New Articles

How the United States Dollar Dominated the Global Trade Space

united states dollar

How the United States Dollar Dominated the Global Trade Space

It’s not surprising to anyone that the United States is the world’s leading superpower, from its dominant economy to its powerful military.

In the modern era, the international role of the US dollar is unrivaled.

There are over 180 currencies in circulation worldwide but only a handful play an outsized role in central bank foreign exchange reserves, finance, and international trade like the US Dollar (USD).

But how did the Dollar grow to become the principal reserve currency?

In this article, we’ll look at the USD’s journey to world dominance in the global trade space.

How the US Dollar Became Dominant in International Transactions and The Financial Markets

A reserve currency is a foreign currency held by central banks in substantial quantities.

It’s widely used to conduct international trade and financial transactions, eradicating the costs of settling transactions involving different currencies.

The US dollar has become the dominant currency in international transactions and financial markets for 5 main reasons:

  • The United States Has the Largest Economy in The World

Since the Dollar is used as the national currency for most international transactions involving the US, this gives the Dollar a unique level of liquidity and stability that other currencies lack. 

Additionally, the US dollar is seen as a safe haven currency, meaning that investors often flock to it during times of economic uncertainty. Finally, the US government and central bank, the Federal Reserve, have a strong track record of maintaining the Dollar’s stability, which has helped to build trust in the currency and further cement its position as the dominant currency in international markets.

The United States dollar is the dominant currency in international transactions and financial markets due to its vast economy, with a gross domestic product (GDP) that is larger than the combined GDPs of the next three largest economies. This makes the Dollar a natural choice for many international transactions, as it is widely available and easily convertible into other currencies.

  • The United States Has A Stable Political System

This, along with a well-established system of property rights and contracts, makes it a safe and reliable place to do business. 

This stability and predictability attract investors and businesses from around the world, who use the Dollar to buy and sell goods and services in the United States and abroad.

  • The United States Has A Large and Sophisticated Financial System

The US boasts a network of banks, investment firms, and other financial institutions capable of handling complex international transactions. 

This financial infrastructure makes it easy for people and businesses to buy and sell dollars and to use them to make payments and investments around the world.  

  • The United States Has A Long History of International Trade and Investment

For decades, the Dollar has been used in these transactions. 

Over time, the Dollar has become a widely accepted and trusted currency, and many businesses and governments around the world have come to rely on it for their financial transactions.

  • The United States Has A Strong Military and A Dominant Position in Global Politics 

This gives the United States a certain degree of influence and power in international affairs. 

This has helped to reinforce the Dollar’s position as the dominant currency and has made it difficult for other currencies to challenge its dominance.

A Timeline of how the US Dollar Dominated the Global Trade Space 

For most of the last century, the outstanding role of the USD in the global economy has been reinforced by the size and strength of the American economy, its stability and openness to trade and capital flows, the rule of law and strong property rights.

