The
United States dollar (sign: $; code:
USD) is the unit of currency of the United States
. The U.S. dollar is normally abbreviated as
the
dollar sign,
$, or
as
USD or
US$ to distinguish it
from other
dollar-denominated currencies and
from others that use the $ symbol. It is divided into 100
cent (200
half-cent prior to
1857).
The U.S. dollar is the currency most used in international
transactions. Several countries
use it as
their official currency, and in many others it is the
de facto currency.
Overview
The U.S. dollar bill uses the decimal system, consisting of 100
equal cents (symbol ¢). In another division, there are 1,000
mills or ten
dimes
to a dollar, or 4 quarters to a dollar. However, only cents are in
everyday use as divisions of the dollar; "dime" is used solely as
the name of the
coin with the value
of 10¢, while "eagle" and "mill" are largely unknown to the general
public, though mills are sometimes used in matters of
tax levies and
gasoline prices.
When currently issued in circulating form, denominations equal to
or less than a dollar are emitted as
U.S. coins while
denominations equal to or greater than a dollar are emitted as
Federal Reserve notes (with the
exception of gold, silver and platinum coins valued up to $100 as
legal tender, but worth far more as bullion). Both one-dollar coins
and notes are produced today, although the note form is
significantly more common. In the past, "paper money" was
occasionally issued in denominations less than a dollar (
fractional currency) and gold coins
were issued for
circulation
up to the value of
$20 (known as the
"double eagle," discontinued in the 1930s). The term
eagle was used in the
Coinage Act of 1792 for the denomination
of ten dollars, and subsequently was used in naming
gold coins. In 1854,
James Guthrie, then
Secretary of the Treasury,
proposed creating $100, $50 and $25 gold coins, which were referred
to as a "Union," "Half Union," and "Quarter Union," thus implying a
denomination of 1 Union = $100.
Today, USD notes are made from
cotton fiber
paper, unlike most common
paper, which is made
of wood fiber.
U.S. coins are produced by the
United
States Mint. U.S. dollar
banknotes are
printed by the
Bureau
of Engraving and Printing, and, since 1914, have been issued by
the
Federal Reserve. The "
large-sized notes" issued before 1928
measured by ;
small-sized notes,
introduced that year, measure by by .
Etymology
The name
Thaler (from German thal,
or nowadays usually Tal, "valley", cognate with "dale" in
English) came from the German coin Guldengroschen ("great guilder", being
of silver but equal in value to a gold guilder), minted from the silver from a rich mine
at Joachimsthal
(St. Joachim's Valley, now Jáchymov) in Bohemia (then part of the Holy Roman Empire, now part of the Czech
Republic).
For further history of the name, see dollar.
Nicknames
The
colloquialism buck (much like the British term "
quid") 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 colonial fur trade.
Greenback is another nickname
originally applied specifically to the 19th century
Demand Note dollars created by
Abraham Lincoln to finance the costs of the
Civil War for the
North. The original note was printed
in black and green on the back side. It is still used to refer to
the U.S. dollar (but not to the dollars of other countries), other
well known names of the dollar as a whole in denominations include
"
greenmail", "
green", and "
Dead
Presidents", (the last one due to the nature of late
presidents being the most represented on the bills).
Grand,
sometimes shortened to simply
G, is a common term for the
amount of $1,000. The suffix
k (from "
kilo-") is also commonly used to denote this amount
(such as "$10k" to mean $10,000). In street slang, when someone
refers to a denomination "
large", they are usually
referring to any amount of $1,000, such as "
fifty large",
meaning $50,000. Banknotes' nicknames are the same as their values
(such as
five,
twenty, etc.) The $5 bill has been
referred to as a "fin" or a "fiver" or a "five-spot;" the $10 bill
as a "sawbuck," a "ten-spot," or a "Hamilton"; the $20 bill as a
"double sawbuck," or a "Jackson"; the $1 bill is sometimes called a
"single," or a "buck," the $2 bill a "deuce," "Jefferson," or a
"T.J." and the $100 bill is nicknamed a "Benjamin," "Benji," or
"Franklin" (after Benjamin Franklin, who is pictured on the note),
C-note (C being the
Roman numeral for
100), Century Note, or "bill" ("two bills" being $200, etc.). The
dollar has also been referred to as a "bone" or "bones" (i.e.
twenty bones is equal to $20) or a "bean". Occasionally these will
be referred to as "dead presidents," although neither Hamilton
($10) nor Franklin ($100) was President. The newer designs are
sometimes referred to as "Bigface" bills, or "
Monopoly Money".
