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United States dollar

"USD" redirects here. For other uses, see USD (disambiguation). For details of current paper money and coins, see Federal Reserve Note and Coins of the United States dollar. United States dollar $1 to $100 notes United States coins
ISO 4217 Code USD Official user(s)  United States Unofficial user(s) 9 countries and territories  British Virgin Islands (U.K.)
 Ecuador
 El Salvador
 Marshall Islands
 Federated States of Micronesia
 Palau
 Panama
 Turks and Caicos Islands (U.K.) Inflation 2.7% (United States only) Source The World Factbook, 2007 est. Pegged by 21 currencies Aruban florin
Bahamian dollar
Bahraini dinar
Barbadian dollar
Belize dollar
Belarusian ruble
Bermudian dollar
Cayman Islands dollar
Cuban convertible peso
Djiboutian franc
East Caribbean dollar
Eritrean nakfa
Hong Kong dollar (narrow band)
Jordanian dinar
Lebanese pound
Maldivian rufiyaa
Netherlands Antillean gulden
Omani rial
Qatari riyal
Saudi riyal
United Arab Emirates dirham Subunit 1/10 Dime 1/100 Cent 1/1000 Mill Symbol $ or US$ Cent ¢ or c Mill ₥ Nickname Buck, green, and greenback. Also, Washingtons, Jeffersons, Lincolns, Benjamins, and Hamiltons are used based on denomination;[1] also peso in Puerto Rico, and piastre in Cajun Louisiana. Coins Freq. used , , 10¢, 25¢ Rarely used 50¢, $1 Banknotes Freq. used $1, $5, $10, $20, $50, $100 Rarely used $2 Central bank Federal Reserve Bank Website www.federalreserve.gov Printer Bureau of Engraving and Printing Website www.moneyfactory.gov Mint United States Mint Website www.usmint.gov

The dollar (currency code USD) is the unit of currency of the United States. The U.S. dollar has also been adopted as the official and legal currency by the governments in a few other countries. 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 cents.

Taken over by the Congress of the Confederation of the United States on July 6, 1785,[2] the U.S. dollar is the currency most used in international transactions.[3] Several countries use the U.S. dollar as their official currency, and many others allow it to be used in a de facto capacity.[4] In 1995, over US $380 billion were in circulation, two-thirds of which was outside the United States. By 2005, that figure had doubled to nearly $760 billion, with an estimated half to two-thirds being held overseas,[5] representing an annual growth rate of about 7.6%. However, as of December 2006, the dollar was surpassed by the euro in terms of combined value of cash in circulation.[6] Since then the current value of euro cash in circulation has risen to more than €695 billion, equivalent to US$1.029 trillion at current exchange rates.[7]

Contents

Overview

Series of 1917 $1 United States Bearer Note

The U.S. dollar uses the decimal system, consisting of 100 equal cents (symbol ¢). In another division, there are 1,000 mills or ten dimes to a dollar; additionally, 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 the second half of the 19th century there were occasional discussions of creating a $50 gold coin, which was referred to as a "Half Union," thus implying a denomination of 1 Union = $100. 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 1930's).

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 7.42 inches (188 mm) by 3.125 inches (79.4 mm); small-sized notes, introduced that year, measure 6.14 inches (156 mm) by 2.61 inches (66 mm) by 0.0043 inches (0.11 mm).

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

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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).

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" being pronounced "Ten kay" to mean $10,000). Banknotes' nicknames are usually 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," a "twomp," a "twenty-banger," or a "Jackson;" the $1 bill is sometimes called a "single," the $2 bill a "deuce" or a "Tom," and the $100 bill is nicknamed the hunsky, a "Benjamin," "Benjie," or "Frank" (after Benjamin Franklin, who is honored on the note), or a C-note (C being the Roman numeral for 100) or a Century Note. Occasionally these will be referred to as "dead presidents," although neither Hamilton ($10) nor Franklin ($100) was President. $100 notes are occasionally referred to as 'large' in banking ("twenty large" being $2,000, etc.). The newer designs are sometimes referred to as "Bigface" bills.

In Panama, the translation of buck is palo (lit. stick); a nickname for the balboa (dollar). For example: Esto vale 20 palos ("This is worth 20 bucks"). In Puerto Rico (as well as by Puerto Ricans living in the continental U.S.), the dollar is often referred to as a "peso." In French speaking areas of Louisiana and Canada, the dollar is referred to as a Piastre which is pronounced "Pay-as" and cents is replaced by the French holdhover of "sous" which the last "s" is silent.

