The United States dollar (sign: $; code: USD; also abbreviated US$), also referred to as the American dollar, is the official currency of the United States of America. It is divided into 100 smaller units called cents or pennies.
The U.S. dollar is the currency most used in international transactions and is one of the world's reserve currencies.[14] Several countries use it as their official currency and in many others it is the de facto currency,.[15] It is also used as the sole currency in some British Overseas Territories (British Virgin Islands and Turks and Caicos).
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The Constitution of the United States of America provides that the United States Congress shall have the power "To coin Money".[16] Laws implementing this power are currently codified in Section 5112 of Title 31 of the United States Code. Section 5112 prescribes the forms in which the United States dollars shall be issued.[17] Those coins are both designated in Section 5112 as "legal tender" in payment of debts.[17] The Sacagawea dollar is one example of the copper alloy dollar. The pure silver dollar is known as the American Silver Eagle. Section 5112 also provides for the minting and issuance of other coins, which have values ranging from one cent to fifty dollars.[17] These other coins are more fully described in Coins of the United States dollar.
The Constitution provides that "a regular Statement and Account of the Receipts and Expenditures of all public Money shall be published from time to time".[18] That provision of the Constitution is made specific by Section 331 of Title 31 of the United States Code.[19] The sums of money reported in the "Statements" are currently being expressed in U.S. dollars (for example, see the 2009 Financial Report of the United States Government).[20] The U.S. dollar may therefore be described as the unit of account of the United States.
The word "dollar" is one of the words in the first paragraph of Section 9 of Article 1 of the U.S. Constitution. In that context, "dollars" is a reference to the Spanish milled dollar, a coin that had a monetary value of 8 Spanish units of currency, or reales. In 1792 the U.S. Congress adopted legislation titled An act establishing a mint, and regulating the Coins of the United States. Section 9 of that act authorized the production of various coins, including "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 sixteenth parts of a grain of pure, or four hundred and sixteen grains of standard silver". Section 20 of the act provided, "That the money of account of the United States shall be expressed in dollars, or units... and that all accounts in the public offices and all proceedings in the courts of the United States shall be kept and had in conformity to this regulation". In other words, this act designated the United States dollar as the unit of currency of the United States.
The U.S. dollar bill uses the decimal system, consisting of 100 equal cents (symbol ¢). It is also officially divided into 1,000 mills or ten dimes, while ten dollars is equal to an eagle. 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 are usually in the form of $X.XX9 per gallon, e.g., $3.599, sometimes written as $3.599⁄10. When currently issued in circulating form, denominations equal to or less than a dollar are emitted as U.S. coins while denominations equal to or greater than a dollar are emitted as Federal Reserve notes (with the exception of gold, silver and platinum coins valued up to $100 as legal tender, but worth far more as bullion). Both one-dollar coins and notes are produced today, although the note form is significantly more common. In the past, "paper money" was occasionally issued in denominations less than a dollar (fractional currency) and gold coins were issued for circulation up to the value of $20 (known as the "double eagle," discontinued in the 1930s). The term eagle was used in the Coinage Act of 1792 for the denomination of ten dollars, and subsequently was used in naming gold coins. Paper currency less than one dollar in denomination, known as "fractional currency," was also sometimes pejoratively referred to as "shinplasters." In 1854, James Guthrie, then Secretary of the Treasury, proposed creating $100, $50 and $25 gold coins, which were referred to as a "Union," "Half Union," and "Quarter Union,"[21] thus implying a denomination of 1 Union = $100.
Today, USD notes are made from cotton fiber paper, unlike most common paper, which is made of wood fiber. U.S. coins are produced by the United States Mint. U.S. dollar banknotes are printed by the Bureau of Engraving and Printing and, since 1914, have been issued by the Federal Reserve. The "large-sized notes" issued before 1928 measured 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). When the current, smaller sized U.S. currency was introduced it was referred to as Philippine-sized currency because the Philippines had previously adopted the same size for its legal currency.
In the 16th century, Count Hieronymus Schlick of Bohemia began minting coins known as Joachimstalers (from German thal, or nowadays usually Tal, "valley", cognate with "dale" in English), named for Joachimstal, the valley where the silver was mined (St. Joachim's Valley, now Jáchymov; then part of the Holy Roman Empire, now part of the Czech Republic).[22] Joachimstaler was later shortened to the German Taler, a word that eventually found its way into Danish and Swedish as daler, Dutch as daalder, Ethiopian as ታላሪ (talari), Hungarian as tallér, Italian as tallero, and English as dollar.[22] Alternatively, thaler is said to come from the German coin Guldengroschen ("great guilder", being of silver but equal in value to a gold guilder), minted from the silver from Joachimsthal.
