$2 (still printed);$500,$1,000,$5,000,$10,000 (discontinued, but still legal tender);$100,000 (discontinued, not legal tender, and only used for specific purposes)
TheUnited States dollar (symbol:$;currency code:USD; also abbreviatedUS$ to distinguish it from otherdollar-denominated currencies; referred to as thedollar,U.S. dollar,American dollar, or colloquiallybuck) is the officialcurrency of theUnited States andseveral other countries. TheCoinage Act of 1792 introduced the U.S. dollar at par with theSpanish silver dollar, divided it into 100cents, and authorized theminting of coins denominated in dollars and cents. U.S. banknotes are issued in the form ofFederal Reserve Notes, popularly called greenbacks due to their predominantly green color.
Article I, Section 9 of the Constitution provides that "a regular Statement and Account of the Receipts and Expenditures of all public Money shall be published from time to time",[11] which is further specified by Section 331 of Title 31 of the U.S. Code.[12] The sums of money reported in the "Statements" are currently expressed in U.S. dollars, thus the U.S. dollar may be described as theunit of account of the United States.[13] "Dollar" is one of the first words of Section 9, in which the term refers to theSpanish milled dollar, or the coin worth eightSpanish reales.
In 1792, theU.S. Congress passed theCoinage Act, of which Section 9 authorized the production of various coins, including:[14]: 248
Dollars or Units—each to be of the value of a Spanish milled dollar as the same is now current, and to contain three hundred and seventy-onegrains and four sixteenth parts of a grain of pure, or four hundred and sixteen grains of standard silver.
Section 20 of the Act designates the United States dollar as theunit of currency of the United States:[14]: 250–1
[T]he money of account of the United States shall be expressed in dollars, or units...and that all accounts in the public offices and all proceedings in the courts of the United States shall be kept and had in conformity to this regulation.
Unlike the Spanish milled dollar, theContinental Congress and the Coinage Act prescribed adecimal system of units to go with the unit dollar, as follows:[15][16] themill, or one-thousandth of a dollar; thecent, or one-hundredth of a dollar; thedime, or one-tenth of a dollar; and theeagle, or ten dollars. The current relevance of these units:
Only thecent (¢) is used as everyday division of the dollar.
Thedime is used solely as the name of thecoin with the value of 10 cents.
Themill (₥) is relatively unknown, but before the mid-20th century was familiarly used in matters ofsales taxes, as well asgasoline prices, which are usually in the form of $ΧΧ.ΧΧ9 pergallon (e.g., $3.599, commonly written as $3.59+9⁄10).[17][18]
Theeagle is also largely unknown to the general public.[18] This term was used in theCoinage Act of 1792 for the denomination of ten dollars, and subsequently was used in naming gold coins.
The Spanish peso or dollar was historically divided into eightreales (colloquially,bits) – hencepieces of eight. Americans also learned counting in non-decimalbits of12+1⁄2 cents before 1857 when Mexicanbits were more frequently encountered than American cents; in fact this practice survived inNew York Stock Exchange quotations until 2001.[19][20]
In 1854,Secretary of the TreasuryJames Guthrie proposed creating $100, $50, and $25 gold coins, to be referred to as aunion,half union, andquarter union, respectively,[21] thus implying a denomination of 1 Union = $100. However, no such coins were ever struck, and only patterns for the $50 half union exist.