Dollar sign

Main article: Dollar sign

The symbol $, usually written before the numerical amount, is used for the U.S. dollar (as well as for many other currencies). An example would be "$14", which is read as "fourteen dollars". The sign's ultimate origins are not certain, though it is widely accepted that it comes from the Spanish Coat of arms , which carries the two Pillars of Hercules and the motto Ne Plus Ultra in the shape of an "S". The Spanish were the first to use the dollar sign for their currency, which was later adopted in the US, and which was later replaced by the US dollar.

History

See also: History of the United States dollar
Rare 1934 $500 Federal Reserve Note, featuring a portrait of President William McKinley.

The first dollar coins issued by the United States Mint were of the same size and composition as the Spanish dollar and even after the American Revolutionary War the Spanish and U.S. silver dollars circulated side by side in the United States. 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 fairly well worn so that the design was not fully distinguishable, thus they were sometimes referred to as "dog dollars".[8]

The U.S. dollar was originally created and defined by the Coinage Act of 1792. It specified a "dollar" to be between 371 and 416 grains (27.0 g) of silver (depending on purity) and an 'eagle" to be between 247 and 270 grains (17 g) of gold (again depending on purity). It 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. According to an evaluation of data from the U.S. Department of Treasury, the cost of goods and services remained relatively consistent between 1635 and 1913, around a level of roughly 25 times the buying power of the U.S. dollar in 2006[citation needed].

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

See also: 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:

State Value of Dollar
in State Currency Georgia5 Shillings Connecticut, Massachusetts, New Hampshire, Rhode Island, Virginia6 Shillings Delaware, Maryland, New Jersey, Pennsylvania7½ Shillings New York, North Carolina8 Shillings South Carolina32½ Shillings

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 and gold at 371.25 grains of silver, 24.75 grains (1.604 g) of gold (15:1 ratio). 1834 saw a shift in the gold standard to 23.2 grains (1.50 g), followed by a slight adjustment to 23.22 grains (1.505 g) in 1837 (16:1 ratio).[citation needed]

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 disconnect from gold and silver backing also occurred during the War of 1812. The use of paper money not backed by precious metals had occurred under the Articles of Confederation from 1777 to 1788 when paper money became referred to as "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 8 of the United States Constitution.

In 1900, the bimetallic standard was abandoned and the dollar was defined as 23.22 grains (1.505 g) 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 withdrawn in 1933 and the gold standard was changed to 13.71 grains (0.888 g), 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 January 1, 1975[citation needed] 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

Main article: Coins of the United States dollar

Official United States coins have been produced every year from 1792 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 coins have not been very popular in the United States.[9] 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 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 unwillingness of armored transport companies to make the necessary adjustments to handle the new coins, and the government's reluctance to mandate it.[10] 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,[11] introduced a new $1 US Presidential dollar coin. Based on the success of the "50 State Quarters" series, the new coin features a rotating portrait of deceased 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. (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.[12]

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.[13] 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 (Quarter Eagle), $3.00, $5.00 (Half Eagle), $10.00 (Eagle), $20.00 (Double Eagle) 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 (Stella)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 (1915) 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.[14])

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. The Philadelphia mint issues coins bearing a letter P (or no mark at all), while the Denver mint uses a letter D. The former San Francisco mint used an S, though no coins have been released from that mint since the 1970's. 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 Carson City, 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 1830's until the civil war, and again from 1879-1909.

Banknotes

Main article: Federal Reserve Note

The United States dollar is unique in the way that there have been more than 10 types of banknotes, such as Federal Reserve Bank Note, gold certificate, and United States Note. See Obsolete U.S. currency and coinage for complete listing. 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 has ordered the Treasury Department to begin working on a redesign within 30 days.[15]

Value

Consumer Price Index

US Consumer Price Index 1913-2006
Main article: United States Consumer Price Index

Factors influencing the price

Borrowing costs, economic growth: The minutes to the August 8, 2006 meeting, at which the Federal Open Market Committee kept short-term interest rates unchanged for the first time in more than two years, supported the view that U.S. borrowing costs have peaked. The dollar fell on the news on August 29, 2006, and has continued lower August 30, 2006, largely ignoring news the U.S. government has revised its estimate of second-quarter economic growth 2006 up to 2.9% from the initial 2.5%.[16]

