The U.S. dollar is used far beyond America’s borders, from oil deals to central bank vaults. Here’s why it holds that position, and what it means for everyone else.
Most countries keep a stockpile of foreign currencies, held by their central bank. It’s used to pay for imports, repay debts owed in other currencies and support their own currency in a crisis.
The currency most of them choose is the U.S. dollar. According to the International Monetary Fund, it accounted for about 57% of the world’s identified foreign exchange reserves in 2026. The euro was a distant second at around 21%, followed by the Japanese yen and British pound. China’s renminbi made up about 2%.
The dollar’s role was cemented after the Second World War. Under the Bretton Woods agreement in 1944, other major currencies were pegged to the dollar, which was itself linked to gold. That gold link ended in 1971, but the dollar stayed at the centre of the system because the U.S. had the world’s largest economy, deep financial markets and a reputation for stable institutions.
Today, the dollar is used in a large share of international trade, even between countries that don’t use it at home. Oil and many other commodities are priced in U.S. dollars, and much of the world’s cross-border borrowing is in dollars.
Why it matters, and whether it can last
Being the world’s reserve currency brings the U.S. major advantages, sometimes called an “exorbitant privilege”. Strong global demand for U.S. government bonds helps keep American borrowing costs lower, and the U.S. can pay for imports in its own currency.
It also gives America’s central bank, the Federal Reserve, enormous influence. When it raises interest rates, money tends to flow into the dollar, pushing other currencies down. For Australia, that can make imports and overseas travel more expensive, and affects the Reserve Bank’s decisions here.
The U.S. also uses the dollar’s reach as a policy tool, through sanctions that cut countries or companies off from the dollar system.
That has encouraged some countries, including China and Russia, to settle more trade in other currencies, and central banks have been buying gold at a rapid pace. The dollar’s share of reserves has slowly declined from about 70% around the year 2000.
Even so, no rival yet offers the same combination of size, open markets and legal protections, which is why most economists expect the dollar to remain dominant for years to come.