When currently issued in circulating form, denominations less than or equal to a dollar are emitted asU.S. coins, while denominations greater than or equal to a dollar are emitted asFederal Reserve Notes, disregarding these special cases:
Gold coins issued forcirculation until the 1930s, up to the value of $20 (known as thedouble eagle)
Though theDutch pioneered in modern-dayNew York in the 17th century the use and the counting of money in silver dollars in the form of German-Dutchreichsthalers and native Dutchleeuwendaalders ('lion dollars'), it was the ubiquitousSpanish American eight-real coin which became exclusively known as thedollar since the 18th century.[23]
Thecolloquialismbuck(s) (much like the Britishquid for thepound sterling) is often used to refer to dollars of various nations, including the U.S. dollar. This term, dating to the 18th century, may have originated with the colonialleather trade, or it may also have originated from apoker term.[24]
Greenback is another nickname, originally applied specifically to the 19th-centuryDemand Note dollars, which were printed black and green on the backside, created byAbraham Lincoln to finance theNorth for theCivil War.[25] It is still used to refer to the U.S. dollar (but not to the dollars of other countries). The termgreenback is also used by the financial press in other countries, such asAustralia,[26]New Zealand,[27]South Africa,[28] andIndia.[29]
Other well-known names of the dollar as a whole in denominations includegreenmail,green, anddead presidents, the latter of which referring to the deceased presidents pictured on most bills. Dollars in general have also been known asbones (e.g. "twenty bones" = $20). The newer designs, with portraits displayed in the main body of the obverse (rather than incameo insets), upon paper color-coded by denomination, are sometimes referred to asbigface notes orMonopoly money.[citation needed]
Piastre was the original French word for the U.S. dollar, used for example in the French text of theLouisiana Purchase. Though the U.S. dollar is calleddollar in Modern French, the termpiastre is still used among the speakers ofCajun French andNew England French, as well as speakers inHaiti and otherFrench Caribbean islands.
Nicknames specific to denomination:
Thequarter dollar coin is known astwo bits, alluding the dollar's origins as the "piece of eight" (bits orreales).[19]
The$100 bill is calledBenjamin,Benji,Ben, orFranklin, referring to its portrait ofBenjamin Franklin. Other nicknames includeC-note (C being theRoman numeral for 100),century note, orbill (e.g.two bills = $200).
Amounts or multiples of $1,000 are sometimes calledgrand in colloquial speech, abbreviated in written form toG,K, ork (fromkilo; e.g. $10k = $10,000). Likewise, alarge orstack can also refer to a multiple of $1,000 (e.g. "fifty large" = $50,000).
The symbol$, usually written before the numerical amount, is used for the U.S. dollar (as well as for many other currencies). The sign was perhaps the result of a late 18th-century evolution of thescribal abbreviationps for thepeso, the common name for the Spanish dollars that were in wide circulation in theNew World from the 16th to the 19th centuries. Thep and thes eventually came to be written over each other giving rise to$.[30][31][32][33]
Yet another explanation suggests that the dollar sign was formed from the capital lettersU andS written or printed one on top of the other. This theory, popularized by novelistAyn Rand inAtlas Shrugged,[34] does not consider the fact that the symbol was already in use before the formation of the United States.[35]
The U.S. dollar was introduced at par with the Spanish-American silver dollar (orSpanish peso,Spanish milled dollar,eight-real coin,piece-of-eight). The latter was produced from the rich silver mine output ofSpanish America, was minted inMexico City,Potosí (Bolivia),Lima (Peru), and elsewhere, and was in wide circulation throughout the Americas, Asia, and Europe from the 16th to the 19th centuries. The minting of machine-milled Spanish dollars since 1732 boosted its worldwide reputation as a trade coin and positioned it to be the model for the new currency of the United States.[citation needed]
Even after theUnited States Mint commenced issuing coins in 1792, locally minteddollars andcents were less abundant in circulation thanSpanish Americanpesos andreales; hence Spanish, Mexican, and American dollars all remained legal tender in the United States until theCoinage Act of 1857. In particular, colonists' familiarity with the Spanish two-real quarter peso was the reason for issuing a quasi-decimal25-cent quarter dollar coin rather than a 20-cent coin.[citation needed]
Alexander Hamilton finalized the details of the 1792 Coinage Act and the establishment of the U.S. Mint.
On July 6, 1785, theContinental Congress resolved that the money unit of the United States, the dollar, would contain 375.64grains of fine silver; on August 8, 1786, the Continental Congress continued that definition and further resolved that the money of account, corresponding with the division of coins, would proceed in adecimal ratio, with the sub-units being mills at 0.001 of a dollar, cents at 0.010 of a dollar, and dimes at 0.100 of a dollar.[15]
After the adoption of theUnited States Constitution, the U.S. dollar was defined by theCoinage Act of 1792. It specified a "dollar" based on theSpanish milled dollar to contain371+4⁄16grains of fine silver, or 416.0 grains (26.96 g) of "standard silver" of fineness 371.25/416 = 89.24%; as well as an "eagle" to contain247+4⁄8 grains of fine gold, or 270.0 grains (17.50 g) of 22karat or 91.67% fine gold.[36]Alexander Hamilton arrived at these numbers based on a treasury assay of the average fine silver content of a selection of wornSpanish dollars, which came out to be 371 grains. Combined with the prevailing gold-silver ratio of 15, the standard for gold was calculated at 371/15 = 24.73 grains fine gold or 26.98 grains 22K gold. Rounding the latter to 27.0 grains finalized the dollar's standard to 24.75 grains of fine gold or 24.75×15 = 371.25 grains = 24.0566 grams = 0.7735 troy ounces of fine silver.