  • The first documented use of paper currency in the US dates back to 1690 when the Massachusetts Bay Colony issued colonial notes.
  • It wasn’t until 1776 that the first $2 bill was introduced—9 days before independence. 
  • 9 years later, in 1785, the U.S. officially adopted the dollar sign, using the symbol for the Spanish American peso as a guide.
  • The government established the Office of the Comptroller of Currency (OCC) and the National Currency Bureau in 1863. These 2 agencies were charged with handling new banknotes.
  • Centralized printing began at the Bureau of Engraving and Printing in 1869.
  • The U.S. Treasury assumed the official responsibility of issuing the nation’s legal tender in 1890.
  • The Federal Reserve Act of 1913 created the Federal Reserve Bank to respond to the unreliability and instability of a currency system that was previously based on banknotes issued by individual banks. This was the same time the U.S. economy became the world’s largest.
  • Printing began a year after the establishment of the Federal Reserve as the nation’s central bank with the passing of the Federal Reserve Act in 1914.
  • Countries pegged their currencies to the Dollar after WW1, ending the gold standard. The United States became the lender of choice for many countries that wanted to buy dollar-denominated U.S. bonds.
  • Three decades later, the Dollar officially became the world’s reserve currency. Britain finally abandoned the gold standard in 1931, which decimated the bank accounts of international merchants who traded in pounds. By then, the Dollar had replaced the pound as the leading global reserve currency .
  • In WW2, the United States served as the Allies’ main supplier of weapons and other goods. Most countries paid in gold, making the U.S. the owner of the majority of the world’s gold by the end of the war. This made a return to the gold standard impossible for the countries that depleted their reserves.
  • WW2 reshaped the global financial system. When WW2 was coming to an end, global leaders started deliberating on a stable financial system for international transactions.
  • In 1944, more than 700 delegates from 44 Allied countries met in Bretton Wood, New Hampshire, to devise a system to manage foreign exchange that would not disadvantage any country. The delegation decided that the world’s currencies would no longer be linked to gold but could be pegged to the U.S.
  • Thanks to the Bretton Woods Agreement, the U.S. dollar was officially crowned the world’s reserve (global) currency and was backed by the world’s largest gold reserves. Instead of gold reserves, other countries accumulated reserves of U.S. dollars. The US fixed the value of the Dollar to gold at $35 an ounce.
  • Other countries then fixed their exchange rate in tune with the Dollar, making it the central mode of exchange of the system.
  • In the 1960s, the US started racking up huge deficits and running out of its gold reserves, and the government found it too expensive to maintain the promise. 
  • The Bretton Woods system of currency pegs had outlived its usefulness. Japan and Europe had rebuilt their economies, and growing consumer demand made fixed exchange rates unsustainable. This led to fears of a run that could wipe out United States gold reserves.
  • By the early 1970s, countries began demanding gold for the dollars they held. They needed to combat inflation. Rather than allow Fort Knox to be depleted of all its reserves, President Nixon separated the Dollar from gold.
  • This led to the floating exchange rates that exist today. The Dollar’s value was now set by a mishmash of economic and political forces, ranging from the frenetic buying and selling of traders worldwide to central bank decisions.
  • According to the International Monetary Fund (IMF), the Dollar remains the world’s reserve currency today. Central banks hold around 59 percent of their reserves in U.S. dollars , more than double the collective foreign holdings of euros, renminbi, and yen. That makes it the de facto global currency, even though it doesn’t hold an official title.



  • The Dollar has a huge footprint in offshore funding markets. Here, financial market participants obtain loans or raise debt in foreign currency. Over 60 percent of the world’s debt is issued in dollars, meaning foreign banks need a lot of dollars to conduct business.


  • In 2015, The Economist revealed that the United States accounts for 12 percent of merchandise trade and 23 percent of the global GDP.
  • In part because of its dominant role as a medium of exchange, the U.S. dollar is also the dominant currency in international banking.
  • The relative strength of the U.S. economy supports the value of the Dollar. It’s the reason the Dollar is the most powerful currency . As of the end of 2020, the U.S. had $2.04 trillion in circulation.
  • The dollar rules in the foreign exchange market. Approximately 90 percent of forex trading involves the U.S. dollar. The US Dollar’s dominance in global FX markets is generally linked to its use as a vehicle currency for forex transactions, meaning that non-US dollar currency pairs aren’t exchanged directly but via the Dollar.
  • Although there are many speculations that the US dollar will be dethroned by the Chinese Yuan, the general consensus is that the US dollar will remain the world’s global currency.

Will the US Dollar Continue to Dominate World Trade?

You may think that after holding the title of “the world’s most dominant currency” for so long and experiencing a series of events that negatively affected the US economy, the USD would be replaced. After all, no king rules forever.


It’s difficult to predict with certainty whether the US Dollar will continue to dominate world trade in the future. 

Recent developments have the potential to enhance the international usage of other currencies.