In
Panama
, the equivalent of buck is "palo" (lit.
stick). For example: "Esto vale 20 palos" ("This is worth 20
bucks"). In Ecuador, the dollar is referred to as "lata". For
example: "Esto vale 20 latas" ("This is worth 20 bucks" In Puerto
Rico (as well as by Puerto Ricans living in the continental U.S.),
the dollar may be referred to as a
peso. In
French-speaking areas of Louisiana, the dollar is referred to as a
piastre which is pronounced "pee-as", and cents by the
French holdhover of
sous, pronounced "soo." In Mexico,
prices in dollars are referred in some places to as "en americano"
("in American"): one would ask "¿Cuánto cuesta en americano?" ("How
much does it cost 'in American'?") and would receive the U.S.
dollar price in the Spanish language.
(In Mexico,
peso is used primarily for the Mexican peso.) In Peru
, a nickname
for the U.S. dollar is coco, which is a pet name for
Jorge (George in Spanish), a reference to the
portrait of George Washington on the $1 note.
Dollar sign
The symbol
$, usually written before the numerical
amount, is used for the U.S. dollar (as well as for many other
currencies).
The sign's ultimate origins are not certain,
though it is possible that it comes from the Pillars of
Hercules
which flank the Spanish Coat of arms on the Spanish dollars that were minted in the
New World mints in Mexico City
, Potosi, Bolivia
, and in
Lima
, Peru.
These
Pillars of
Hercules on the silver Spanish
dollar coins take the form of two vertical bars and a swinging
cloth band in the shape of an "S".
An equally accepted, and better documented, explanation is that it
is this symbol for
peso was the result of a
late eighteenth-century evolution of the
scribal abbreviation "p
s."
The
p and the
s eventually came to be written
over each other giving rise to
$.
Another possibility suggested is that the dollar sign is the
capital letters U and S typed one on top of the other. This theory,
popularized by novelist
Ayn Rand in
Atlas Shrugged , does not
consider the fact that the symbol was already in use before the
formation of the United States.
History
The first dollar coins issued by the
United States Mint (founded 1792) were
similar in size and composition to the
Spanish dollar. The Spanish and U.S. silver
dollars circulated side by side in the United States, and the
Spanish dollar remained legal tender until
1857. The coinage of various English
colonies also circulated. The
lion
dollar was popular in the Dutch New Netherland Colony (New
York), but the lion dollar also circulated throughout the English
colonies during the seventeenth and early eighteenth centuries.
Examples circulating in the colonies were usually worn so that the
design was not fully distinguishable, thus they were sometimes
referred to as "dog dollars".
The U.S. dollar was created and defined by the
Coinage Act of 1792. It specified a
"dollar" to be between 371 and of silver (depending on purity) and
an 'eagle" to be between 247 and of gold (again depending on
purity). The choice of the value 371 grains arose from
Alexander Hamilton's decision to base the
new American unit on the average weight of a selection of worn
Spanish dollars. Hamilton got the treasury to weigh a sample of
Spanish dollars and the average weight came out to be 371 grains. A
new Spanish dollar was usually about 377 grains in weight, and so
the new
US dollar was at a slight discount
in relation to the Spanish dollar. The gold equivalent of the
Spanish dollar in
sterling was ₤1 =
$4.80, whereas the gold equivalent of the US dollar was ₤1 = 4.86⅔.
This exchange rate with sterling remained right up until Britain
abandoned the
gold standard in
1931.
The
Coinage Act of 1792 set the
value of an eagle at 10 dollars, and the dollar at 1/10th eagle. It
called for 90% silver alloy coins in denominations of 1, 1/2, 1/4,
1/10, and 1/20; it called for 90% gold alloy coins in denominations
of 1, 1/2, 1/4, and 1/10.
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.
The early currency of the USA did not exhibit faces of presidents,
as is the custom now. In fact, George Washington was against having
his face on the currency, a practice he compared to the policies of
European monarchs. The currency as we know it today did not get the
faces they currently have until after the early 1900s; before that
"heads" side of coinage used profile faces and striding, seated,
and standing figures from Greek and Roman mythology and generic
native Americans. The last coins to be converted to profiles of
historic Americans were the dime (1946) and the Dollar
(1971).