Time-relative value

The following table shows the equivalent amount of goods, in a particular year, that could be purchased with $1.[17]

The value of $1 over time, in 1776 dollars.[18] 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 1850 $10.88 1940 $5.87

International use

Worldwide use of the U.S. dollar and the euro:      United States      External adopters of the US dollar      Currencies pegged to the US dollar      Currencies pegged to the US dollar w/ narrow band      Eurozone      External adopters of the euro      Currencies pegged to the euro      Currencies pegged to the euro w/ narrow band

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). Even foreign companies with little direct presence in the United States, such as the European company Airbus, list and sell their products in dollars, although some[who?] argue this is attributed to the aerospace market being dominated by American companies.

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.[19]

Dollar versus euro

Euro per US dollar 1999-2008 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 21 Jan €0.6905 23 Apr €0.6274 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.[20] 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 $1.43 trillion reserve in response to a falling U.S. currency which also set the dollar under pressure.[21][22] The dollar sank to new lows against the euro in the days following 4 March 2008, following a series of dour reports on the U.S. economy and expectations that the Federal Reserve will continue slashing interest rates.[23]

The dollar as the major international reserve currency

Main article: Reserve currency
Percentage of global currencies

The dollar is the most important international reserve currency, followed by 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 pressure that they exercise fair trade.[24] 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."[25]

Currency composition of official foreign exchange reserves'95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 US dollar 59.0% 62.1% 65.2% 69.3% 70.9% 70.5% 70.7% 66.5% 65.8% 65.9% 66.4% 65.7% 63.3% Euro17.9% 18.8% 19.8% 24.2% 25.3% 24.9% 24.3% 25.2% 26.5% German mark15.8% 14.7% 14.5% 13.8% Pound sterling2.1% 2.7% 2.6% 2.7% 2.9% 2.8% 2.7% 2.9% 2.6% 3.3% 3.6% 4.2% 4.7% Japanese yen6.8% 6.7% 5.8% 6.2% 6.4% 6.3% 5.2% 4.5% 4.1% 3.9% 3.7% 3.2% 2.9% French franc2.4% 1.8% 1.4% 1.6% Swiss franc0.3% 0.2% 0.4% 0.3% 0.2% 0.3% 0.3% 0.4% 0.2% 0.2% 0.1% 0.2% 0.2% Other13.6% 11.7% 10.2% 6.1% 1.6% 1.4% 1.2% 1.4% 1.9% 1.8% 1.9% 1.5% 1.8% Sources: 1995-1999, 2006-2007 IMF: Currency Composition of Official Foreign Exchange ReservesPDF (80 KB)
Sources: 1999-2005, ECB: The Accumulation of Foreign ReservesPDF (816 KB)           v • d • e       

US Dollar Index

Main article: US Dollar Index

The US 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 just one, so the USDX tracks only six currencies today.

Currency units per U.S. dollar Weighting Euro57.6% Japanese yen13.6% Pound sterling11.9% Canadian dollar9.1% Swedish krona4.2% Swiss franc3.6% Source: NYBOT, "US Dollar Index", pg.3 (PDF)



The Index is described by the NYBOT as "a trade weighted geometric average".[26] 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 homeland has itself 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 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 linked 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 Gulf Arab countries, 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,[27] and Syria did likewise in July 2007.[28]

Belarus, on the other hand, will tie its currency, the Belarusian ruble, with the U.S. dollar in 2008.[29]

In some countries, such as Peru and Uruguay, although USD is not officially regarded as a legal tender, it is commonly accepted. In Mexico's border area and major tourist zones, it is accepted as if it were a second legal currency. Many stores in Canada also accept the U.S. dollar. In Cambodia, the USD circulates freely, or even preferred over the Cambodian riel. Amounts of one dollar or more are given in dollars, while the riel serves as a subunit.[30][31][32] 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[citation needed].

