The United States dollar is the official currency of the United States. It is also widely used as a reserve currency outside of the United States. Currently, the issuance of currency is controlled by the Federal Reserve Banking system. The most commonly used symbol for the U.S. dollar is the dollar sign ($). The ISO 4217 code for the United States Dollar is USD; the U.S. dollar is also referenced as US$ by the International Monetary Fund. In 1995, over $380 billion (380 G$) in U.S. currency was in circulation, two-thirds of it overseas. As of April 2004 nearly 700 G$  was in circulation, with an estimated half to two-thirds of it still being held overseas .
The U.S. is one of many countries that use a currency named dollar. Several countries use the U.S. dollar as their official currency, and many others allow it to be used in a de facto legal capacity. See dollar.
Americans often use the word buck to refer to a U.S. dollar. This term originated with the colonial fur trade. Grand, sometimes shortened to simply g, is a common term for the amount of 1000 of several currencies, including dollars.
The U.S. dollar is most commonly divided into 100 cents (symbol ¢). Other divisions are 10 dimes or 1000 mills to a dollar; in addition, ten dollars was formerly referred to as an eagle. However, only cents are in everyday use as divisions of the dollar; "dime" refers to the coin of the same denomination (see: Dime (U.S. coin)), and "eagle" and "mill" are unknown to most Americans; mills are sometimes used in matters of tax levies. 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. (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 twenty dollars.
U.S. coins are produced by the United States Mint. U.S. dollar banknotes have been printed by the Bureau of Engraving and Printing for the Federal Reserve since 1914. They began as large-sized notes. In 1928, they switched to small-sized notes, for reasons that are to be explained.
Notes above the $100 denomination ceased being printed in 1946 and were officially withdrawn from circulation in 1969. These notes were used primarily either 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 unnecessary. 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.
United States coins
In normal circulation, there are coins in the denominations 1¢ (penny), 5¢ (nickel), 10¢ (dime), 25¢ (quarter), 50¢ (half dollar; unusual), and $1 (unusual). Bills include denominations in $1, $2 (unusual), $5, $10, $20, $50, and $100.
Dollar coins have never been popular in the United States. Silver dollars were created from 1794 through 1935 with a few short gaps; then a copper-nickel dollar of the same large size was minted from 1971 through 1978. The Susan B. Anthony dollar coin was introduced in 1979; these proved to be unpopular because they were often mistaken for quarters, thanks to their nearly-equal size, their milled edge, and their similar color. Minting of these dollars quickly stopped, but, as with all past U.S. coins, they remain legal tender. 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. However, this new coin has failed to achieve the popularity of the still-existing $1 bill and is rarely used in daily transactions.
Reaching into the past, the United States has minted other coin denominations since 1793: half-cent, two-cent, three-cent, twenty-cent, $2.50, $3.00, $5.00, $10.00, and $20.00. Technically, all these coins are still legal tender at face value, though they are all worth far more to any coin collector.
Criticisms of U.S. coins
Uniquely for a major currency, the value of U.S. coins is not inscribed on them with a number. Instead, the value is written in English words, presenting potential difficulties for visitors to the country with poor English. Furthermore, these value inscriptions do not follow a consistent pattern of describing the value in cents: after "One Cent" and "Five Cents" come "One Dime" (worth 10 cents), "Quarter Dollar" (25 cents), and "Half Dollar" (unusual, 50 cents) requiring knowledge of these terms. (Visitors must generally also learn the colloquial names of the penny, nickel, and quarter.)
For historical reasons, the size of the coins does not increase consistently with their face value. Both the one cent (penny) and the five cent (nickel) are larger than the dime, worth ten cents, and the less common 50-cent coin is larger than the recent Sacagawea and Susan B. Anthony dollar coins. The sizes of the dime, quarter, and half dollar are holdovers from before 1964, when they were made from 90% silver; their sizes thus depended upon the amount of silver which cost their respective values, and helps explain why the dime is the smallest of the coins. The dollar coins were introduced after 1964, so their size was not dependent upon silver, and was thus apparently chosen arbitrarily.
The dollar was unanimously chosen as the monetary unit for the United States on July 6, 1785. This was the first time a nation had adopted a decimal currency system.