For articles on the currencies of the colonies and states, see
Connecticut pound,
Delaware pound,
Georgia pound,
Maryland pound,
Massachusetts pound,
New Hampshire pound,
New Jersey pound,
New York pound,
North Carolina pound,
Pennsylvania pound,
Rhode Island pound,
South Carolina pound and
Virginia pound.
Continental currency
Continental One Third Dollar Note
(obverse)
In 1775, the United States and the individual states began issuing
"Continental Currency" denominated in Spanish dollars and (for the
issues of the states) the £sd currencies of the states. The dollar
was valued relative to the states' currencies at the following
rates:
The continental currency suffered from printing press inflation and
was replaced by the silver dollar at the rate of 1 silver dollar =
1000 continental dollars.
Silver and gold standards
From 1792, when the
Mint Act was passed,
the dollar was pegged to silver at 371.25
grains, or of gold. Many historians
erroneously assume gold was standardized at a fixed rate in parity
with silver, however there is no evidence of Congress making this
law. This has to do with
Alexander
Hamilton's suggestion to Congress of a fixed 15:1 ratio of
silver to gold, respectively. The gold coins that were minted
however, were not given any denomination whatsoever and traded for
a market value relative to the Congressional standard of the silver
dollar. 1834 saw a shift in the
gold
standard to , followed by a slight adjustment to in 1837 (16:1
ratio).
In 1862, paper money was issued without the backing of precious
metals, due to the
Civil War.
Silver and gold coins continued to be issued and in 1878 the link
between paper money and coins was reinstated. This disconnection
from gold and silver backing also occurred during the
War of 1812. The use of paper money not backed
by precious metals had also occurred under the Articles of
Confederation from 1777 to 1788. With no solid backing and being
easily counterfeited, the continentals quickly lost their value,
giving rise to the phrase "not worth a continental". This was a
primary reason for the "No state shall... make any thing but gold
and silver coin a tender in payment of debts" clause in article 1,
section 10 of the United States Constitution.
The
Gold Standard Act of 1900
abandoned the bimetallic standard and defined the dollar as of
gold, equivalent to setting the price of 1
troy ounce of gold at $20.67. Silver coins
continued to be issued for circulation until 1964, when all silver
was removed from dimes and quarters, and the half dollar was
reduced to 40% silver. Silver half dollars were last issued for
circulation in 1969.
Gold coins were confiscated in 1933 and the gold standard was
changed to , equivalent to setting the price of 1 troy ounce of
gold at $35. This standard persisted until 1968. Between 1968 and
1975, a variety of pegs to gold were put in place. The price was at
$42.22 per ounce before August 15, 1971 saw the U.S. dollar freely
float on
currency
markets.
According to the
Bureau of Printing and Engraving, the largest note it
ever printed was the $100,000 Gold Certificate, Series 1934. These
notes were printed from December 18, 1934 through January 9, 1935,
and were issued by the Treasurer of the United States to Federal
Reserve Banks only against an equal amount of gold bullion held by
the Treasury. These notes were used for transactions between
Federal Reserve Banks and were not circulated among the general
public.
Coins
Official United States coins have been produced every year from
1793 to the present. In normal circulation today, there are coins
of the denominations 1¢ ([one] cent, also referred to as a penny),
5¢ (nickel), 10¢ (dime), 25¢ (quarter dollar officially, or simply
quarter in common usage), 50¢ (half dollar officially, sometimes
referred to as a fifty-cent piece), and $1 (dollar officially, but
frequently referred to as a dollar coin).
Dollar coins
Dollar coin have not
been very popular in the United States.
Silver dollars were minted intermittently from
1794 through 1935; a copper-nickel dollar of the same large size,
featuring President
Dwight D.
Eisenhower, was minted from
1971 through 1978. Gold dollars were also minted in the 1800s. The
Susan B. Anthony dollar coin was introduced in 1979;
these proved to be unpopular because they were often mistaken for
quarters, due to their nearly equal size, their milled edge, and
their similar color. Minting of these dollars for circulation was
suspended in 1980 (collectors' pieces were struck in 1981), but, as
with all past U.S. coins, they remain
legal
tender. As the number of Anthony dollars held by the Federal
Reserve and dispensed primarily to make change in postal and
transit vending machines had been virtually exhausted, additional
Anthony dollars were struck in 1999. In 2000, a new $1 coin,
featuring
Sacagawea, (the
Sacagawea dollar) was introduced, which
corrected some of the mistakes of the Anthony dollar by having a
smooth edge and a gold color, without requiring changes to vending
machines that accept the Anthony dollar. However, this new coin has
failed to achieve the popularity of the still-existing $1 bill and
is rarely used in daily transactions. The failure to simultaneously
withdraw the dollar bill and weak publicity efforts have been cited
by coin proponents as primary reasons for the failure of the dollar
coin to gain popular support. There are indications that the dollar
coin's failure was also due to the reluctance of armored transport
companies to make the necessary adjustments to handle the new
coins, and the government's reluctance to mandate it. The result of
the armored carriers' unwillingness to handle the new coins was
that they virtually never reached merchants in quantities
sufficient to be given out as change on a routine basis, or for
retail clerks to become used to handling them.
