The United States dollar, or American dollar, is the world’s most dominant currency. With some $1.2 trillion in circulation1)As of July 2013. Federal Reserve Bank of New York. How Currency Gets into Circulation. Retrieved from http://www.newyorkfed.org/aboutthefed/fedpoint/fed01.html , the US dollar is the sole currency in the United States, its overseas territories, and several other countries, including East Timor, Ecuador, El Salvador and others. The US Dollar is also the world’s top currency in foreign transactions and the foreign exchange (forex) market.2)Federal Reserve Board of Governors. The Implementation of Monetary Policy – The Federal Reserve in the International Sphere. Retrieved from http://www.federalreserve.gov/pf/pdf/pf_4.pdf Regulated under the United States Federal Reserve System, the US dollar is symbolised by $ or US$ and has a currency code of USD. Its most frequent banknotes are $1, $5, $10, $20, $50 and $100, featuring portraits of American presidents and politicians, such as George Washington, Benjamin Franklin and Abraham Lincoln.
The History of the US Dollar
The Constitution of the United States, ratified into law 21 June 1788, gives the power to coin money to the United States Congress. The US Congress authorised the use of the dollar 8 August 1786. The term “dollar” was borrowed from the common Spanish coin used throughout the New World; this, in turn, came from the German Thaler, popular coins in 16th-century Europe. As prescribed by the US Constitution, due to uncontrollable inflation of the currency at the time, individual states were prohibited from coining their own money. Foreign currency was accepted until after the American Civil War, when the dollar became the sole currency.
At inception, the monetary system in the United States was based on bimetallism, giving the dollar equal value of determined amounts of gold and silver (at a 15:1 ratio). By the late 1800s, monetary standards in the United States were in political turmoil. Coins were minted with silver and gold. The California Gold Rush saw the price of silver rise, and wars overseas caused Americans to send coins out of the country to be used as bullion. The US government responded by lowering the precious metal content of the coins, which caused the United States Mint to stop accepting silver for stamping into coins. In 1890, the government substantially increased silver purchases and redeemed silver dollars and treasury notes (paper money) for gold. Some wanted to continue this bimetallic standard to inflate the dollar, making debts easier to pay off. Others pushed to move to a gold standard.3)Crabbe, Leland (June 1989). The International Gold Standard and U.S. monetary policy from World War I to the New Deal. Federal Reserve Archive.
Ultimately, in 1900, the United States moved to a gold standard, guaranteeing gold and silver coins, and paper money, to a set amount of gold. During the Great Depression, the US government, along with every other major government, abandoned the gold standard. The US government raised interest rates to protect gold, but a general distrust of paper money caused people to hoard gold coins.4)Remarks by Governor Ben S. Bernanke. Retrieved from http://www.federalreserve.gov/boarddocs/speeches/2004/200403022/default.htm
In 1944, The Bretton Woods system was signed to create a new global economic order. Held at the United Nations monetary and financial conference in Bretton Woods, New Hampshire, the conference brought in delegates from around the world to adopt this new policy that would maintain the exchange rate by tying each country’s currency to gold. Consequently, banks needed the US dollar to establish security in their reserve banks. Central banks in Europe could not circulate more of their own money if it meant overrunning the number of US dollars they held. Therefore, the United States was forced to run deficits with the rest of the world, and the number of dollars in circulation soon exceeded the amount of gold backing them up.5)DailyFX Team. Events That Have Affected Forex Throughout History. Retrieved from http://www.dailyfx.com/forex/fundamental/article/special_report/2013/03/26/Forex_Events_That_Have_Affected_Forex_Throughout_History.html
The gold reserves in the United States could not be sustained. By the late 1960s, the debts for the Vietnam War, inflation and other elements had overvalued the US dollar. In 1971, President Richard Nixon cancelled the convertibility of the US dollar into gold, effectively ending the Bretton Woods system. Since then, the US dollar has been a fiat currency, giving the Federal Reserve the power to print as much currency, or as little, as it sees fit.
In 2007, the decline in home prices, mortgage delinquencies and foreclosures, and the devaluation of housing securities, created the subprime mortgage crisis. After the collapse of several financial institutions, the US entered a recession with severe, long-lasting consequences, including increasing unemployment.
In the United States, the Federal Reserve, or Fed, determines the monetary policy of the US dollar. The Fed, in effect, maintains the value of the US dollar. It does so by controlling the money supply, increasing and decreasing the flow of cash through printing and minting, as well as through the manipulation of interest rates.
Within the Fed, the Federal Open Market Committee (FOMC), is the principle committee for overseeing the actions of monetary policy and open market operations, such as the US Treasury securities exchange.