The same coinage act also set the value of an eagle at 10 dollars, and the dollar at1⁄10 eagle. It called for silver coins in denominations of 1,1⁄2,1⁄4,1⁄10, and1⁄20 dollar, as well as gold coins in denominations of 1,1⁄2 and1⁄4 eagle. The value of gold or silver contained in the dollar was then converted into relative value in the economy for the buying and selling of goods. This allowed the value of things to remain fairly constant over time, except for the influx and outflux of gold and silver in the nation's economy.[37]
Though aSpanish dollar freshly minted after 1772 theoretically contained 417.7 grains of silver of fineness 130/144 (or 377.1 grains fine silver), reliable assays of the period in fact confirmed a fine silver content of 370.95 grains (24.037 g) for the average Spanish dollar in circulation.[38]The new U.S. silver dollar of 371.25 grains (24.057 g) therefore compared favorably and was received at par with the Spanish dollar for foreign payments, and after 1803 theUnited States Mint had to suspend making this coin out of its limited resources since it failed to stay in domestic circulation. It was only after Mexican independence in 1821 when their peso's fine silver content of 377.1 grains was firmly upheld, which the U.S. later had to compete with using a heavier 378.0 grains (24.49 g)Trade dollar coin.
The early currency of the United States did not exhibit faces of presidents, as is the custom now;[39] although today, by law, only the portrait of a deceased individual may appear on United States currency.[40] In fact, the newly formed government was against having portraits of leaders on the currency, a practice compared to the policies of European monarchs.[41] The currency as we know it today did not get the faces they currently have until after the early 20th century; before that "heads" side of coinage used profile faces and striding, seated, and standing figures from Greek and Roman mythology and composite Native Americans. The last coins to be converted to profiles of historic Americans were the dime (1946), the half Dollar (1948), and the Dollar (1971).
After theAmerican Revolution, theThirteen Colonies became independent. Freed from British monetary regulations, they each issued£sd paper money to pay for military expenses. TheContinental Congress also began issuing "Continental Currency" denominated in Spanish dollars. For its value relative to states' currencies, seeEarly American currency.
Continental currencydepreciated badly during the war, giving rise to the famous phrase "not worth a continental".[42] A primary problem was that monetary policy was not coordinated between Congress and the states, which continued to issue bills of credit. Additionally, neither Congress nor the governments of the several states had the will or the means to retire the bills from circulation through taxation or the sale of bonds.[43] The currency was ultimately replaced by the silver dollar at the rate of 1 silver dollar to 1000 continental dollars. This resulted in the clause "No state shall... make anything but gold and silver coin a tender in payment of debts" being written into theUnited States Constitution article 1, section 10.
From implementation of the 1792Mint Act to the 1900 implementation of thegold standard, the dollar was on abimetallic silver-and-gold standard, defined as either 371.25grains (24.056 g) of fine silver or 24.75 grains of fine gold (gold-silver ratio 15).
Subsequent to theCoinage Act of 1834 the dollar's fine gold equivalent was revised to 23.2 grains; it was slightly adjusted to 23.22 grains (1.505 g) in 1837 (gold-silver ratio ≈16). The same act also resolved the difficulty in minting the "standard silver" of 89.24% fineness by revising the dollar's alloy to 412.5 grains, 90% silver, still containing 371.25 grains fine silver. Gold was also revised to 90% fineness: 25.8 grains gross, 23.22 grains fine gold.
