibia}} (alongside the [[Namibian dollar]])
*{{Flag|Zimbabwe}} (alongside the [[United States dollar]], [[South African rand]], [[Botswana pula]], [[Japanese yen]], several other currencies and the [[Zimbabwean ZiG]]

===United States dollar===

{{Main|United States dollar|International use of the U.S. dollar}}

====Used exclusively====

*{{Flag|British Virgin Islands}} (also issues non-circulating British Virgin Islands collector coins pegged to the U.S. dollar)<ref>[https://en.numista.com/catalogue/iles_vierges_britanniques-1.html Catalog of the coins of the British Virgin Islands] Numista (https://en.numista.com). Retrieved on 2022-09-03.</ref>
*{{Flagdeco|Netherlands}} [[Caribbean Netherlands]] (since 1 January 2011)
*{{Flag|Marshall Islands}} (issued non-circulating collector coins of the Marshall Islands pegged to the U.S. dollar since 1986)<ref>[https://en.numista.com/catalogue/marshall-1.html Catalog of the coins of the Marshall Islands] Numista (https://en.numista.com). Retrieved on 2022-09-03.</ref>
*{{Flag|Micronesia}} (since 1944)<ref name="Edwards 2001" />{{rp|17}}
*{{Flag|Palau}} (since 1944; issued non-circulating Palauan collector coins pegged to the U.S. dollar since 1992)<ref name="Edwards 2001"/><ref>[https://en.numista.com/catalogue/palaos-1.html Catalog of the coins of Palau] Numista (https://en.numista.com). Retrieved on 2022-07-22.</ref>
*{{Flag|Turks and Caicos Islands}} (issued non-circulating Turks and Caicos Islands collector coins denominated in "Crowns" and pegged to the U.S. dollar since 1969)<ref>[https://en.numista.com/catalogue/iles_turques-et-caiques-1.html Catalog of the coins of the Turks and Caicos Islands] Numista (https://en.numista.com). Retrieved on 2022-09-03.</ref>