In February 2007, the
US Mint, under the
Presidential $1 Coin
Act of 2005, introduced a new $1 US Presidential dollar coin.
Based on the success of the "
50 State
Quarters" series, the new coin features a sequence of
presidents in order of their inaugurations, starting with
George Washington, on the obverse side.
The
reverse side features the Statue of Liberty
. To allow for larger, more detailed
portraits, the traditional inscriptions of "
E Pluribus Unum," "In God We Trust," the
year of minting or issuance, and the mint mark will be inscribed on
the edge of the coin instead of the face. This feature, similar to
the edge inscriptions seen on the
British £1 coin, is not
usually associated with US coin designs. The inscription "Liberty"
has been eliminated, with the Statue of Liberty serving as a
sufficient replacement. In addition, due to the nature of US coins,
this will be the first time there will be circulating US coins of
different denominations with the same President featured on the
obverse (heads) side. (
Lincoln/
penny,
Jefferson/
nickel,
Franklin D. Roosevelt/
dime,
Washington/
quarter and
Kennedy/
half dollar.) Another
unusual fact about the new $1 coin is
Grover Cleveland will have two coins with
his portrait issued due to the fact he was the only US President to
be elected to two non-consecutive terms.
Early releases of the Washington coin included error coins shipped
primarily from the Philadelphia mint to Florida and Tennessee
banks. Highly sought after by collectors, and trading for as much
as $850 each within a week of discovery, the error coins were
identified by the absence of the edge impressions "E PLURIBUS UNUM
IN GOD WE TRUST 2007 P". The mint of origin is generally accepted
to be mostly Philadelphia, although identifying the source mint is
impossible without opening a mint pack also containing marked
units. Edge lettering is minted in both orientations with respect
to "heads", some amateur collectors were initially duped into
buying "upside down lettering error" coins.Some cynics also
erroneously point out that the Federal Reserve makes more profit
from dollar bills than dollar coins because they wear out in a few
years, whereas coins are more permanent. The fallacy of this
argument arises because new notes printed to replace worn out notes
which have been withdrawn from circulation bring in no net revenue
to the government to offset the costs of printing new notes and
destroying the old ones. As most
vending machines are incapable of making
change in
banknotes, they commonly accept
only $1 bills, though a few will give change in dollar coins.
Other denominations
The United States has minted other coin denominations at various
times from 1792 to 1935:
half-cent,
2-cent,
3-cent,
20-cent,
$2.50 ,
$3.00,
$5.00 ,
$10.00 ,
$20.00 and $50.00 (Half Union). Technically,
all these coins are still legal tender at face value, though they
are far more valuable today for their
numismatic value, and for gold and silver coins,
their
precious metal value. In
addition, an experimental
$4.00 coin was also minted, but
never placed into circulation and is properly considered to be a
pattern rather than an actual coin denomination. 1 dollar gold
pieces were also made, and are the smallest American coin ever to
be made.
Half dimes preceded the nickel 5 cent piece
for about the first half of the 19th century.The $50 coin mentioned
was only produced in 1915 for the Panama-Pacific
International Exposition celebrating the opening of the
Panama
Canal
. Only 1,128 were made, 645 of which were
octagonal; this remains the only US coin that was not round as well
as the largest and heaviest US coin ever. (The Susan B. Anthony
dollar was round in shape; only the frame of the images on either
side was decagonal.)
From 1934 to present the only denominations produced for
circulation have been the familiar penny, nickel, dime, quarter,
half dollar and dollar. The nickel is the only coin still in use
today that is essentially unchanged (except in its design) from its
original version. Every year since 1866, the nickel has been 75%
copper and 25% nickel, except for 4 years during World War II when
nickel was needed for the war.