Following the rise in the price of silver during theCalifornia Gold Rush and the disappearance of circulating silver coins, theCoinage Act of 1853 reduced the standard for silver coins less than $1 from 412.5 grains to 384 grains (24.9 g), 90% silver per 100 cents (slightly revised to 25.0 g, 90% silver in 1873). The Act also limited thefree silver right of individuals to convertbullion into only one coin, the silver dollar of 412.5 grains; smaller coins of lower standard can only be produced by theUnited States Mint using its own bullion.
In order to finance theWar of 1812, Congress authorized the issuance ofTreasury Notes, interest-bearing short-term debt that could be used to pay public dues. While they were intended to serve as debt, they did function "to a limited extent" as money. Treasury Notes were again printed to help resolve the reduction in public revenues resulting from thePanic of 1837 and thePanic of 1857, as well as to help finance theMexican–American War and theCivil War.
Paper money was issued again in 1862 without the backing of precious metals due to theCivil War. In addition to Treasury Notes, Congress in 1861 authorized the Treasury to borrow $50 million in the form ofDemand Notes, which did not bear interest but could be redeemed on demand for precious metals. However, by December 1861, theUnion government's supply of specie was outstripped by demand for redemption and they were forced to suspend redemption temporarily. In February 1862 Congress passed theLegal Tender Act of 1862, issuingUnited States Notes, which were not redeemable on demand and bore no interest, but werelegal tender, meaning that creditors had to accept them at face value for any payment except for import tariffs and interest on public debts. However, silver and gold coins continued to be issued, resulting in the depreciation of the newly printed notes throughGresham's law. In 1869, Supreme Court ruled inHepburn v. Griswold that Congress could not require creditors to accept United States Notes, but overturned that ruling the next year in theLegal Tender Cases. In 1875, Congress passed theSpecie Payment Resumption Act, requiring the Treasury to allow U.S. Notes to be redeemed for gold after January 1, 1879.
Though the dollar came under thegold standardde jure only after 1900, thebimetallic era was endedde facto when theCoinage Act of 1873 suspended the minting of the standardsilver dollar of 412.5 Troygrains = 26.73 g; 0.859 ozt, the only fully legal tender coin that individuals could convert bullion into in unlimited (orFree silver) quantities,[a] and right at the onset of thesilver rush from theComstock Lode in the 1870s. This was the so-called "Crime of '73".
TheGold Standard Act of 1900 repealed the U.S. dollar's historic link to silver and defined it solely as 23.22 grains (1.505 g) of fine gold (or $20.67 pertroy ounce of 480 grains). In 1933, gold coins were confiscated byExecutive Order 6102 underFranklin D. Roosevelt, and in 1934 the standard was changed to $35 per troy ounce fine gold, or 13.71 grains (0.888 g) per dollar.
After 1968 a series of revisions to the gold peg was implemented, culminating in theNixon Shock of August 15, 1971, which suddenly ended the convertibility of dollars to gold. The U.S. dollar has since floated freely on theforeign exchange markets.[citation needed]
Obverse of a rare 1934 $500 Federal Reserve Note, featuring a portrait of PresidentWilliam McKinley
Reverse of a $500 Federal Reserve Note
Congress continued to issue paper money after the Civil War, the latest of which is theFederal Reserve Note that was authorized by theFederal Reserve Act of 1913. Since the discontinuation of all other types of notes (Gold Certificates in 1933, Silver Certificates in 1963, and United States Notes in 1971), U.S. dollar notes have since been issued exclusively asFederal Reserve Notes.
The U.S. dollar first emerged as an important internationalreserve currency in the 1920s, displacing the Britishpound sterling as it emerged from theFirst World War relatively unscathed and since the United States was a significant recipient of wartime gold inflows. After the United States emerged as an even stronger globalsuperpower during theSecond World War, theBretton Woods Agreement of 1944 established the U.S. dollar as the world's primary reserve currency and the only post-war currency linked to gold. Despite all links to gold being severed in 1971, the dollar continues to be the world's foremost reserve currency for international trade to this day.
The Bretton Woods Agreement of 1944 also defined the post-World War II monetary order and relations among modern-dayindependent states, by setting up a system of rules, institutions, and procedures to regulate theinternational monetary system. The agreement founded theInternational Monetary Fund and other institutions of the modern-dayWorld Bank Group, establishing the infrastructure for conducting international payments and accessing the global capital markets using the U.S. dollar.
