United States dollar

The dollar (currency code USD and 840) is the unit of currency of the United States. It is normally abbreviated to the dollar sign $, or alternatively US$ to distinguish it from other dollar-denominated currencies (and others that use the $ symbol). The U.S. dollar is divided into 100 (equal) cents.

Adopted by the Congress of the Confederation of the United States on July 6, 1785 [1] , the U.S. dollar today is the most-used currency in the world. Several countries use the U.S. dollar as their official currency, and many others allow it to be used in a de facto capacity. In 1995, over US$380 billion were in circulation, of which two-thirds 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 [2], which is an annual growth of about 6.6%.

Overview

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 currency 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. (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 dollars.

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 by 3.125 inches; small-sized notes, introduced that year, measure 6.14 inches by 2.61 inches.

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A 1917 era U.S. dollar bill

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 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.

History

See also History of the United States dollar

Origins

There are two sources available for the origin of the dollar, one linked to the $ sign and another to the word dollar.

The word dollar was introduced by the Dutch in the North-American colony. In the 17th century, the Dutch 'Leeuwendaalders' - or Liondollars - were also very popular in the English colonies; its value is 30 nickels [3][4]. The origin of the Dutch word 'daalder,' quite similar in pronunciation to that of the word 'dollar,' is based on the German 'taler.'

An American explanation states that the '$' symbol was historically a combination of both letters representing this nation: US. In the early days of the United States, they would type a 'U' on a typewriter, then back-space and type an 'S' over the 'U' to designate U.S. Currency. So the original symbol was more 'curved' at the bottom because of the 'U'. Over time, for convenience, the US currency symbol evolved as people would simply hand-write an 'S' and put two straight lines through it (which was originally the 'U'). As time went on, people only wrote one line through it, which became the dollar symbol '$' as we know it today. It since has become one of the most famous icons and is used world wide to indicate 'money' in general, however this symbol was originally meant to designate only United States currency.

Another belief is that the '$' sign has been said to be based on the number 8. The Spanish eight-real coins were known as Spanish dollars. They circulated too alongside the currencies of the colonising countries. These currencies were denominated in pounds, shillings and pence (£sd) and the Spanish dollar was "rated" at a particular value in the currency of each colony. The ratings varied over time. A second Spanish explanation for the $ sign is that the II (upon the S) represented the Pillars of Hercules, on which rests the Spanish coat of arms, while the S came about from the plural for Dollars or Pesos.

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

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:

Continental One Third Dollar Note (obverse)

State	Value of Dollar in State Currency
Georgia	5 Shillings
Connecticut Massachusetts New Hampshire Rhode Island Virginia	6 Shillings
Delaware Maryland New Jersey Pennsylvania	7½ Shillings
New York North Carolina	8 Shillings
South Carolina	32½ 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 of gold (15:1 ratio). 1834 saw a shift in the gold standard to 23.2 grains, followed by a slight adjustment to 23.22 grains in 1838 (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.

In 1900, the bimetallic standard was abandoned and the dollar was defined as 23.22 grains of gold. 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, 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. 1975 saw the U.S. dollar freely float on currency markets.

Since World War II

We have seen a recent decline in the prevalence of the U.S. dollar. From the end of World War II to the very beginning of the 21st century, the American dollar was tendered as the dominant denomination in currency reserves, banking, and global trade. The newer Euro currency began to change this after it was introduced in early 1999. More recently, the transition process accelerated with the introduction of the Chinese rénmínbì (人民币 or "the people’s currency") as an international vector of currency.

As declared in 2015 by the European Central Bank, "The US Dollar remains the leading international currency, accounting for 50 to 60% of international transactions across various metrics of international currency use. The Euro remains the second-most important currency internationally, accounting for 20 to 25% of transactions. Its role is particularly significant in countries neighbouring the Euro area. All other currencies, the Renminbi included, remain well behind the US dollar and the Euro, although the rise of the Renminbi as an international payment currency –- which reflects the leading role played by China in global merchandise trade -– is notable."

However, including intra-zone activity, the Euro is now the largest currency in global circulation. So, while the U.S dollar still retains first place in international trade, the respective shares of the Euro and the Renminbi are on the rise.

United States coins

In normal circulation, 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; uncommon), and $1 (Dollar; uncommon). Federal Reserve Notes exist as $1, $2 (uncommon), $5, $10, $20, $50, and $100 denominations.

