Countries that use the US dollar
Which countries use the dollar
Five of the countries on this site either use the US dollar as their own money or fix their currency to it at a rate that does not move.
- Timor-Leste has used the dollar since 2000, minting only its own coins.
- Ecuador abandoned the sucre in 2000, after a banking collapse and a devaluation that had taken the currency past 25,000 to the dollar.
- El Salvador made the dollar legal tender in 2001, and the colón has since left circulation entirely.
- Panama has issued the balboa at one to one with the dollar since 1904, and uses American notes as its paper money.
- Hong Kong has run a currency board at a fixed rate to the dollar since 1983.
Timor-Leste, Ecuador and El Salvador have no currency of their own. Panama and Hong Kong keep one, but at a rate their central banks defend rather than let the market set.
Does it mean American inflation?
Mostly not, and that surprises people. Measured against the United States since 2002, four of these five track American inflation less closely than the typical country with a currency of its own.
| Country | Correlation with the US | Average gap | Own average |
|---|---|---|---|
| 🇸🇻El Salvador | 0.84 | 1.3 pts | 1.7% |
| 🇹🇱Timor-Leste | 0.32 | 3.2 pts | 4.1% |
| 🇵🇦Panama | 0.28 | 2.3 pts | 2.3% |
| 🇭🇰Hong Kong | 0.10 | 2.2 pts | 1.9% |
| 🇪🇨Ecuador | -0.06 | 2.8 pts | 3.2% |
| The median of the other 110 countries | 0.52 | 2.5 pts | — |
A correlation of 1.00 would mean the two rates rise and fall exactly together; 0.00 means knowing one tells you nothing about the other. El Salvador comes closest at 0.84. Ecuador sits at -0.06, which is to say its inflation and America's have almost nothing to do with each other, despite sharing the same notes.
The reason is that most of what a price index measures is not imported. Rent, haircuts, restaurant meals, bus fares, school fees and wages are set locally and paid locally, and no exchange rate touches them. Sharing a currency removes one cause of inflation — a falling exchange rate making imports dearer — without importing the other country's economy.
What it does buy
Not American inflation, but the end of the very high kind. Ecuador is the clearest case, because it has a long record either side of the change.
| Ecuador | Average | Highest |
|---|---|---|
| Its own currency, to 1999 | 28.2% | 99.1% |
| The dollar, since 2002 | 3.2% | 16.5% |
The average fell from 28.2% to 3.2%, and the worst year from 99.1% to 16.5%. What changed was not that Ecuador began importing American prices. It was that a government which can no longer print money cannot pay its bills by devaluing the savings of the people it governs.
It does not buy a quiet life
Giving up a currency is often described as buying stability. The figures are less flattering. Since 2002 the United States' own annual rate has moved within a standard deviation of 1.8 points. All five here have been more volatile than that, and two more volatile than the median country with its own floating currency (2.9 points).
A dollarised economy still meets its own harvests, its own strikes, its own tax changes and its own housing market, and has given up the one instrument it might have used to answer them.
How this is measured
Every figure here is calculated from the series on this site each time it is rebuilt, so the page cannot drift away from the data behind it. Correlations use each country's year-on-year rate against the United States' CPI-U, month by month, from January 2002 onwards — after Ecuador and Timor-Leste changed currency in 2000 and El Salvador in 2001, since a twelve-month rate spanning a switch describes the old money as much as the new. A country needs three years of overlap to appear at all.