For most of the post-war period, theU.S. government has financed its own spending by borrowing heavily from the dollar-lubricated global capital markets, in debts denominated in its own currency and at minimal interest rates. This ability to borrow heavily without facing a significantbalance of payments crisis has been described as theUnited States'sexorbitant privilege.
TheUnited States Mint has issued legal tender coins every year from 1792 to the present. From 1934 to the present, the only denominations produced for circulation have been the familiar penny, nickel, dime, quarter, half dollar, and dollar.
These images are to scale at 2.5 pixels per millimetre. For table standards, see thecoin specification table.
Gold and silver coins have been previously minted for general circulation from the 18th to the 20th centuries. The last gold coins were minted in 1933. The last 90% silver coins were minted in 1964, and the last 40% silver half dollar was minted in 1970.
Theone-dollar coin has never been in popular circulation from 1794 to present, despite several attempts to increase their usage since the 1970s, the most important reason of which is the continued production and popularity of theone-dollar bill.[44]Half dollar coins were commonly used currency since inception in 1794, but has fallen out of use from the mid-1960s when all silver half dollars began to be hoarded.
Thenickel is the only coin whose size and composition (5 grams, 75% copper, and 25% nickel) is still in use from 1865 to today, except for wartime 1942–1945Jefferson nickels which contained silver.
Collector coins are technically legal tender at face value but are usually worth far more due to their numismatic value or for their precious metal content. These include:
TheU.S. Constitution provides that Congress shall have the power to "borrow money on the credit of the United States."[51] Congress has exercised that power by authorizingFederal Reserve Banks to issueFederal Reserve Notes. Those notes are "obligations of the United States" and "shall be redeemed in lawful money on demand at the Treasury Department of the United States, in the city of Washington, District of Columbia, or at any Federal Reserve bank".[52] Federal Reserve Notes are designated by law as "legal tender" for the payment of debts.[53] Congress has also authorized the issuance ofmore than 10 other types of banknotes, including theUnited States Note[54] and theFederal Reserve Bank Note. The Federal Reserve Note is the only type that remains in circulation since the 1970s.Federal Reserve Notes are printed by theBureau of Engraving and Printing and are made fromcotton fiber paper (as opposed towood fiber used to make common paper). The "large-sized notes" issued before 1928 measured 7.42 in × 3.125 in (188.5 mm × 79.4 mm), whilesmall-sized notes introduced that year measure 6.14 in × 2.61 in × 0.0043 in (155.96 mm × 66.29 mm × 0.11 mm).[55] The dimensions of the modern (small-size) U.S. currency is identical to the size ofPhilippine peso banknotes issued under United States administration after 1903, which had proven highly successful.[56] The American large-note bills became known as "horse blankets" or "saddle blankets".[57]
Currently printed denominations are$1,$2,$5,$10,$20,$50, and$100. Notes above the $100 denomination stopped being printed in 1946 and were officially withdrawn from circulation in 1969. These notes were used primarily in inter-bank transactions or byorganized crime; it was the latter usage that prompted PresidentRichard Nixon to issue an executive order in 1969 halting their use. With the advent of electronic banking, they became less necessary. Notes in denominations of$500,$1,000,$5,000,$10,000 (discontinued, but still legal tender);$100,000 were all produced at one time; seelarge denomination bills in U.S. currency for details. With the exception of the $100,000 bill (which was only issued as a Series 1934 Gold Certificate and was never publicly circulated; thus it is illegal to own), these notes are now collectors' items and are worth more than their face value to collectors.
Though still predominantly green, the post-2004 series incorporate other colors to better distinguish different denominations. As a result of a 2008 decision in an accessibility lawsuit filed by theAmerican Council of the Blind, theBureau of Engraving and Printing is planning to implement a raised tactile feature in the next redesign of each note, except the $1 and the current version of the $100 bill. It also plans larger, higher-contrast numerals, more color differences, and distribution of currency readers to assist the visually impaired during the transition period.[d]
Monetary policy refers to actions made by central banks that determine the size and growth rate of themoney supply available in the economy, and which would result in desired objectives like low inflation, low unemployment, and stable financial systems. The economy's aggregatemoney supply is the total of
M0 money, or Monetary Base – "dollars" in currency andbank money balances credited to the central bank's depositors, which are backed by the central bank's assets,
plus M1, M2, M3 money – "dollars" in the form ofbank money balances credited to banks' depositors, which are backed by the bank's assets and investments.