Dollar coins 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 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. 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 has 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. Also, some banks, such as Bank of America, distribute dollar coins only through the same mechanisms as for foreign currency.

The United States has minted other coin denominations since 1793: half-cent, 2-cent, 3-cent, 20-cent, $2.50, $3.00, $4.00, $5.00, $10.00, and $20.00. 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. 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. A $50 coin was issued in 1915 for the Panama-Pacific International Exposition (1915) celebrating the opening of the Panama Canal.

The United States Mint also produces 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 are 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. The American Gold Eagle bullion coin denominations (with gold content) 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) 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. The Mint also produces high quality "proof" coins, intended for collectors, in the same denominations and bullion content, which are available to individuals.

The largest denomination of currency currently printed or minted by the United States are the $100 bill and the $100 troy ounce Platinum Eagle.

International use

The currently produced U.S. $100 Federal Reserve Note, featuring a portrait of Benjamin Franklin.

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The currently produced U.S. $50 Federal Reserve Note, featuring a portrait of President Ulysses S. Grant.

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The currently produced U.S. $20 Federal Reserve Note, featuring a portrait of President Andrew Jackson.

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The currently produced U.S. $10 Federal Reserve Note, featuring a portrait of Alexander Hamilton.

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The currently produced U.S. $5 Federal Reserve Note, featuring a portrait of President Abraham Lincoln. It will get a new design similar to the above denominations in 2008.

File:US $2 obverse.jpg

The currently produced U.S. $2 Federal Reserve Note, featuring a portrait of President Thomas Jefferson.

File:US $1 obverse.jpg

The currently produced U.S. $1 Federal Reserve Note, featuring a portrait of President George Washington.

Other nations besides the United States use the U.S. dollar as their official currency, a process known as official dollarization. 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. Panama also uses the U.S. dollar (since 1904), although it issues its own currency (coins only). Two British dependencies also use the U.S. dollar: the British Virgin Islands (1959) and Turks and Caicos Islands (1973).

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. The currencies of Barbados and Belize are similarly convertible at an approximate 2:1 ratio. Argentina used a fixed 1:1 exchange rate between the Argentine peso and the U.S. dollar from 1991 until 2002. 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 and Kuwait, peg their currencies to the dollar, since the dollar is the currency used in the international oil trade.

The renminbi used by the People's Republic of China was informally and controversially pegged to the dollar in the mid-1990s at Y8.28/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.

The dollar is also used as the standard unit of currency in international markets for commodities such as gold and petroleum. 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 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, primarily held in $100 denominations. The majority of U.S. notes are actually held outside the United States. 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 still believes 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 on the U.S. dollar with serious global financial consequences. [5]

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. 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 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 ($0.87/€). In late May and early June, the U.S. dollar, with the advantage of Federal Reserve's Policy of raising rates, rose significantly against all major currencies. The U.S. dollar broke almost all expectations in 2005 (some analysts previewed the dollar dropping as far as $1.60 per Euro), finished the year with a significant double-digit recovery against the EU Euro and Japanese Yen.

Nicknames

The colloquialism buck 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, a nickname originally applied specifically to a 19th-century Demand Note, is still used to refer to the U.S. dollar (and 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" and the $10 bill as a "sawbuck", a "ten-spot", or a "Hamilton", the $1 bill is sometimes called a "single", the rarely-used $2 bill a "deuce" and the $100 bill has gotten the nickname Benjamin (after the portrait of Benjamin Franklin that it bears) or a C-note (C being the Roman numeral for 100). Benjamins can also be used as a nickname for large amounts of money, which would presumably come in large bills such as the $100. It is also sometimes referred to as a "bill", or "bills" for $200 or more. Some currency can be referred to collectively as "dead presidents", even though neither Hamilton ($10) nor Franklin ($100) were Presidents. $100 notes are often referred to as 'large' in banking ("twenty large" being $2,000, etc.). The bills can also be called by the persons on the respective bill (Benjamins, Washingtons, etc.).

Origin of the name dollar

The U.S. dollar derives from the Spanish eight-reales coin which was composed of just under one ounce of silver. This coin was popular among American colonists, who called it the Spanish dollar, the name having derived from a German coin of similar size and composition known as the thaler. 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 U.S.

Although private banks issued currency backed by Spanish and U.S. silver dollars, the federal government did not do so until the American Civil War.