Collectors' coins
Since 1982 the United States Mint has also produced many different
denominations and designs specifically for collectors and
speculators. There are
silver,
gold and
platinum bullion coins, called "
American Eagles," all of which
are legal tender though their use in everyday transactions is
non-existent. The reason for this is that they are not intended for
use in transactions and thus the face value of the coins is much
lower than the worth of the precious metals in them. The
American Silver Eagle bullion coin is
issued only in the $1 (1
troy ounce)
denomination and has been minted yearly starting in 1986. The
American Gold Eagle bullion coin
denominations (with gold content), minted since 1986, are: $5 (1/10
troy oz), $10 (1/4 troy oz), $25 (1/2 troy oz), and $50 (1 troy
oz). The
American Platinum
Eagle bullion coin denominations (with platinum content),
minted since 1997, are: $10 (1/10 troy oz), $25 (1/4 troy oz), $50
(1/2 troy oz), and $100 (1 troy oz). The silver coin is 99.9%
silver, the gold coins are 91.67% gold (22
karat), and the platinum coins are 99.95%
platinum. These coins are not available from the Mint for
individuals but must be purchased from authorized dealers. In 2006
The Mint began direct sales to individuals of uncirculated bullion
coins with a special finish, and bearing a "W" mintmark. The Mint
also produces high quality "
proof" coins
intended for collectors in the same denominations and bullion
content which are available to individuals.
Mint marks
Most U.S. coins bear a
mint mark as part
of the design, usually found on the
front of the coin near the date although
in the past it was more commonly found on the
reverse.
The Philadelphia Mint
issues coins bearing a letter P (or no mark at
all), while the Denver
Mint
uses a letter D. The San
Francisco Mint
uses an S, though no coins have been released from
that mint for general circulation since 1980. It does,
however, continue to strike
proof
coins for collectors. The
West Point
Mint uses a W, though this is rarely seen as the West Point
mint only makes high denomination coins (with face values over
$1.00) which are not meant for everyday use.
A CC mark, for the
Carson City
Mint
, was used for a short time in the mid-nineteenth
century, but the mint at that location was only a temporary
establishment. The New Orleans Mint
used a mint mark O. It operated from the
1830s until the
American Civil
War, and again from 1879 to 1909. The letter D was also used
for coinage of the
Dahlonega Mint
from 1837 to 1861, and C was used for the
Charlotte Mint during the same timespan. The
latter two mints struck gold coins only.
Banknotes
The United States dollar is unique in that there have been more
than 10 types of banknotes, such as
Federal Reserve Bank Note,
gold certificate, and
United States Note. The
Federal Reserve Note is the only type
that remains in circulation since the 1970s.
The largest denominations of currency currently printed or minted
by the United States are the $100 bill and the $100 one troy ounce
Platinum Eagle.
Currently printed denominations are
$1,
$2,
$5,
$10,
$20,
$50, and
$100. Notes above the
$100 denomination ceased being printed in 1946 and were officially
withdrawn from circulation in 1969. These notes were used primarily
in inter-bank transactions or by
organized crime; it was the latter usage
that prompted
President Richard 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, and $100,000 were all produced at one time; see
large
denomination bills in U.S. currency for details.
The design of the notes has been accused of being unfriendly to the
visually impaired. A U.S. District Judge ruled on November 28, 2006
that the American bills gave an undue burden to the blind and
denied them "meaningful access" to the U.S. currency system. The
judge ordered the Treasury Department to begin working on a
redesign within 30 days.
Means of issue
New dollars are issued when the Federal Reserve elects to fund the
purchase of debt, primarily U.S. Treasury Bonds, by creating new
reserves rather than financing the purchase with existing reserves.
When the bond issuer spends the money, new dollars enter
circulation.
In theory, Federal Reserve Notes are like checks: liabilities drawn
on the Federal Reserve Bank. The Fed offsets these liabilities by
holding U.S. Treasury Bonds as assets, which are backed by the U.S.
Government's ability to levy taxes and repay.
When compared to hard money backed by gold or silver, this
debt-based approach has the advantage of making the currency
elastic, giving the government a means of expanding or contracting
the money supply in response to changing economic conditions. The
disadvantage of this approach is inflation. The money supply must
be continually expanded in order to finance interest payments on
the debt by which it is issued. This devalues the currency, causing
inflation.
Value
Consumer Price Index
US Consumer Price Index
1913–2006
Time-relative value
The following table shows the equivalent amount of goods, in a
particular year, that could be purchased with $1.
