What happens if other countries stop using the dollar?
If the world leaned off the dollar, it would slowly lose value against other currencies. For Americans, imported stuff like phones, clothes, and gas would cost more. The government would also have to pay higher interest to borrow money. But US exporters and the workers who make goods sold abroad would get a boost, because American products would suddenly look cheap to foreign shoppers.
Watch it happen, step by step
Other countries stop using the dollar
Foreign Exchange Market (USD)If the world leaned off the dollar, it would slowly lose value against other currencies.
Equilibrium at Quantity of USD 80, Exchange Rate (foreign / USD) 1
The dollar rules world trade
Most of the world's biggest deals, like oil, cargo ships full of goods, and loans between countries, are paid for in US dollars. To do that, foreigners have to buy dollars first, so demand for dollars sits sky-high. On this graph, that steady foreign demand is what holds up the dollar's value.
Now try it yourself: shift the curves in a graded FRQ drill, or open this graph in the free sandbox.
The full chain, written out
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The dollar rules world trade
Most of the world's biggest deals, like oil, cargo ships full of goods, and loans between countries, are paid for in US dollars. To do that, foreigners have to buy dollars first, so demand for dollars sits sky-high. On this graph, that steady foreign demand is what holds up the dollar's value.
- 2
Countries shift to other currencies
Now picture several countries deciding to trade and save in other currencies instead. They stop building up dollar reserves (the emergency money a country keeps on hand) and stop pricing their trade in dollars. With fewer buyers, demand for dollars slides to the left.
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The dollar loses value
With less demand chasing them, dollars get cheaper compared to other currencies. Economists call this depreciation, which just means each dollar now buys less foreign money than before. On the graph, the price of a dollar slides down along the supply line to a new, lower resting point.
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Imports cost more, exports look like a bargain
A weaker dollar means it takes more dollars to buy the euros, yen, and yuan behind your phone or a tank of gas. So imported things get pricier at the store. The flip side is that American-made goods now look cheap to foreign buyers, so US exporters can sell more abroad.
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Borrowing gets more expensive
For years, foreigners parked their savings in US government debt, which is basically lending money to America. With fewer of them lending, the government must offer higher interest to attract new buyers. Those higher rates ripple into the mortgage and car-loan rates families pay.
Where it ends up: If global demand for dollars falls, the dollar depreciates, making imports pricier and US borrowing more expensive while making American exports cheaper for foreign buyers.
Who comes out ahead
- US exporters and factory workers, whose goods suddenly look cheap and sell well overseas
- Foreign tourists visiting America, whose home currency now stretches further here
- US companies that compete with imports at home, since foreign-made products cost more
Who pays for it
- American shoppers, who pay more for imported electronics, clothes, and gas
- The US government and taxpayers, who face higher interest costs on the national debt
- Families taking out a mortgage or car loan, as borrowing rates drift up
- Americans traveling abroad, whose dollars buy less overseas
Economists disagree on how fast the dollar could lose its spot as the world's main savings currency. But no other currency is ready to replace it worldwide, so most expect a slow drift, not a sudden collapse.
Common questions
- Will the US dollar collapse?
- Probably not overnight. There is no other currency ready to replace it worldwide, so most economists expect a slow drift in value, not a sudden crash.
- What happens to my money if the dollar loses value?
- Your dollars still spend normally at home, but imported goods and trips abroad get more expensive because each dollar buys less foreign currency.
- Why do so many countries use the US dollar?
- It is widely trusted, easy to trade, and major global markets like oil already price things in dollars, so it is simply convenient to hold.
- Is the dollar losing its reserve status?
- Its share of the world's reserves has slowly slipped over the decades. But it is still by far the most-used currency, so any change is gradual.
Other questions like this
- What happens if a country puts big tariffs on imports?
- What happens if the Fed cuts interest rates?
- What happens if the government sends everyone a stimulus check?
- What happens if the government keeps borrowing trillions?
- What happens if the government just prints money to pay its debt?
See them all on the What If hub, or go deeper with the AP graph walkthroughs.