Factors such as shifts in political and economic conditions, changes in the global monetary system, technological developments (e.g., crypto assets), and the increasing economic power of other countries could potentially lead to a decline in the Dollar’s dominance.

  1. The Rapid Growth of China

China’s GDP already exceeds United States GDP on a purchasing power parity basis and is expected to exceed United States GDP in nominal terms in the 2030s

While the US dollar accounts for the lion’s share of international trade, a small subset of other currencies (renminbi, Euro, British Pound, Japanese Yen, and Swiss Franc) is also actively used in international trade alongside the U.S. dollar.

China has been working to internationalize its currency, the renminbi (RMB), to cut its dependence on the US dollar and assert more control over its own economy. Some economic experts believe that the RMB could eventually challenge the US dollar as a dominant currency in international trade.

However, many experts agree that the RMB will not overtake the Dollar as the world’s leading reserve currency anytime soon.

  1. The Race to Create Widespread Digital Currencies

Over the past decade, the private sector has developed thousands of cryptocurrencies over the past decade. 

A cryptocurrency is a digital currency that uses cryptography for security. It’s decentralized and operates independently of a central bank or government.

While cryptos remain a small, volatile, and niche market, they have gained a significant amount of attention and investment in recent years. Some large multinational corporations like JP Morgan seek to create more stable digital currencies for use on a larger scale. 

Central banks are also exploring the possibility of issuing their own digital currencies, which could also impact the future of the monetary system.

However, the diminution of the USD’s status seems unlikely in the near future. There has been only one instance of a predominant currency switching in modern history —the replacement of the British pound by the Dollar.

The US dollar still holds many benefits over other currencies, such as the stability of the US political system, the large size and liquidity of the US economy, and the depth of US financial markets. It’s also widely used as a reserve currency by central banks and international organizations. 

Therefore, it’s unlikely that the US dollar will stop playing a major role in international trade in the near future.


Overall, the dominance of the US dollar in international transactions and financial markets is the result of a combination of factors, including the size and strength of the US economy, the stability of its political system, the sophistication of its financial system, its history of international trade and investment, and its military and political power. These factors have all contributed to making the Dollar the most dominant currency in the world today.



Getting Caught on the Backswing – Will US Sanctions Undermine the Dollar?

Since the Bretton Woods Agreement in 1944 there has been one currency that eclipses all others for international trade: the U.S. dollar. The dollar dominates when it comes to reserves and the settlement of trades, a hegemony that affords U.S. foreign policy incredible strength on the world stage. However, the U.S. reliance on the strength of the dollar to pursue far-reaching sanctions is also beginning to cut at the roots of that strength, as allies and global trading partners simultaneously pursue their own economic agenda and react to perceived over-reach by U.S. policymaker. 

A View from the Top

In 2019, the dollar comprised over 60% of global debt, more than 60% of global reserves for foreign exchange, and was the medium used in 40% of international payments, according to the European Central Bank (ECB). Despite the economic output of the Eurozone roughly matching that of the U.S., the euro accounted for only 20% of foreign exchange reserves and just over 20% of international debt (1).

This allows U.S. foreign policy a potency lacking in other international currencies. The Trump administration has relied heavily on this dynamic, imposing coercive economic measures on a wide spectrum of targets from Venezuela to North Korea and exponentially increasing the number of sanctioned entities. In fact, the U.S. sanctioned around 1,500 Specially Designated Nationals and Blocked Persons (SDNs) in 2018 alone, almost 50 % greater than in any other single year. 

Growing trends have become noticeable in the financial streams flowing between borders; a rise in the use of the euro, RMB and ruble as forex currencies, development of routes around the conventional financial sector, and flurry of interest surrounding the nascent potential of cryptocurrencies. The major drivers of these changes are unrelated to sanction policy and are more tied to the politicization of U.S. monetary policy or the inherent economic interests of other nations and trading blocs, including turning their own currencies into global standards. Regardless of the drivers, these developments suggest an international system ill-at-ease with the power of the dollar.

