There are those of us who are not good at math. I am one of them. Therefore having to calculate exchange rates on the fly while traveling is a particularly excruciating mental affair. Sometimes I just chuck it all to the wind, buy the thing I desire, and figure I’ll be surprised one way or the other when I check my credit card statement. Is that irresponsible? Definitely. But I’m clearly not the only one that thinks this way. Irish journalist Carl Kinsella even took to X to declare, “The bad news is that Iceland is very expensive but the good news is that I have NO idea what the exchange rate is so I don’t actually know how badly I’m being screwed.”
So it follows that on a recent trip to Turks and Caicos I was pleased to discover that the official currency of the country is none other than my hometown’s US dollar. But as delighted as it was, I was also confused. Not only is the archipelago not a part of the US, but, hey, isn’t it a British Overseas Territory? (Also what is a British Overseas Territory, anyway?)
Turns out, Turks and Caicos is not the only country that uses the US dollar as its official currency. The British Virgin Islands is another example, despite being a British territory. Not only that, there are many other independent countries, like Panama, that use the US dollar equally if not more than their own currency. So the question is, what gives? What’s in it for them?
What is dollarization?
Dollarization is the process of adopting the U.S dollar, or another foreign currency, either to be used as the other country’s official currency or to supplement domestic currency without formal legal status.
Since WWII, the number of independent countries in the world has nearly tripled. And about 60 of the 193 independent countries today use the currency of a larger territory, often one they were once a part of, or currency union like the African Financial Community or Eastern Caribbean Currency Area. While having your own currency allows a government to set interest rates and adjust the money supply as it sees fit and respond to economic crises accordingly, for many smaller or newer countries, it’s just not feasible. “Countries typically choose dollarization due to a lack of confidence in their ability to manage their own currency effectively, often in response to economic instability or hyperinflation,” says Zac Mills, former World Bank economist turned wildlife photographer and conservation activist.
“Since WWII, the number of independent countries in the world has nearly tripled.”
In the case of Turks and Caicos, the archipelago has been through a few governments in their time under British rule and just as many currency changes. In the 1800s you could find US, English, and Canadian coins in circulation. In early 1900s they issued their own currency notes, where were discontinued after the Great Depression. As a British colony, they were under the control of the British government of Jamaica, who in 1920 started issuing their own Jamaican pound (JMP), which the country adopted. When Jamaica gained independence in 1962, the islands then became a Crown Colony and placed under the control of the British authority in the Bahamas, but continued to use the JMP. After Bahamian independence in 1973, the British government placed an office of the governor on Grand Turk, and the country switched from JMP to the US Dollar.
In 1983, the status of Turks and Caicos changed from Crown Colony to British Dependent Territory. In 2002, it changed once again to a British Overseas Territory. As a British Overseas Territory, the island is appointed a governor by the British Crown. The island has full internal governance, and islanders born in Turks and Caicos are full British citizens.
Over the years, Turks and Caicos has maintained close relations with the US through trade, tourism, and military installations. From 1950 to 1981, the US had a missile tracking station on Grand Turk, which was part of the Sound Surveillance System, an underwater listening system designed to track Soviet submarines. (After his three earth orbits in 1962, John Glenn successfully made landfall nearby and was brought back to the base in Grand Turk.)
Why the US dollar?
Using the US dollar is a pragmatic matter of stabilization. “The US dollar is considered one of the most stable and reliable currencies globally,” says Mills. “Using it helps these territories avoid the volatility and instability that might come with managing a smaller, less liquid currency.”
Since the end of World War II, the dollar has been the world’s most important means of exchange. In the third quarter of 2023, the International Monetary Fund reported that the US dollar comprised roughly 59% of global foreign exchange reserves held by central banks.
In addition to being a reliable currency, Mills says that using the US dollar makes transactions with American tourists and businesses straightforward, fostering economic activity and convenience. It can also facilitate trade and investment and make it easier for countries to engage in global trade and financial markets.
And for somewhere like Panama, using the dollar alongside their own currency allows them both the benefits of the stability of a strong foreign currency—helping to avoid inflation and currency crisis—while at the same time keeping their national identity. “Retaining its own currency, even if just symbolically, allows Panama to maintain a sense of national identity and sovereignty over its monetary policy,” says Mills.
What countries use the US dollar?
So where besides Turks and Caicos, the British Virgin Islands, and Panama can you use the cash already in your wallet? Of course, all the US territories: Puerto Rico, Guam, American Samoa, the Commonwealth of the Northern Mariana Islands, and the US Virgin Islands. Beyond that, we’ve compiled a handy list.
Countries that have adopted the US dollar as official currency
Bonaire, Sint Eustatius, and Saba: Special municipalities of the Netherlands, these three heavily favor the US dollar, although they also use the euro.
Ecuador: Adopted the US dollar in 2000.
El Salvador: Adopted the US dollar in 2001 (though touted as a way to bring in financial stability, this went against the will of the populace)
Palau, the Marshall Islands, and the Federated States of Micronesia (the Freely Associated States): Under the Compact of Free Association with the United States in 1986, these three all use the US dollar.
Panama: Both the Panamanian balboa and the US dollar aer used.
Timor-Leste: The US dollar has been used in this Southeast Asian Nation since 2000.
Countries that use the US dollar alongside their own
Aruba: Both the florin (AWG) and USD are accepted.
The Bahamas: Uses their own dollar used alongside USD. The exchange rate is 1:1.
Barbados: Uses the Barbadian dollar and the US dollar.
Belize: Uses the Belize dollar and the US dollar.
Bermuda: Uses their own dollar alongside the US dollar.
Cambodia: Uses the US Dollar alongside the Cambodian Riel (KHR).
Cayman Islands: Uses their own dollar, but USD is widely accepted.
Costa Rica: Uses USD alongside the Costa Rican colón (CRC). The US Dollar is commonly accepted, especially in the tourism sector.
Curaçao: The Antillean guilder (ANG) is official and USD is widely accepted.
Guatemala: It is strongly recommended to have some Guatemalan quetzal (GTQ), but the USD is often accepted.
Honduras: Same as Guatemala, it is recommended to have some Honduran lempira (HNL), but the US Dollar can be used in larger hotels and for bigger purchases.
Jamaica: USD is accepted alongside the Jamaican Dollar (JMD).
Lebanon: The official currency is the Lebanese pound (LBP), but in recent years the country has been leaning more on USD.
Liberia: Uses the Liberian Dollar (LRD), but the USD is also recognized as legal tender.
Myanmar: USD is often used alongside the Myanmar kyat (MMK).
Nicaragua: Widely uses the US Dollar alongside the Nicaraguan córdoba (NIO).
Saint Kitts and Nevis: Local currency is the Eastern Caribbean Dollar (XCD), but the USD is accepted by most stores. Note that you’ll receive change in XCD.
Sint Maarten and Saint Martin: Although both sides of the island have their respective official currency, both accept USD. However it’s more common on the Dutch Sint Maarten than on the French side of Saint Martin.
Vietnam: In big touristy areas you can get away with USD, but you’ll definitely want to have some Vietnamese dong (VND) on hand.