Until 1974 the value of the United States dollar was tied to and backed by silver, gold, or a combination of the two. From 1792 to 1873 the U.S. dollar was freely backed by both gold and silver at a ratio of 15:1 under a system known as bimetallism. Through a series of legislative changes from 1873 to 1900, the status of silver was slowly diminished until 1900 when a gold standard was formally adopted. The gold standard survived, with several modifications, until 1971.
The U.S. Coinage Act of 1792 established the United States Mint and set the following definition for a dollar:
- "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-one grains and four sixteenths parts of a grain [24.06 g] of pure, or four hundred and sixteen grains [26.96 g] of standard silver."
It also pegged the rate of exchange between pure silver and pure gold at 15:1. Thus the dollar was defined to be 371.25 grains (24.06 g) of silver or 24.75 grains (1.60 g) of gold and could be exchanged at the mint for either silver or gold in this 15:1 ratio. This standard, known as bimetallism, was used through much of the 19th century.
In 1834, due to a drop in the value of silver, the 15:1 ratio was changed to a 16:1 ratio. This created a new U.S. dollar that was backed by 1.50 g (23.2 grains) of gold. However, the previous dollar had been represented by 1.60 g (24.75 grains) of gold. The result of this revaluation, which was the first-ever devaluation of the U.S. dollar, reduced its gold value by 6%.
The discovery of large silver deposits in the Western United States in the late 19th century created a political controversy. On one side were agrarian interests such as the United States Greenback Party who wanted to retain the bimetallic standard in order to inflate the dollar, which would allow farmers to more easily repay their debts. On the other side were Eastern banking and commercial interests who advocated sound money and a switch to the gold standard. This issue split the Democratic Party in 1896. It led to the famous "cross of gold" speech given by William Jennings Bryan, and may have inspired many of the themes in The Wizard of Oz.
In 1878 the Bland-Allison Act was enacted to provide for freer coinage of silver. This act required the government to purchase between $2 million and $4 million worth of silver bullion each month at market prices and to coin it into silver dollars. This was, in effect, a subsidy for politically influential silver producers.
Bimetallism persisted until March 14, 1900, with the passage of the Gold Standard Act, which provided that:
- "...the dollar consisting of twenty-five and eight-tenths grains (1.67 g) of gold nine-tenths fine, as established by section thirty-five hundred and eleven of the Revised Statutes of the United States , shall be the standard unit of value, and all forms of money issued or coined by the United States shall be maintained at a parity of value with this standard..."
Thus the United States moved to a gold standard, made gold the sole legal-tender coinage of the United States, and set the value of the dollar at $20.67 per ounce (66.46 ¢/g) of gold. This made the dollar convertible to 1.5 g (23.2 grains)—the same convertibility into gold that was possible on the bimetallic standard.
During the Great Depression, President Franklin Delano Roosevelt revalued the dollar to 35 per troy ounce (112.53 cents per gram) of gold. This represented a drop in the value of the U.S. dollar. It fell to only 890 mg (13.7 grains) of gold. The U.S. dollar had thus been devalued almost 41% by government decree.
Under the post-World War II Bretton Woods Agreement, all other currencies were valued in terms of U.S. dollars and were thus indirectly linked to the gold standard. The need for the U.S. government to maintain both a $35 per troy ounce (112.53 ¢/g) market price of gold and also the conversion to foreign currencies caused economic and trade pressures. By the early 1960s, compensation for these pressures started to become too complicated to manage.
In March 1968, the effort to control the private market price of gold was abandoned. A two-tier system began. In this system all central-bank transactions in gold were insulated from the free market price. Central banks would trade gold among themselves at $35 per troy ounce (112.53 ¢/g) but would not trade with the private market. The private market could trade at the equilibrium market price and there would be no official intervention. The price immediately jumped to $43 per troy ounce (138.25 ¢/g). The price of gold touched briefly back at $35 (112.53 ¢/g) near the end of 1969 before beginning a steady price increase. This gold price increase turned steep through 1972 and hit a high that year of over $70 (2.25 $/g). By that time floating exchange rates had also begun to emerge, which indicated the de facto dissolution of the Bretton Woods Agreement. The two-tier system was abandoned in November 1973. By then the price of gold had reached $100 per troy ounce (3.22 $/g).