The FOMC influences the level of money available to the economy by the following means:
Reserve requirements – specifies a required minimum percentage of deposits in acommercial bank that should be held as a reserve (i.e. as deposits with the Federal Reserve), with the rest available to loan or invest. Higher requirements mean less money loaned or invested, helping keep inflation in check. Raising thefederal funds rate earned on those reserves also helps achieve this objective.
Open market operations – the Federal Reserve buys or sellsUS Treasury bonds and other securities held by banks in exchange for reserves; more reserves increase a bank's capacity to loan or invest elsewhere.
Discount window lending – banks can borrow from the Federal Reserve.
Monetary policy directly affects interest rates; it indirectly affects stock prices, wealth, and currency exchange rates. Through these channels, monetary policy influences spending, investment, production, employment, and inflation in the United States. Effectivemonetary policy complementsfiscal policy to support economic growth.
The adjusted monetary base has increased from approximately $400 billion in 1994, to $800 billion in 2005, and to over $3 trillion in 2013.[70]
When the Federal Reserve makes a purchase, it credits the seller's reserve account (with the Federal Reserve). This money is not transferred from any existing funds—it is at this point that the Federal Reserve has created newhigh-powered money. Commercial banks then decide how much money to keep in deposit with the Federal Reserve and how much to hold as physical currency. In the latter case, the Federal Reserve places an order for printed money from the U.S. Treasury Department.[71] The Treasury Department, in turn, sends these requests to the Bureau of Engraving and Printing (to print newdollar bills) and the Bureau of the Mint (to stamp the coins).
The Federal Reserve's monetary policy objectives to keep prices stable and unemployment low is often called thedual mandate. This replaces past practices under agold standard where the main concern is the gold equivalent of the local currency, or under a gold exchange standard where the concern is fixing the exchange rate versus another gold-convertible currency (previously practiced worldwide under theBretton Woods Agreement of 1944 via fixed exchange rates to the U.S. dollar).
The primary currency used for global trade betweenEurope,Asia, andthe Americas has historically been the Spanish-Americansilver dollar, which created a globalsilver standard system from the 16th to 19th centuries, due to abundant silver supplies inSpanish America.[72]The U.S. dollar itself was derived from this coin. TheSpanish dollar was later displaced by the Britishpound sterling in the advent of the internationalgold standard in the last quarter of the 19th century.
The U.S. dollar began to displace thepound sterling as internationalreserve currency from the 1920s since it emerged from theFirst World War relatively unscathed and since theUnited States was a significant recipient of wartime gold inflows.[73]After the U.S. emerged as an even stronger globalsuperpower during theSecond World War, theBretton Woods Agreement of 1944 established the post-war international monetary system, with the U.S. dollar ascending to become the world's primaryreserve currency for international trade, and the only post-war currency linked to gold at $35 pertroy ounce.[74]
Foreign companies, entities, and private individuals hold U.S. dollars in foreign deposit accounts calledeurodollars (not to be confused with theeuro), which are outside the jurisdiction of theFederal Reserve System. Private individuals also hold dollars outside the banking system mostly in the form ofUS$100 bills, of which 80% of its supply is held overseas.
The U.S. dollar is predominantly the standard currency unit in which goods are quoted and traded, and with which payments are settled, in the globalcommodity markets.[78] TheU.S. Dollar Index is an important indicator of the dollar's strength or weakness versus a basket of six foreign currencies.
