Why is the US dollar on one side of almost every trade?
You have now noticed it three times: every major contains the dollar, crosses are defined by its absence, and exotics are almost always quoted against it. The number behind that pattern is stark. In the BIS April 2025 survey, the US dollar is on one side of roughly 89% of all FX trades.
Because every trade has two currencies, all shares sum to 200%. The rest of the leaderboard: euro around 29%, yen around 17%, sterling around 10%.
The arithmetic of a vehicle currency
Start with the combinatorics, because they explain more than any political argument.
With N currencies, the number of possible pairs is N × (N − 1) ÷ 2.
- 10 currencies → 45 pairs
- 30 currencies → 435 pairs
- 50 currencies → 1,225 pairs
Every one of those markets would need its own market makers, its own quoting, its own liquidity. It is an impossible amount of duplication for the rarely used combinations.
Route everything through one currency instead and you need only N − 1 markets: 29 for thirty currencies, instead of 435. Anyone wanting Thai baht for Chilean pesos does two liquid trades rather than one illiquid one — and pays less, because two tight spreads beat one enormous spread.
That is what a vehicle currency is: not a status symbol, a routing solution. The market found the cheapest topology and stayed there.
Why liquidity stays where it is
The loop is self-reinforcing. The cheapest currency to trade through is the one everyone already trades through, because that is where the spreads are tightest and the depth is greatest. Each participant choosing the cheapest route makes it cheaper still for the next one. Network effects of this shape are extremely stable — they change over decades and historic ruptures, not over news cycles.
Several other roles feed the same loop:
- Invoicing. Oil, metals, and a large share of world trade — including plenty between two non-US countries — are priced in dollars.
- Reserves. Around 58% of global FX reserves are held in dollars.
- Borrowing. A very large stock of cross-border loans and bonds is denominated in dollars, including by borrowers with no US operations. Every one of those obligations is a standing demand for dollars on a schedule.
What that means for reading the market
Three consequences worth carrying:
- Most cross rates are dollar-derived, so dollar liquidity conditions reach pairs that do not contain a dollar.
- In market stress, demand for dollars typically rises — often regardless of where the stress originated — because borrowers who owe dollars need to obtain them and the safest short-term instruments in the world are dollar-denominated. This is an observation about the plumbing, not a claim about the US economy.
- The FX swap market is enormous for the same reason: it is where institutions obtain dollar funding against the currency they already hold. Over 40% of all FX turnover is swaps — the single largest instrument category — and dollar funding is much of it.
A worked comparison
A Chilean importer needs Thai baht.
- Direct CLP/THB: a market that barely exists. If quoted at all, the spread is punishing and the size is limited.
- Via the dollar: sell CLP for USD, sell USD for THB. Two tight, continuously quoted markets. Two small spreads, two clean fills.
Nobody legislated this. It is just cheaper, and the market does the cheaper thing at scale, every day, in the aggregate.
In the data
The dollar's role is baked into the naming. The first row of the currency list below carries only the dirham's code, and its name says what it is: the US dollar against the dirham. Fifty-two entries in the list are named like that, by one currency alone, and every one of them except the dollar itself is a dollar pair.
The dollar is so reliably the other side that it was dropped from the name, which means a list read literally undercounts how much of the universe is priced against the dollar.
Try it now
- The whole currency list held 997 entries on 29 September 2026. Sorted by how the codes look that day: 944 are six-letter pairs, 213 of them containing the dollar and 119 the euro; 52 are single-currency codes like the dirham's above; one, the dollar against the Argentine "blue" (parallel-market) peso, is neither. Now correct for the trap in the naming: every single-currency code except the dollar itself is a dollar pair, the euro's included. Add them to the dollar's count, write the dollar and the euro totals as shares of 997, and note how many dollar pairs a literal read of the six-letter codes would have missed.
- Take two small-economy currencies, the Chilean peso and the Thai baht. The full currency list had no peso-baht pair in either direction on 29 September 2026: no direct pair exists at all. Each one's dollar pair is below, and both are there. Divide one by the other to get the peso-baht rate a bank would quote through the dollar, and say which of the two numbers you divided by.