In the early 1970s, inflation caused by rising prices for imported commodities, especially oil, and spending on the Vietnam War, which was not counteracted by cuts in other government expenditures, combined with a trade deficit to create a situation in which the dollar was worth less than the gold used to back it.
In 1972, the United States reset the value to 38 dollars per troy ounce (122.17 ¢/g) of gold. Because other currencies were valued in terms of the U.S. dollar, this failed to resolve the disequilibrium between the U.S. dollar and other currencies. In 1975 the United States began to float the dollar with respect to both gold and other currencies. With this the United States was, for the first time, on a fully fiat currency.
The sudden jump in the price of gold after central banks gave up on controlling it was a strong sign of a loss of confidence in the U.S. dollar. In the absence of a gold-market-valued U.S. dollar, investors were choosing to continue putting their faith in actual gold. Consequently, the price of gold rose from $35 per troy ounce (1.125 $/g) in 1969 to almost $900 (29 $/g) in 1980.
Shortly after the gold price started its ascent in the early 1970s, the price of other commodities such as oil also began to rise. While commodity prices became more volatile, the average exchange rate between oil and gold remained much the same in the 1990s as it had been in the 1960s, 1970s and 1980s.
Fearing the emergence of a specie gold-based economy separate from central banking, and with the corresponding threat of the collapse of the U.S. dollar, the U.S. government approved several changes to the trading on the COMEX. These changes resulted in a steep decline in the traded value of precious metals from the early 1980s onward.
In September 1987 under the Reagan administration the U.S. Secretary of the Treasury James Baker made a proposal through the IMF to use a commodity basket (which included gold) as a reference point to manage national currencies. However, the stock market Crash of October 1987 followed by the Iran-Contra scandal distracted the administration from such plans, and political momentum was lost.
As of May 2004, the U.S. reserve assets include $11,045,000,000 of gold stock, valued at $42.2222 per fine troy ounce (1.36 $/g).
Today, like the currency of most nations, the dollar is fiat money without intrinsic value, which means that it has no backing and would be entirely worthless but for the fact that people have been persuaded to use and accept it as if it had worth.
In 1963 the words "WILL PAY TO THE BEARER ON DEMAND" were removed from all newly issued Federal Reserve notes. Then, in 1968, redemption of pre-1963 Federal Reserve notes for gold or silver officially ended. The Coinage Act of 1965 removed all silver from quarters and dimes, which were 90% silver prior to the act. However, there was a provision in the act allowing some coins to contain a 40% silver consistency. Later, even this provision was removed, and all coins minted for general circulation are now 100% clad.
It is important to note that all circulating notes, issued from 1861 to present, will be honored by the government at face value as legal tender, even if they are not redeemable for gold or silver due to obsolete obligations, ending in 1968. Some bills may have a premium to collectors.
The only exception to this rule is the $10,000 gold certificate of Series 1900, a number of which were inadvertently released to the public because of a fire in 1935. A box of them was literally thrown out of a window. This set is not considered to be "in circulation" and in fact is stolen property. However, the government does not seem to care very much about it, as the banknotes are all canceled and thus off the books. Their intrinsic value is zero, and their collector value is, roughly speaking, around one thousand dollars.
According to the Bureau of Engraving and Printing, as of July 31, 2000, there was $539,890,223,079 in total currency in worldwide circulation, of which $364,724,397,100 was in the $100 denomination.
As of September 2004, it has been estimated that if all the gold held by the U.S. government (261.7 million ounces = 8 140 Mg) were again required to back the circulating U.S. currency ($733,170,953,704), gold would need to be valued at $2,800/ounce (90 $/g).
The federal government began issuing currency that was backed by Spanish dollars during the American Civil War. As photographic technology of the day could not reproduce color, it was decided the back of the bills would be printed in a color other than black. Because the color green was seen as a symbol of stability, it was selected. These bills were known as "greenbacks" for their color and started a tradition of the United States' printing the back of its money in green. In contrast to the currency notes of many other countries, all Federal Reserve notes are the same colors (black with green highlights on the front, and green on the back), notwithstanding the recent addition of subtle elements in other colors to the $20 and $50 bills. Federal Reserve notes were printed in the same colors for most of the 20th century, although older bills called "silver certificates" had blue highlights on the front, and "United States notes" had red highlights on the front.