TheUnited States Government is capable of borrowing trillions of dollars from the global capital markets in U.S. dollars issued by theFederal Reserve, which is itself under U.S. government purview, at minimal interest rates, and with virtually zero default risk. In contrast, foreign governments and corporations incapable of raising money in their own local currencies are forced to issue debt denominated in U.S. dollars, along with its consequent higher interest rates and risks of default.[79] The United States's ability to borrow in its own currency without facing a significant balance of payments crisis has been frequently described as itsexorbitant privilege.[80]
A frequent topic of debate is whether thestrong dollar policy of the United States is indeed in America's own best interests, as well as in the best interest of theinternational community.[81]
This section needs to beupdated. The reason given is: No new data from the past 12 years (ignoring the difficult to read graphs up to 2021 labeled "Inflation of the dollar"), but prices of many foods along have increased 2–4x or more as one example, but pay isn't increasing at all for most people. The actual inflation numbers would be interesting.. Please help update this article to reflect recent events or newly available information.(April 2024)
The 6th paragraph ofSection 8 of Article 1 of the U.S. Constitution provides that the U.S. Congress shall have the power to "coin money" and to "regulate the value" of domestic and foreign coins. Congress exercised those powers when it enacted theCoinage Act of 1792. That Act provided for the minting of thefirst U.S. dollar and it declared that the U.S. dollar shall have "the value of aSpanish milled dollar as the same is now current".[82]
The table above shows the equivalent amount of goods that, in a particular year, could be purchased with $1. The table shows that from 1774 through 2012 the U.S. dollar has lost about 97.0% of its buying power.[83]
The decline in the value of the U.S. dollar corresponds toprice inflation, which is a rise in the general level of prices of goods and services in an economy over a period of time.[84] Aconsumer price index (CPI) is a measure estimating the average price of consumer goods and services purchased by households. TheUnited States Consumer Price Index, published by theBureau of Labor Statistics, is a measure estimating the average price of consumer goods and services in the United States.[85] It reflects inflation as experienced by consumers in their day-to-day living expenses.[86] A graph showing the U.S. CPI relative to 1982–1984 and the annual year-over-year change in CPI is shown at right.
The value of the U.S. dollar declined significantly during wartime, especially during theAmerican Civil War, World War I, and World War II.[87] TheFederal Reserve, which was established in 1913, was designed to furnish an "elastic" currency subject to "substantial changes of quantity over short periods", which differed significantly from previous forms ofhigh-powered money such as gold, national banknotes, and silver coins.[88] Over the very long run, the prior gold standard kept prices stable—for instance, the price level and the value of the U.S. dollar in 1914 were not very different from the price level in the 1880s. The Federal Reserve initially succeeded in maintaining the value of the U.S. dollar and price stability, reversing the inflation caused by the First World War and stabilizing the value of the dollar during the 1920s, before presiding over a 30% deflation in U.S. prices in the 1930s.[89]
Under theBretton Woods system established after World War II, the value of gold was fixed to $35 per ounce, and the value of the U.S. dollar was thus anchored to the value of gold. Rising government spending in the 1960s, however, led to doubts about the ability of the United States to maintain this convertibility, gold stocks dwindled as banks and international investors began to convert dollars to gold, and as a result, the value of the dollar began to decline. Facing an emergingcurrency crisis and the imminent danger that the United States would no longer be able to redeem dollars for gold, gold convertibility was finally terminated in 1971 byPresident Nixon, resulting in the "Nixon shock".[90]
The value of the U.S. dollar was therefore no longer anchored to gold, and it fell upon the Federal Reserve to maintain the value of the U.S. currency. The Federal Reserve, however, continued to increase the money supply, resulting instagflation and a rapidly declining value of the U.S. dollar in the 1970s. This was largely due to the prevailing economic view at the time that inflation and real economic growth were linked (thePhillips curve), and so inflation was regarded as relatively benign.[90] Between 1965 and 1981, the U.S. dollar lost two thirds of its value.[83]
Over the thirty-year period from 1981 to 2009, the U.S. dollar lost over half its value.[83] This is because the Federal Reserve has targeted not zero inflation, but a low, stable rate of inflation—between 1987 and 1997, the rate of inflation was approximately 3.5%, and between 1997 and 2007 it was approximately 2%. The so-called "Great Moderation" of economic conditions since the 1970s is credited to monetary policy targeting price stability.[91]
There is an ongoing debate about whether central banks should target zero inflation (which would mean a constant value for the U.S. dollar over time) or low, stable inflation (which would mean a continuously but slowly declining value of the dollar over time, as is the case now). Although some economists are in favor of a zero inflation policy and therefore a constant value for the U.S. dollar,[89] others contend that such a policy limits the ability of the central bank to controlinterest rates and stimulate the economy when needed.[92]
US dollar exchange rates graphs againstEuro (from 1999),Pound sterling andJapanese yen (both from 1990) (on the first two - the amount of dollars per one euro and pound, on the third - the amount of yens per one dollar)
US dollar exchange rates graphs againstCanadian dollar (from 1990),Mexican peso (from 1994) andChinese Renminbi (from 1990) (the amount of Canadian dollars, pesos and renminbi per one dollar)
^Silver bullion can be converted in unlimited quantities of Trade dollars of 420 grains, but these were meant for export and had legal tender limits in the US. SeeTrade dollar (United States coin).