The value of $1 over time, in 1776
dollars.
Buying power compared to 1980
USD
| Year |
Equivalent buying
power
|
Year |
Equivalent buying
power
|
Year |
Equivalent buying
power |
| 1774 |
$10.53 |
1860 |
$10.22 |
1950 |
$3.42 |
| 1780 |
$6.20 |
1870 |
$6.51 |
1960 |
$2.78 |
| 1790 |
$9.30 |
1880 |
$8.31 |
1970 |
$2.12 |
| 1800 |
$6.77 |
1890 |
$9.34 |
1980 |
$1.00 |
| 1810 |
$6.91 |
1900 |
$10.12 |
1990 |
$0.63 |
| 1820 |
$7.25 |
1910 |
$8.94 |
2000 |
$0.48 |
| 1830 |
$9.21 |
1920 |
$4.11 |
2007 |
$0.40 |
| 1840 |
$9.83 |
1930 |
$4.93 |
2008 |
$0.38 |
| 1850 |
$10.88 |
1940 |
$5.87 |
|
|
International use
[[Image:DOLLAR AND EURO IN THE WORLD.svg|left|300px|thumb|Worldwide
use of the U.S. dollar and the
euro:
Note that the Belarusian
ruble is pegged to the Euro, Russian Ruble, and U.S.
Dollar in a currency basket.]]The dollar is also
used as the standard unit of currency in international markets for
commodities such as gold and
petroleum
(the latter sometimes called
petrocurrency is the source of the term
petrodollar). Some non-U.S. companies
dealing in globalized markets, such as
Airbus, list their prices in dollars.
At the present time, the U.S. dollar remains the world's foremost
reserve currency. In addition to
holdings by central banks and other institutions there are many
private holdings which are believed to be mostly in $100
denominations. The majority of U.S. notes are actually held outside
the United States. All holdings of US dollar bank deposits held by
non-residents of the US are known as
eurodollars (not to be confused with the
euro) regardless of the location of the bank holding
the deposit (which may be inside or outside the U.S.)Economist
Paul Samuelson and others maintain
that the overseas demand for dollars allows the United States to
maintain persistent
trade deficits
without causing the value of the currency to depreciate and the
flow of trade to readjust.
Milton
Friedman at his death believed this to be the case but, more
recently, Paul Samuelson has said he now believes that at some
stage in the future these pressures will precipitate a run against
the U.S. dollar with serious global financial consequences.
The dollar as international reserve currency
Percentage of global currencies
The U.S. dollar is an important international
reserve currency along with the
euro. The euro inherited this status from the
German mark, and since its introduction, has
increased its standing considerably, mostly at the expense of the
dollar. Despite the dollar's recent losses to the euro, it is still
by far the major international reserve currency, with an
accumulation more than double that of the euro.
In August 2007, two scholars affiliated with the government of the
People's Republic of China threatened to sell its substantial
reserves in American dollars in response to American legislative
discussion of trade sanctions designed to revalue the
Chinese yuan. The Chinese government denied
that selling dollar-denominated assets would be an official policy
in the foreseeable future.
Former
Federal Reserve Chairman
Alan Greenspan said in September 2007
that the euro could replace the U.S. dollar as the world's primary
reserve currency. It is "absolutely conceivable that the euro will
replace the dollar as reserve currency, or will be traded as an
equally important reserve currency."
U.S. Dollar Index
The U.S. Dollar Index (USDX) is the creation of the
New York Board of Trade (NYBOT). It
was established in 1973 for tracking the value of the USD against a
basket of currencies, which, at that time, represented the largest
trading partners of the United States. It began with 17 currencies
from 17 nations, but the launch of the
euro
subsumed 12 of these into one, so the USDX tracks only six
currencies today.
The Index is described by the NYBOT as "a trade weighted geometric
average". The baseline of 100.00 on the USDX was set at its launch
in March 1973.
This event marks the watershed between the
fixed-rate system of the Bretton Woods
regime and the floating-rate system of the Smithsonian regime. Since then,
the USDX has climbed as high as the 160s and drifted as low as the
70s.
The USDX has not been updated to reflect new trading realities in
the global economy, where the bulk of trade has shifted strongly
towards new partners like China and Mexico and oil-exporting
countries while the United States has de-industrialized.
Dollarization and fixed exchange rates
Other nations besides the United States use the U.S. dollar as
their official currency, a process known as official
dollarization.
