The United States
dollar (USD) is the official currency of the United States and its overseas
territories. It is the currency most
used in international transactions and is one of the world’s most dominant
reserve currencies. Several countries use it as their official currency. It is
also used as the two sole currency in two British Overseas Territories: The
British Virgin Islands and the Turks and Caicos Islands.
Besides being the
main currency of the United States, the USD is used as the standard unit of
currency in international markets for commodities such as gold and
petroleum. Some non-US companies dealing
in globalized markets, such as Airbus, list their prices in dollars. The USD is
the world’s foremost reserve currency.
In addition to holdings by central banks and other institutions, there
are many private holdings, which are believed to be mostly in
one-hundred-dollar banknotes.
Despite the USD’s
recent losses to the euro, it is still by far the major international reserve
currency, with an accumulation more than double that of the euro. Other nations
besides US use the USD as their official currency. For instance, Panama has been using the dollar
alongside the Panamanian balboa as the legal tender since 1904. Ecuador, El
Salvador, and East Timor all adopted the currency independently. US-administered Trust Territory of the
Pacific Islands, which included Palau, the Federated States of Micronesia, and
the Marshall Islands, chose not to issue their own currency after becoming
independent, having all used the USD since 1944. Some countries have adopted
the USD issue their own coins. Some
other countries link their currency to USD at a fixed exchange rate like 1:1,
2:1, 1:1.79, 1:1500 (Lebanon), and 1:7.8 (HKD).
Currency
composition of official foreign exchange reserves as of first quarter of 2013
by USD is overwhelmingly at 62.2%, followed by the distant second, Euro at
23.7% and third is Pound sterling at 3.9%.
USD also serves the
following: investment currency in many
capital markets; a reserve currency held by many central banks (detailed
above); a transaction currency in many international commodity markets; an
invoice currency in many contracts; and an intervention currency employed by
monetary authorities in market operations to influence their own exchange
rates.
With such rich
history of USD, and its current usage, USD has become the ‘household name’ of
the world currency and is therefore universally accepted.
Reference:
Wikipedia