^abcdMexican peso values prior to 1993 revaluation
^ab1970–1992Archived October 23, 2018, at theWayback Machine.1980 derived from AUD–USD=1.1055 and AUD–GBP=0.4957 at end of Dec 1979: 0.4957/1.1055=0.448394392;1985 derived from AUD–USD=0.8278 and AUD–GBP=0.7130 at end of Dec 1984: 0.7130/0.8278=0.861319159.
^abFitzpatrick, John C., ed. (1934)."Tuesday, August 8, 1786".Journals of the Continental Congress 1774–1789. XXXI: 1786:503–505.Archived from the original on May 7, 2021. RetrievedDecember 5, 2019.
^Peters, Richard, ed. (1845)."Second Congress. Sess. I. Ch. 16".The Public Statutes at Large of the United States of America, Etc. Etc.1:246–251.Archived from the original on November 13, 2020. RetrievedDecember 5, 2019.
^ab"Mills Currency".Past & Present. Stamp and Coin Place Blog. September 26, 2018. Archived fromthe original on May 3, 2021. RetrievedDecember 5, 2019.
^Nussbaum, Arthur (1957).A History of the Dollar. New York: Columbia University Press. p. 56.The dollar sign, $, is connected with the peso, contrary to popular belief, which considers it to be an abbreviation of 'U.S.' The two parallel lines represented one of the many abbreviations of 'P,' and the 'S' indicated the plural. The abbreviation '$.' was also used for the peso, and is still used in Argentina.
^Newman, Eric P. (1990).The Early Paper Money of America (3 ed.). Iola, Wisconsin: Krause Publications. p. 17.ISBN0-87341-120-X.
^Wright, Robert E. (2008).One Nation Under Debt: Hamilton, Jefferson, and the History of What We Owe. New York, New York: McGraw-Hill. pp. 50–52.ISBN978-0-07-154393-4.
^"Ecuador".CIA World Factbook. October 18, 2010.Archived from the original on January 10, 2021. RetrievedOctober 17, 2018.The dollar is legal tender
^"El Salvador".CIA World Factbook. October 21, 2010.Archived from the original on May 7, 2021. RetrievedOctober 17, 2018.The US dollar became El Salvador's currency in 2001
^"Currency".Central Bank of Liberia.Archived from the original on January 15, 2023. RetrievedJanuary 15, 2023.
^"Central Bank of Timor-Leste".Archived from the original on May 1, 2019. RetrievedMarch 22, 2017.The official currency of Timor-Leste is the United States dollar, which is legal tender for all payments made in cash.
^Nay Im, Tal; Dabadie, Michel (March 31, 2007)."Dollarization in Cambodia"(PDF).National Bank of Cambodia.Archived(PDF) from the original on May 11, 2022. RetrievedApril 11, 2022.
^Nagumo, Jada (August 4, 2021)."Cambodia aims to wean off US dollar dependence with digital currency". Nikkei Asia.Archived from the original on April 15, 2022. RetrievedApril 11, 2022.Cambodia runs a dual-currency system, with the U.S. dollar widely circulating in its economy. The country's dollarization began in the 1980s and 90s, following years of civil war and unrest.
^abBroaddus Jr., J. Alfred (September 1, 1993)."Central Banking—Then and Now".Federal Reserve Bank of Minneapolis. Archived fromthe original on October 26, 2018. RetrievedOctober 17, 2018.
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