In 1929, sizing of the bills was standardized (involving a 25% reduction in the then current sizes). Modern U.S. currency, regardless of denomination, is 2.61 inches (66.3 mm) wide, 6.14 inches (156 mm) long, and 0.0043 inches (0.109 mm) thick. A single bill weighs about one gram and costs approximately 4.2 cents for the Bureau of Engraving and Printing to produce.
Microprinting and security threads were introduced in the 1991 currency series.
Another series started in 1996 with the $100 note, adding the following changes.
- A larger portrait, moved off-center to create more space to incorporate a watermark.
- The watermark to the right of the portrait depicting the same historical figure as the portrait. The watermark can be seen only when held up to the light, and had long been a standard feature of all other major currencies.
- A security thread that will glow red when exposed to ultraviolet light in a dark environment. The thread is in a unique position on each denomination.
- Color-shifting ink that changes from green to black when viewed from different angles. This feature appears in the numeral on the lower right-hand corner of the bill front.
- Microprinting in the numeral in the note's lower left-hand corner and on Benjamin Franklin's coat.
- Concentric fine-line printing in the background of the portrait and on the back of the note. This type of printing is difficult to copy well.
- Other features for machine authentication and processing of the currency.
Annual releases of the 1996 series followed. The $50 note on June 12, 1997, introduced a large dark numeral with a light background on the back of the note to make it easier for people to identify the denomination.  The $20 note in 1998 introduced a new machine-readable capability to assist scanning devices. The security thread glows green under ultraviolet light, and "USA TWENTY" and a flag are printed on the thread, while the numeral "20" is printed within the star field of the flag. The microprinting is in the lower left ornamentation of the portrait and in the lower left corner of the note front. As of 1998, the $20 note was the most frequently counterfeited note in the United States.
On May 13, 2003, the Treasury announced that it would introduce new colors into the $20 bill, the first U.S. currency since 1905 to have colors other than green or black. The move was intended primarily to reduce counterfeiting, rather than to increase visual differentiation between denominations. The main colors of all denominations, including the new $20 and $50, remain green and black; the other colors are present only in subtle shades in secondary design elements. This contrasts with the euro and other currencies, in which the main banknote colors contrast strongly with one another.
The new $20 bills entered circulation on October 9, 2003, and the new $50 bills on September 28, 2004. The new $10 notes will be introduced in 2005. The $100 note will eventually be redesigned, but a date has not been announced. Each will have subtle elements of different colors, though will continue to be primarily green and black. The Treasury said it will update Federal Reserve notes every 7 to 10 years to keep up with counterfeiting technology.
Some techniques used today are little blue and red threads (look closely at the dollar), the number in the lower right corner changing from green to silver when viewed from different angles, and a watermark that says US # (a number for whatever amount of dollars this note represents). Most notes contain a watermark with a picture of a historical figure.
"The soundness of a nation's currency is essential to the soundness of its economy. And to uphold our currency's soundness, it must be recognized and honored as legal tender and counterfeiting must be effectively thwarted," Federal Reserve Chairman Alan Greenspan said at a ceremony unveiling the $20 bill's new design. Prior to the current design, the most recent redesign of the U.S. dollar bill was in 1996.
Criticisms of U.S. banknotes
Despite the relatively late addition of color and other anti-counterfeiting features to U.S. currency, critics hold that it is still a straightforward matter to counterfeit the bills. They point out that the ability to reproduce color images is well within the capabilities of modern color printers, most of which are affordable to many consumers. These critics suggest that the Federal Reserve should incorporate holographic features, as are used in most other major currencies, such as the Canadian dollar, Swiss franc, and euro banknotes, which are much more difficult and expensive to forge. Another robust technology, developed in Australia and adopted by several countries, produces polymer banknotes.
However, U.S. currency may not be as vulnerable as it is said to be. Two of the most critical anti-counterfeiting features of U.S. currency are the paper and the ink. The exact composition of the paper is confidential, as is the formula for the ink. The ink and paper combine to create a distinct texture, particularly as the currency is circulated. These characteristics can be hard to duplicate without the proper equipment and materials. U.S. notes, however, remain less secure than most other notes, and while a bank might be able to detect fine differences in paper and ink technology, counterfeit notes generally receive far less scrutiny at a point of sale.