====Used partially====

*{{Flag|Argentina}} (the [[United States dollar]] is used for major purchases such as buying properties)
*{{Flag|Bahamas}} ([[Bahamian dollar]] pegged at 1:1 but the United States dollar is accepted)
*{{Flag|Barbados}} ([[Barbadian dollar]] pegged at 2:1 but the United States dollar is accepted)
*{{Flag|Belize}} ([[Belizean dollar]] pegged at 2:1 but the United States dollar is accepted)
*{{Flag|Bermuda}} ([[Bermudian dollar]] pegged at 1:1 but the United States dollar is accepted) 
*{{Flag|Bolivia}} (alongside the [[Bolivian boliviano]])
*{{Flag|Cambodia}} (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)<ref>{{cite web |title=Money & Cost |url=http://www.lonelyplanet.com/cambodia/practical-information/money-costs |publisher=lonelyplanet.com |access-date=13 December 2013 |archive-url=https://web.archive.org/web/20140416233327/http://www.lonelyplanet.com/cambodia/practical-information/money-costs |archive-date=16 April 2014 |url-status=dead }}</ref><ref name=FT>{{cite news |last1=Pilling |first1=David |last2=Peel |first2=Michael |author-link2=Michael Peel |date=2014-07-28 |title=Cambodia: Wave of discontent |url=http://www.ft.com/intl/cms/s/0/b01c354e-13f2-11e4-8485-00144feabdc0.html |archive-url=https://ghostarchive.org/archive/20221210/http://www.ft.com/intl/cms/s/0/b01c354e-13f2-11e4-8485-00144feabdc0.html |archive-date=10 December 2022 |url-access=subscription |newspaper=[[Financial Times]] |access-date=2017-01-11 |quote=Dollars account for 90 per cent of money in Cambodia’s banking system and almost the same proportion of cash used in everyday transactions, according to official estimates.}}</ref>
*{{flag|DR Congo|name=Congo-Kinshasa}} (many institutions accept both the [[Congolese franc]] and U.S. dollars)
*{{Flag|Costa Rica}} (uses alongside the [[Costa Rican colón]])
*{{Flag|Dominican Republic}} (uses alongside the [[Dominican peso]])
*{{Flag|Ecuador}} (since 2000; also uses [[Ecuadorian centavo coins|its own coins]])<ref name="Edwards 2001" />{{rp|1}}
*{{Flag|El Salvador}} (uses alongside [[bitcoin]]) (see [[Bitcoin Law]] and [[Bitcoin in El Salvador]])<ref>{{Cite web|last=Kharpal|first=Arjun|date=2021-06-09|title=El Salvador becomes first country to adopt bitcoin as legal tender after passing law|url=https://www.cnbc.com/2021/06/09/el-salvador-proposes-law-to-make-bitcoin-legal-tender.html|access-date=2021-06-09|website=CNBC|language=en}}</ref>
*{{Flag|Guatemala}} (uses alongside the [[Guatemalan quetzal]])
*{{Flag|Haiti}} (uses the U.S. dollar alongside its domestic currency, the [[Haitian gourde|gourde]])
*{{Flag|Honduras}} (uses alongside the [[Honduran lempira]])<ref>{{cite magazine |last=Carter |first=Chris |date=2013-05-08 |title=Economy: The effect of dollarisation in Honduras |url=http://www.pulsamerica.co.uk/2013/05/economy-the-effect-of-dollarization-in-honduras/ |magazine=Pulsamerica |access-date=2017-01-11 |archive-url=https://web.archive.org/web/20170113091933/http://www.pulsamerica.co.uk/2013/05/economy-the-effect-of-dollarization-in-honduras/ |archive-date=13 January 2017 |url-status=dead }}</ref>
*{{Flag|Iraq}} (alongside the [[Iraqi dinar]])
*{{Flag|Lebanon}} (alongside the [[Lebanese pound]])
*{{Flag|Liberia}} (exclusively used the U.S. dollar during the [[People's Redemption Council|early PRC period]], but the National Bank of Liberia began issuing five dollar coins in 1982;<ref name="Edwards 2001" />{{rp|3}} United States dollar still in common usage alongside the [[Liberian dollar]])
*{{Flag|Nicaragua}} (uses alongside the [[Nicaraguan córdoba]])
*{{Flag|North Korea}} (alongside the [[euro]], [[North Korean won]], and [[renminbi]])<ref name="reuters">{{cite news |last1=Ruwitch |first1=John |last2=Park |first2=Ju-min |date=2013-06-02 |title=Insight: North Korean economy surrenders to foreign currency invasion |url=https://www.reuters.com/article/us-korea-north-money-idUSBRE9510E720130603 |work=[[Reuters]] |location=Changbai, China/Seoul |access-date=2017-01-11 }}</ref>
*{{Flag|Panama}} (since 1904; also uses [[Panamanian balboa|its own coins]])<ref name="Edwards 2001" />{{rp|6}}
*{{Flag|Paraguay}} (the main currency is the Paraguayan guaraní)
*{{Flag|Peru}} (the main currency is the Peruvian sol)
*{{Flag|Somalia}} (alongside the [[Somali shilling]]) 
*{{Flag|Somaliland}} (alongside the [[Somaliland shilling]])<ref>{{Cite web |last=Aden |first=AK Muktar |title=Overcoming Challenges in an Unrecognized Economy |url=https://slmof.org/wp-content/uploads/2019/02/Overcoming-Challenges-in-an-Unrecognized-Economy.pdf |website=Ministry of Finance Development, Somaliland}}</ref> 
*{{Flag|Timor-Leste}} (uses [[Timor-Leste centavo coins|its own coins]])
*{{Flag|Uruguay}}<ref name="imf20080828">{{cite news|url=http://www.imf.org/external/pubs/ft/survey/so/2008/CAR082808A.htm|title=Uruguay's Monetary Policy Effective Despite Dollarization|work=IMF Survey Magazine|date=28 August 2008|access-date=4 March 2012|author1=Pinon, Marco |author2=Gelos, Gaston }}</ref> (the main currency is the Uruguayan peso)
*{{Flag|Venezuela}} (alongside the [[Venezuelan bolívar]]; due to [[hyperinflation in Venezuela|hyperinflation]], USD is used for purchases such as buying electrical appliances, clothes, spare car parts, and food)<ref>{{Cite web|url=https://www.bloomberg.com/news/articles/2019-11-05/venezuela-is-now-more-than-50-dollarized-study-finds|title=Venezuela Is Now More Than 50% Dollarized, Study Finds|last=Zerpa|first=Fabiola|date=5 November 2019|website=Bloomberg|access-date=9 November 2019}}</ref><ref>{{Cite news|url=https://www.reuters.com/article/us-venezuela-economy/maduro-says-thank-god-for-dollarization-in-venezuela-idUSKBN1XR0RV|title=Maduro says 'thank God' for dollarization in Venezuela|date=17 November 2019|work=[[Reuters]]|access-date=18 November 2019}}</ref>
*{{Flag|Vietnam}} (alongside the [[Vietnamese đồng]])
*{{Flag|Zimbabwe}} (since 2020; alongside the [[South African rand]], [[pound sterling|British pound]], [[Botswana pula]], [[Japanese yen]], and the [[Zimbabwean ZiG]]