Exchange rates

Historical exchange rates

Currency units per U.S. dollar, averaged over the year.[33]1999 2000 2001 2002 2003 2004 2005 2006 2007 Euro0.9387 1.0832 1.1171 1.0578 0.8833 0.8040 0.8033 0.7960 0.7293 Japanese yen113.73 107.80 121.57 125.22 115.94 108.15 110.11 116.31 117.76 Pound sterling0.6184 0.6598 0.6946 0.6656 0.6117 0.5456 0.5493 0.5425 0.4995 Renminbi8.2781 8.2784 8.2770 8.2771 8.2772 8.2768 8.1936 7.9723 7.6058 Canadian dollar1.4858 1.4855 1.5487 1.5704 1.4008 1.3017 1.2115 1.1340 1.0734 Mexican peso9.553 9.459 9.337 9.663 10.793 11.290 10.894 10.906 10.928 Source: Last 4 years2005-20022003-20001996-1999
Current USD exchange rates Use Yahoo! Finance: AUDCADCHFEURGBPHKDJPYMXNCNYUse XE.com: AUDCADCHFEURGBPHKDJPYMXNCNYUse OANDA.com: AUDCADCHFEURGBPHKDJPYMXNCNY

See also

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References

  1. ^ RATE-EXCHANGE.org - US Currency / US Dollar
  2. ^ Journals of the Continental Congress --Wednesday, JULY 6, 1785.
  3. ^ The Implementation of Monetary Policy - The Federal Reserve in the International Sphere
  4. ^ List of circulating currencies
  5. ^ FRB: Currency and Coin Services
  6. ^ FT.com / MARKETS / Currencies - Euro notes cash in to overtake dollar
  7. ^ ECB: Latest figures
  8. ^ The Lion Dollar: Introduction
  9. ^ CNN Money Congress tries again for a dollar coin. Written by Gordon T. Anderson. Published April 25, 2005.
  10. ^ http://www.gao.gov/new.items/d02896.pdf
  11. ^ Pub. L. No. 109-145, 119 Stat. 2664 (Dec. 22, 2005).
  12. ^ The United States Mint Pressroom
  13. ^ Godless Dollars
  14. ^ Coin Facts reference on Susan B. Anthony dollar coin
  15. ^ CNNMoney.com (2006-11-29). Judge rules paper money unfair to blind. Retrieved on 2008-02-17.
  16. ^ Interactive Investor (2006-08-30). Metals - Gold gains as Iran deadline looms, dollar remains weak. Retrieved on 2007-06-10.
  17. ^ Measuring Worth - Purchasing Power of Money in the United States from 1774 to 2007. Retrieved on 2008-05-24.
  18. ^ http://www.measuringworth.com/ppowerus/ Purchasing Power of Money in the United States from 1774 to 2007 from measuringworth.com
  19. ^ China, US should adjust approach to economic growth
  20. ^ ECB: euro exchange rates USD
  21. ^ Jeffrey Frankel. What's Ahead: Decade of the Dollar, the Euro, or the RMB?. Retrieved on November 7, 2007.
  22. ^ Adam S. Posen, "The Rise of the Euro: Currency Is Emerging as Rival to the Dollar," The Ripon Review July 2005
  23. ^ "Dollar hits record low against the euro", CNN, February 28, 2008. Retrieved on 2008-03-02
  24. ^ China threatens 'nuclear option' of dollar sales.. Retrieved on September 26, 2007.
  25. ^ Reuters. Euro could replace dollar as top currency - Greenspan. Retrieved on September 17, 2007.
  26. ^ NYBOT, "US Dollar Index", pg.2
  27. ^ "Kuwait pegs dinar to basket of currencies", Forbes, 2007-05-20. Retrieved on 2007-06-06
  28. ^ "Syria to Drop Dollar Peg in July", Reuters, 2007-06-04. Retrieved on 2007-09-12
  29. ^ "Belarus to link currency to dollar", Associated Press, 2007-08-15. Retrieved on 2007-10-01
  30. ^ Chinese University of Hong Kong. Historical Exchange Rate Regime of Asian Countries: Cambodia. Retrieved on 2007-02-21.
  31. ^ Kurt Schuler. Tables of Modern Monetary History: Asia. Retrieved on 2007-02-21. “The US dollar also circulates freely”
  32. ^ frizz restaurant in Cambodia. Cambodia Practical: money, atm, transport, cheap flights. Retrieved on 2007-02-21.
  33. ^ FRB: G.5A Release-- Foreign Exchange Rates, Release Dates

External links

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