Critics also note that U.S. bills are often hard to tell apart: They use very similar designs, are printed in the same colors, and are the same size. Advocates for the blind have argued that they should employ braille codes to make the currency more usable by the vision-impaired, since the denominations cannot easily be distinguished from one another nonvisually. Though some vision-impaired or blind individuals say that they have learned to determine the different denominations by feel, many others rely on currency readers.
By contrast, other major currencies, such as the euro feature notes of differing sizes: the size of the note increases with the denomination and are printed in different colors. This is useful not only for the vision-impaired. They nearly eliminate the risk that, for example, someone might fail to notice a high-value note among low-value ones, a common problem in the United States. Tourists also frequently encounter difficulties with U.S. money, as they are less familiar with the design cues that distinguish the various denominations.
Alongside the contrasting colors and increasing sizes, many other countries' currencies contain tactile features missing from U.S. banknotes to assist the blind. For example, Canadian banknotes have a series of raised dots (though not standard braille) in the upper right corner to indicate denomination.
Apart from their value in helping users to tell notes apart, the differing sizes of other currency banknotes are a security feature that eliminates one form of counterfeiting to which U.S. currency is prone: Counterfeiters can simply bleach the ink off a low-denomination note, typically a single dollar, and reprint it as a higher-value note, such as a $100 bill. To counter this, the U.S. government has debated making lower-denomination notes slightly smaller than those of higher denomination. Current proposals suggest making the $1 and $5 bills an inch shorter in length and a half-inch shorter in height; however, having two sizes of banknotes but six denominations, rather than incrementally increased sizes, would not eliminate the problem of their usability for the blind.
A few nations besides the United States use the U.S. dollar (USD) as their official currency. Ecuador, El Salvador, and East Timor all adopted the currency independently. The former members of the US-administered Trust Territory of the Pacific Islands, including Palau, the Federated States of Micronesia and the Marshall Islands, did not choose to issue their own currency after becoming independent.
Additionally, the local currencies of Bermuda, the Bahamas, Panama, and a few other states 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 exchange rate between the Hong Kong dollar and the United States dollar has also been fixed since the early 1980s, and the renminbi used by the People's Republic of China has been informally and controversially pegged to the dollar since the mid-1990s. Malaysia has formally pegged its ringgit to the dollar since 1997.
The dollar is also used as the standard unit of currency in international markets for commodities such as gold and oil. Even foreign companies with little direct presence in the United States, such as the European company Airbus, list and sell their products in dollars.
At the present time, the U.S. dollar remains the world's foremost reserve currency, primarily held in $100 denominations. The majority of U.S. notes are actually held outside the United States. According to economist Paul Samuelson, 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.
Not long after the introduction of the euro (€; ISO 4217 code EUR) as a cash currency in 2002, the dollar began to steadily depreciate in value on the international scene. After the euro started to rise in value in March 2002, the U.S. trade and budget deficits continued to increase. By Christmas 2004 the dollar had fallen to new lows against all major currencies, especially its rival the euro. The euro rose above $1.36 /€ (under 0.74 €/$) for the first time in late December 2004, in sharp contrast to its lows in early 2003 (rate of $0.87/€).
Origin of the name dollar
The name for the United States dollar comes from the Spanish dollar (which itself derived from the thaler). The Spanish dollar was the silver coin widely circulated in the United States during the time of the American Revolutionary War. Although private banks issued currency that was backed in Spanish dollars, the federal government did not do so until the American Civil War.
For further history of the name, see Dollar.
The dollar symbol
The origin of the "$" sign has been variously accounted for. Perhaps the most widely accepted explanation, according to the U.S. Bureau of Engraving and Printing, is that it results from the evolution of the Mexican or Spanish "P's" for pesos, or piastres, or pieces of eight. This theory, derived from a study of old manuscripts, explains that the "S" gradually came to be written over the "P," developing a close equivalent to the "$" mark. It was widely used before the adoption of the U.S. dollar in 1785.
A dollar symbol with two vertical strokes is sometimes used. This is sometimes attributed to the idea of superimposing "U" and "S," but the form appears already to have existed when the future United States was still a number of British colonies. The two slashes are thought to represent the two pillars at the original temple of Solomon in Jerusalem.
For further information about the symbol, see Dollar.
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