===Others===

*'''[[Algerian dinar]]''': {{Flagdeco|Western Sahara}} [[Sahrawi Arab Democratic Republic]] (''de facto'' independent state, recognized by 45 UN member states, but [[Moroccan-occupied Western Sahara|mostly occupied]] by [[Morocco]]; used in the [[Sahrawi refugee camps]])
*'''[[Botswana pula]]''': {{Flag|Zimbabwe}} (alongside several other currencies and U.S. dollar-denominated [[Zimbabwean bond coins|bond coins]] and [[Zimbabwean bond notes|bond notes]] of the [[Zimbabwean dollar (2019–2024)|Real Time Gross Settlement (RTGS) dollar]])
*'''[[Brunei dollar]]''': {{Flag|Singapore}} (alongside the [[Singapore dollar]])
*'''[[Canadian dollar]]''': {{Flag|Saint Pierre and Miquelon|local}} (alongside the [[euro]])
*'''[[Renminbi|Chinese renminbi]]''': {{Flag|Zimbabwe}} (alongside several other currencies and U.S. dollar-denominated [[Zimbabwean bond coins|bond coins]] and [[Zimbabwean bond notes|bond notes]] of the [[Zimbabwean dollar (2019–2024)|Real Time Gross Settlement (RTGS) dollar]])
*'''[[Colombian peso]]''': {{Flag|Venezuela}} (mainly in western states, alongside U.S. dollar)
*'''[[Danish krone]]''':
**{{Flag|Faroe Islands}} (also issues its [[Faroese króna|own coins and some notes]])
**{{Flag|Greenland}}
*'''[[Egyptian pound]]''': {{Flag|Palestine}} ([[Palestinian territories]])
*'''[[Hong Kong dollar]]''': {{Flag|Macao}} (alongside the [[Macanese pataca]], pegged at $1.032)
*'''[[Japanese yen]]''': {{Flag|Zimbabwe}} (alongside several other currencies and the [[Zimbabwean ZiG]]
*'''[[Jordanian dinar]]''': {{Flag|West Bank}} (alongside the [[Israeli new shekel|New Israeli shekel]])
*'''[[Mauritanian ouguiya]]''': {{Flag|Sahrawi Arab Democratic Republic}} (''de facto'' independent state, recognized by 45 UN member states, but [[Moroccan-occupied Western Sahara|mostly occupied]] by [[Morocco]]; used in the [[Sahrawi refugee camps]])
*'''[[Moroccan dirham]]''': {{Flag|Sahrawi Arab Democratic Republic}} (''de facto'' independent state, recognized by 45 UN member states, but [[Moroccan-occupied Western Sahara|mostly occupied]] by [[Morocco]]; used in claimed areas under Moroccan control; issues the non-circulating [[Sahrawi peseta]] for collectors)
*'''[[Israeli new shekel|New Israeli shekel]]''':  {{Flag|Palestine}} ([[Palestinian territories]])
*'''[[Russian ruble]]''':
**{{Flag|Abkhazia}} (''de facto'' independent state, but recognized as a part of [[Georgia (country)|Georgia]] internationally; issues non-circulating collector coins and non-circulating banknotes ([[Abkhazian apsar]]) pegged to the Russian ruble)<ref>[https://en.numista.com/catalogue/abkhazia-1.html Catalog of the coins of Abkhazia] Numista (https://en.numista.com). Retrieved on 2022-10-14.</ref>
**{{Flag|South Ossetia}} (''de facto'' independent state, but recognized as a part of [[Georgia (country)|Georgia]] internationally; issues non-circulating collector coins ([[South Ossetian zarin]]) pegged to the Russian ruble)<ref>[https://en.numista.com/catalogue/south_ossetia-1.html Catalog of the coins of South Ossetia] Numista (https://en.numista.com). Retrieved on 2022-10-14.</ref>
*'''[[Singapore dollar]]''': {{Flag|Brunei}} (alongside the [[Brunei dollar]] at par)
*'''[[Swiss franc]]''':
**{{Flag|Germany}} (uses in the exclave of [[Büsingen am Hochrhein]], alongside the [[euro]])
**{{Flag|Italy}} (uses in the enclave of [[Campione d'Italia]], alongside the [[euro]])
**{{Flag|Liechtenstein}} (also issues [[Liechtenstein franc|non-circulating collector coins]])
*'''[[Turkish lira]]''': {{Flag|Northern Cyprus}} (''de facto'' independent state, but recognized as a part of [[Cyprus]] by all UN member states except [[Turkey]]. The [[Euro]] is also accepted in circulation in [[Northern Cyprus]])

==See also==

* [[Currency union]]
* [[Currency board]]
* [[Dedollarisation]]
* [[Domestic liability dollarization]]
* [[Petrocurrency]]
* [[Bitcoin]], a [[cryptocurrency]]
* [[World currency]]

==References==

===Footnotes===
{{reflist}}

===Works cited===

*{{cite journal|last=Savastano|first=Miguel|title=Dollarization in Latin America: Recent Evidence and Some Policy Issues|ssrn=882905|journal=IMF Working Paper|year=1996|volume=WP/96/4}}
*{{cite book|last=Yeyati|first=Eduardo|title=Dollarization|year=2003|publisher=Massachusetts Institute of Technology}}

{{Portal bar|Money|Numismatics}}
{{Authority control}}

[[Category:Currency unions]]
[[Category:Dollar]]
[[Category:Foreign exchange market]]
[[Category:Monetary hegemony]]
[[Category:Monetary policy]]