Source? Pretty skeptical about this claim. I have traveled to many countries outside of the U.S. where people use USD as the preferred currency over their own, and it is in regular circulation: Laos, Cambodia, Honduras, Nicaragua, Panama, any Caribbean country, to name a few. To enter Cambodia e.g., you need $20 USD cash to get in. The general in full uniform promptly puts it in his pocket right at the immigration check point at the airport. And there is no country in the world, AFAIK, where money exchangers are not happy to exchange USD for local toilet paper fiat.

Side note: All fiat is toilet paper, it's just that USD is double ply.