Secondary Nature, Primary Threat

The unrivaled strength of the U.S. dollar affords U.S. policymakers a weapon unavailable to any other nation. This is built on by the ‘secondary’ nature of U.S. sanctions – extending the impact of sanctions to non-U.S. entities who do business with sanctioned entities or individuals – that leaves few avenues to evade the regime. 

As virtually all dollar-denominated transactions pass through the U.S. financial system, even if just momentarily when they are “cleared,” very few businesses are able to trade with the targets of primary sanctions without themselves falling under the secondary regime. Violators are potentially liable for sizeable fines or other punishments, including being locked out of the U.S. financial system themselves. 

While this is a useful tool for closing down avenues of terrorism, crime or other illicit activity, it also means countries that disagree with the targets of U.S. sanctions must either comply or place their own industry at risk. The EU-U.S. divergence on the Iranian Nuclear deal, or on U.S. sanctions towards Cuba, are good example of this. 

This increasing sanctions activity provides the seedlings that may undermine the dollar’s strength, as it prompts allies that disagree with sanctions regimes to develop alternatives to the dollar – such as the Euro, Chinese RMB or Russian ruble. Special Purpose Vehicles, such as the EU-Russian INSTEX, are created – albeit with difficulty – to provide routes around the conventional financial system. 


Against this politicization of the dollar, various countries are developing alternatives. The euro is staking its claim with the development of the INSTEX vehicle and a declaration by Jean Claude Juncker, then-president of the European Commission, “to do more to allow our single currency to play its full role on the international sector” (2).

Similar gauntlets are being thrown by the ruble – Russia has been developing its own payments system since the Crimean sanctions in 2014 – and the RMB, with the Chinese Cross-Border Interbank Payment System (CIPS) launched in 2015. Given the size of the Chinese market and its growing world position, the RMB could theoretically pose a challenge to the dollar. However, the politicization of the RMB’s value – witnessed most recently in its rapid devaluation targeted at injuring the U.S. as part of the trade war – undermines its use as a global currency in the near to medium term. 

Another potential pitfall for the dollar is the development of new financial technologies, including the much-discussed Blockchain and cryptocurrencies. Such systems allow for the circumvention of the U.S. financial system and enable payments in relation to sanctioned activities, and have already have been used to facilitate illicit payments in North Korea and Iran. 

Mobile payments are also on the rise, further reducing global exposure to the dollar. However, as with other examples above, the use of some of these alternatives are being driven in significant part by illicit activity, which may lay the seeds of its own demise or limited adoption. 

The dollar’s strength on the international stage is undeniable, affording U.S. foreign policy unparalleled reach and potency. However, increasing international attention is being given to the Trump Administration’s fondness for relying on coercive economic measures in foreign policy, including the imposition of sanctions, tariffs, export controls, and investment restrictions. 

Each time a trading partner or ally objects to the U.S. policy goals but is forced to accept a new sanctions regime because of the dollar’s dominance, that dominance is eroded. While the dollar remains by far the best safe-haven for investments, backed as it is by a resilient economy and a history of stability, the potential corrosive effect of sanctions cannot be ignored. The future use of sanctions should factor in this unintended consequence and overall sanctions policy designed to ensure the long-term dominance of the U.S. dollar. 


Matthew Oresman leads Pillsbury Winthrop Shaw Pittman’s International Public Policy practice, carrying out high-profile activities in many of the world’s capital cities. He principally advises governments, political leaders, businesses and NGOs on achieving their most important objectives. He regularly designs and implements legal and policy solutions, including managing integrated U.S. and Europe-based initiatives. He advises global businesses on entry into emerging markets and compliance with U.S. and international regulations.



(2) See Juncker, J.C. (2018), “The Hour of European Sovereignty”, State of the Union Address 2018 –