For instance, Panama has been
using the dollar alongside the Panamanian balboa as the legal tender
since 1904 at a conversion rate of 1:1. Ecuador (2000),
El Salvador (2001), and
East Timor (2000) all adopted the
currency independently.
The former members of the U.S.-administered
Trust Territory
of the Pacific Islands, which included Palau
, the
Federated
States of Micronesia
, and the Marshall Islands
, chose not to issue their own currency after
becoming independent, having all used the U.S. dollar since
1944. Two British dependencies also use the U.S.
dollar: the British Virgin Islands
(1959) and Turks and Caicos Islands
(1973).
Some countries that have adopted the U.S. dollar issue their own
coins: See
Ecuadorian centavo
coins,
Panamanian Balboa and
East Timor centavo
coins.
Some other countries link their currency to U.S. dollar at a
fixed exchange rate. The local
currencies of
Bermuda and
the Bahamas can be freely
exchanged at a 1:1 ratio for USD.
Argentina
used a fixed 1:1 exchange
rate between the Argentine peso
and the U.S. dollar from 1991 until 2002. The currencies of
Barbados and
Belize are similarly convertible at an
approximate 2:1 ratio. In
Lebanon, one dollar is equal to 1500
Lebanese pound, and is used
interchangeably with local currency as de facto legal tender.
The
exchange rate between the Hong Kong
dollar and the United States dollar has also been link since 1983 at HK$7.8/USD, and
pataca of Macau
, pegged to
Hong Kong dollar at MOP1.03/HKD, indirectly linked to the U.S.
dollar at roughly MOP8/USD. Several oil-producing Arab countries on the Persian Gulf, including Saudi Arabia
, peg their currencies to the dollar, since the
dollar is the currency used in the international oil
trade.
The People's Republic of China's
renminbi
was informally and controversially pegged to the dollar in the
mid-1990s at ¥ 8.28/USD.
Likewise, Malaysia
pegged its ringgit
at RM3.8/USD in 1997. On July 21, 2005 both countries
removed their pegs and adopted managed floats against a basket of
currencies.
Kuwait
did
likewise on May 20, 2007, and Syria
did
likewise in July 2007. However, after three years of slow
appreciation, the Chinese yuan has been
de facto re-pegged
to the dollar since July 2008 at a value of ¥6.83/USD; although no
official announcement had been made, the yuan has remained around
that value within a narrow band since then, similar to the Hong
Kong dollar.
Belarus
, on the other hand, pegged its currency, the
Belarusian ruble, to a basket of
foreign currencies (U.S. dollar, euro and Russian ruble) in
2009.
In some
countries such as Peru and Uruguay
, the USD is commonly accepted although not
officially regarded as a legal tender. In Mexico's border
area and major tourist zones, it is accepted as if it were a second
legal currency. Many Canadian merchants also accept US dollars,
albeit sometimes only at face value.
In Cambodia
, US notes circulate freely and are preferred over
the Cambodian riel for large
purchases, with the riel used for change to break 1 USD.
After the U.S. invasion of Afghanistan, U.S. dollars are accepted
as if it were legal tender. Prices of most big ticket items such as
houses and cars are set in U.S. dollars .
Dollar versus euro
Euro per US dollar 1999–2009
| Year |
|
Highest ↑ |
|
Lowest ↓ |
| Date |
Rate |
Date |
Rate |
| 1999 |
03 Dec |
€0.9985 |
05 Jan |
€0.8482 |
| 2000 |
26 Oct |
€1.2118 |
06 Jan |
€0.9626 |
| 2001 |
06 Jul |
€1.1927 |
05 Jan |
€1.0477 |
| 2002 |
28 Jan |
€1.1658 |
31 Dec |
€0.9536 |
| 2003 |
08 Jan |
€0.9637 |
31 Dec |
€0.7918 |
| 2004 |
14 May |
€0.8473 |
28 Dec |
€0.7335 |
| 2005 |
15 Nov |
€0.8571 |
03 Jan |
€0.7404 |
| 2006 |
02 Jan |
€0.8456 |
05 Dec |
€0.7501 |
| 2007 |
12 Jan |
€0.7756 |
27 Nov |
€0.6723 |
| 2008 |
27 Oct |
€0.8026 |
15 Jul |
€0.6254 |
| 2009 |
04 Mar |
€0.7965 |
25 Nov |
€0.6630 |
Source: Euro exchange rates in USD, ECB |
Not long after the introduction of the
euro
(€ ;
ISO 4217 code EUR) as a cash currency
in 2002, the dollar began to depreciate steadily in value. As U.S.
