Why the World Runs on the U.S. Dollar

How the Dollar Became the World’s Currency — and What That Means for Power and Politics

To be a poor man is hard, but to be a poor race in a land of dollars is the very bottom of hardships.

W. E. B. DuBois

Most people don’t think about what money is used in global trade, but behind the scenes, the U.S. dollar is everywhere. Whether buying electronics made in China or filling your car with gas, the U.S. dollar often greases the wheels of those transactions (even if you never see a physical dollar). The dollar is so dominant internationally that economists call it the world’s reserve currency. In this post, we’ll explain what that means, how it happened, what power it gives the United States, who’s trying to change it, and why you should care. We’ll also examine whether being the top currency has any downsides for the U.S.. Grab a cup of coffee (priced in dollars on the global market) and dive in.

The Dollar as the World’s Default Currency

Think of the U.S. dollar as the “common language” of money worldwide. Just as English often serves as a common language for international business, the dollar is the currency for global trade and finance. When we say the world uses the dollar for trade, debt, and reserves, here’s what we mean in simple terms:

Trade: Companies and countries around the globe price and pay for goods in U.S. dollars. For example, if Brazil buys oil from Saudi Arabia, that oil is typically priced in dollars. Roughly half of all international trade invoices are in U.S. dollars. Major commodities like oil are almost always bought and sold in dollars. This practice is so prevalent that countries need dollars to keep their economies running – they swap their currency for dollars to pay for imports.