Economy OF The United States
The United States has the world’s largest national economy, with nearly 20% of global GDP. The United States is also one of the largest manufacturers, producing oil and natural gas, steel, automobiles, machinery, telecommunications, electronics and more, producing some 18% of the world’s manufacturing output.6)http://greyhill.com/manufacturing-by-country/ Retrieved 15 June 2015. Likewise, of the world’s top 250 largest retailers, the US is home to 32%.7)Deloitte, Switching Channels: Global Powers of Retailing 2012, STORES, January 2012, G20
International trade makes a large portion of the US economy, with some US$1.6 trillion in exports and US$2.3 trillion in imports. 8)https://www.cia.gov/library/publications/resources/the-world-factbook/geos/us.html Retrieved 16 June 2015. The US’s top trading partners are Canada, China, Mexico, Japan, Germany, the United Kingdom, South Korea, France, Taiwan and Brazil. The US government is a significant policy-maker on global trade, with the Congress regulating international trade and tariffs. The United States is a member of several international trade organisations, including the World Trade Organisation (WTO) and the Organisation of American States, and the North American Free Trade Agreement (NAFTA).
To protect investors in the US commodities and the dollar in currency exchange, the National Futures Association (NFA) develops and enforces regulations to safeguard market integrity. The NFA is a self-regulatory, non-profit organisation that works in coordination with the US Commodity Futures Trading Commission (CFTC), a government agency. One of the main goals is to enforce anti-money laundering regulations.
Major US Dollar Currency Pairs
In forex, some of the largest currency pairs, called the Majors, contain the US dollar as a counter-currency. These pairs hold high market liquidity. The majors are: EUR/USD, USD/JPY, GBP/USD, AUD/USD, USD/CHF, NZD/USD and USD/CAD.
Dollar Bills and Coins
US dollars have been issues as paper money since 1862. The dollar has always been green, which the US government thought of as a symbol for stability. The Bureau of Engraving and Printing, a department of the US Department of the Treasury, produces modern US dollar bills, featuring watermarks, colour-shifting ink, security threads, microprinting and other elements to prevent counterfeiting.9)Retrieved from http://www.moneyfactory.gov/uscurrency.html The US dollar has many nicknames: bill, buck, greenback, dough, smacker, bones, dead presidents and more.
United States coinage consists of cents (¢). United States Mint currently produces new coins annually in denominations of 1¢ (penny), 5¢ (nickel), 10¢ (dime), 25¢ (quarter), 50¢ (half dollar) and $1.00 (dollar coin). The Mint also produces commemorative and collector coins.10)Retrieved from http://www.usmint.gov/about_the_mint/
US Dollar Around the World
The US dollar is part of a currency union with several official and unofficial users. The US dollar is also pegged by 23 currencies.
- United States
- East Timor
- El Salvador
- American Samoa
- Northern Mariana Islands
- Puerto Rico
- US Virgin Islands
- United States Minor Outlying Islands
- The Bahamas
- Marshall Islands
- Federated States of Micronesia
- Caribbean Netherlands
- British Virgin Islands
- Turks and Caicos Islands
- Cayman Islands
- British Indian Ocean Territory
Currencies Pegged to the US Dollar 11)Currency Peg Data Retrieved from http://www.investmentfrontier.com/2013/02/19/investors-list-countries-with-fixed-currency-exchange-rates/ Retrieved 17 June 2015.
|Cayman Island Dollar||0.82000|
|Cuban Convertible Peso||1.00000|
|East Caribbean Dollar||2.70000|
|Hong Kong Dollar||7.85000|
|Saudi Arabian Riyal||3.75000|
|United Arab Emirati Dirham||3.67250|
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References [ + ]
|1.||↑||As of July 2013. Federal Reserve Bank of New York. How Currency Gets into Circulation. Retrieved from http://www.newyorkfed.org/aboutthefed/fedpoint/fed01.html|
|2.||↑||Federal Reserve Board of Governors. The Implementation of Monetary Policy – The Federal Reserve in the International Sphere. Retrieved from http://www.federalreserve.gov/pf/pdf/pf_4.pdf|
|3.||↑||Crabbe, Leland (June 1989). The International Gold Standard and U.S. monetary policy from World War I to the New Deal. Federal Reserve Archive.|
|4.||↑||Remarks by Governor Ben S. Bernanke. Retrieved from http://www.federalreserve.gov/boarddocs/speeches/2004/200403022/default.htm|
|5.||↑||DailyFX Team. Events That Have Affected Forex Throughout History. Retrieved from http://www.dailyfx.com/forex/fundamental/article/special_report/2013/03/26/Forex_Events_That_Have_Affected_Forex_Throughout_History.html|
|6.||↑||http://greyhill.com/manufacturing-by-country/ Retrieved 15 June 2015.|
|7.||↑||Deloitte, Switching Channels: Global Powers of Retailing 2012, STORES, January 2012, G20|
|8.||↑||https://www.cia.gov/library/publications/resources/the-world-factbook/geos/us.html Retrieved 16 June 2015.|
|9.||↑||Retrieved from http://www.moneyfactory.gov/uscurrency.html|
|10.||↑||Retrieved from http://www.usmint.gov/about_the_mint/|
|11.||↑||Currency Peg Data Retrieved from http://www.investmentfrontier.com/2013/02/19/investors-list-countries-with-fixed-currency-exchange-rates/ Retrieved 17 June 2015.|