trade and budget deficits continued to increase, the euro started
rising in value. By December 2004, the dollar had fallen to new
lows against all major currencies; the euro rose above $1.36/€
(under €0.74/$) for the first time, in contrast to previous lows in
early 2003 (€0.87/$). In the first quarter of 2004 the U.S. dollar,
with the advantage of Federal Reserve's policy of raising the
interest rates, regained some
standing against all major currencies, climbing from €0.78/$ to
€0.84/$. However, all gains were lost in the second half of 2004,
and the dollar stood at €0.74/$ at the end of 2004. Since 2002, the
only year in which the dollar actually recovered against the euro
was 2005. Although some analysts previewed the dollar dropping as
far as $1.60/€ (€0.63/$), it finished 2005 with an increase against
the euro, climbing to €0.83/$. An interest rate reduction by the
Federal Reserve on September 18,
2007, raised the euro's value significantly and caused the dollar
to fall below €0.70 one month later, to new record lows. Economists
like
Alan Greenspan suggest that
another reason for the continued fall of the dollar is its
decreasing role as the world's reserve currency.
Jim Rogers declared that he thinks the dollar's
value will fall even further, especially against the
Chinese yuan. Chinese officials signaled plans
to diversify the nation's $1.9 trillion reserve in response to a
falling U.S. currency which also set the dollar under pressure.
However, a sharp turnaround occurred in late 2008 with the global
financial crisis, with the dollar and
Japanese yen rising against most world
currencies. One reason to this might be that the dollar was
regarded as safe-haven and therefore got stronger during the
initial phase of the global financial crisis. Since the spring of
2009, then the uncertainty of the global financial crisis seams to
have been reduced, the dollar have got weaker against the euro.
Another
reason could be that China
, the
biggest foreign owner of U.S.
Treasury securities, together with India
and
Russia
are backing
away from the dollar to diversify their securities.
Exchange rates
Historical exchange rates
Currency units per U.S. dollar, averaged over the year. *
= value at start of year.
|
1970* |
1980* |
1985* |
1990* |
1993 |
1999 |
2000 |
2001 |
2002 |
2003 |
2004 |
2005 |
2006 |
2007 |
2008 |
|
| Euro |
- |
- |
- |
0.8343 |
0.8551 |
0.9387 |
1.0832 |
1.1171 |
1.0578 |
0.8833 |
0.8040 |
0.8033 |
0.7960 |
0.7293 |
0.6791 |
0.75 |
| Japanese yen |
357.6 |
240.45 |
250.35 |
146.25 |
111.08 |
113.73 |
107.80 |
121.57 |
125.22 |
115.94 |
108.15 |
110.11 |
116.31 |
117.76 |
103.39 |
99 |
| Pound sterling |
0.4164 |
0.4484 |
0.8613 |
0.6207 |
0.6660 |
0.6184 |
0.6598 |
0.6946 |
0.6656 |
0.6117 |
0.5456 |
0.5493 |
0.5425 |
0.4995 |
0.5392 |
0.66 |
| Renminbi yuan |
2.46 |
1.5 |
2.7957 |
4.7339 |
5.7795 |
8.2781 |
8.2784 |
8.2770 |
8.2771 |
8.2772 |
8.2768 |
8.1936 |
7.9723 |
7.6058 |
6.9477 |
7.00 |
| Singapore dollar |
- |
- |
2.179 |
1.903 |
1.6158 |
1.6951 |
1.7361 |
1.7930 |
1.7908 |
1.7429 |
1.6902 |
1.6639 |
1.5882 |
1.5065 |
1.4140 |
1.47 |
| Canadian dollar |
1.081 |
1.168 |
1.321 |
1.1605 |
1.2902 |
1.4858 |
1.4855 |
1.5487 |
1.5704 |
1.4008 |
1.3017 |
1.2115 |
1.1340 |
1.0734 |
1.0660 |
1.17 |
| Mexican peso (old) |
- |
22.800 |
206.97 |
2,679.5 |
3.1237 |
9.553 |
9.459 |
9.337 |
9.663 |
10.793 |
11.290 |
10.894 |
10.906 |
10.928 |
11.143 |
13.23415 |
| Source: Last 4 years 2005-2002 2003-2000 1996-1999 1993-1996 1990 1970-1992 1970-1985 Canada, China, Mexico |
See also
References
External links
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