The colloquialism "buck" (much like the British word "quid" for the pound sterling) 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.[23] "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.[24] The original note was printed in black and green on the back side. It is still used to refer to the U.S. dollar (but not to the dollars of other countries). Other well-known names of the dollar as a whole in denominations include "greenmail", "green" and "dead presidents" (the last because late presidents are pictured on some of the bills).
"Grand", sometimes shortened to simply "G", is a common term for the amount of $1,000. The suffix "K" or "k" (from "kilo-") is also commonly used to denote this amount (such as "$10k" to mean $10,000). In colloquial English, when someone refers to a "large" or "stack", it is usually a reference to an amount that is a multiple of $1,000 (such as "fifty large" meaning $50,000). Banknotes' nicknames are the same as their values (such as "five", "twenty" etc.) The $100 bill is nicknamed "Benjamin", "Benji" or "Franklin" (after Benjamin Franklin, who is pictured on the note), "C-note" (C being the Roman numeral for 100), "Century note" or "bill" (e.g. "two bills" being $200). The $20 bill has been referred to as "double sawbuck", "dub" or "Jackson" (after Andrew Jackson); the $10 bill - as "sawbuck", "ten-spot" or "Hamilton" (after Alexander Hamilton); the $5 bill - as "fin", "fiver" or "five-spot". The $2 bill is sometimes called "deuce", "Tom", "Jefferson" or "T.J." (after Thomas Jefferson); and the $1 bill - "single" or "buck". The dollar has also been referred to as a "bone" and "bones" in plural (e.g. "twenty bones" is equal to $20) or a "bean". The newer designs are sometimes referred to as "Bigface" bills or "Monopoly money". Some people refer to U.S. money as "cha-chingers", "bucks", "green-backs" and "smackers".
In French-speaking areas of Louisiana, the dollar is referred to as "piastre" (pronounced "pee-as") and the French holdover "sous" (pronounced "soo") is used to refer to the cent.
In Panama, the equivalent of buck is "palo" (literally "stick").
In Ecuador, the dollar is referred to as "lata".
In Peru, a nickname for the U.S. dollar is "coco", which is a pet name for Jorge ("George" in Spanish), a reference to the portrait of George Washington on the $1 note.
Puerto Ricans, both living in Puerto Rico and in the United States, may refer to the dollar as "peso".
In some places in Mexico, prices in U.S. dollars are referred to as "en americano" ("in American"), with the word "peso" used in Mexico primarily to refer to the Mexican peso.
Cubans call the U.S. dollar "fula". Loosely translated from Cuban jargon mean bad or not good. American money was not bad to have or use by Cubans in the island, but its possession was penalized before the mid-1990s, hence the nickname. Cuban Americans many times call it "pesos'.
The symbol $, usually written before the numerical amount, is used for the U.S. dollar (as well as for many other currencies). The sign was the result of a late 18th-century evolution of the scribal abbreviation "ps" for the peso. The p and the s eventually came to be written over each other giving rise to $.[25][26][27][28]
Another popular explanation is that it comes from the Pillars of Hercules on the Spanish Coat of arms on the Spanish dollars that were minted in the New World mints in Mexico City, Potosí, Bolivia, and in Lima, Peru. These Pillars of Hercules on the silver Spanish dollar coins take the form of two vertical bars (||) and a swinging cloth band in the shape of an "S".
Yet another fictional explanation suggests that the dollar sign was formed from the capital letters U and S written or printed one on top of the other. This theory, popularized by novelist Ayn Rand in Atlas Shrugged,[29] does not consider the fact that the symbol was already in use before the formation of the United States.[30]
The first dollar coins issued by the United States Mint (founded 1792) were similar in size and composition to the Spanish dollar. The Spanish, U.S. silver dollars, and Mexican silver pesos circulated side by side in the United States, and the Spanish dollar and Mexican peso remained legal tender until 1857. The coinage of various English colonies also circulated. The lion dollar was popular in the Dutch New Netherland Colony (New York), but the lion dollar also circulated throughout the English colonies during the 17th century and early 18th century. Examples circulating in the colonies were usually worn so that the design was not fully distinguishable, thus they were sometimes referred to as "dog dollars".[31]
The U.S. dollar was created by the Constitution and defined by the Coinage Act of 1792. It specified a "dollar" to be based in the Mexican peso at 1 dollar per peso and 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). The choice of the value 371 grains arose from Alexander Hamilton's decision to base the new American unit on the average weight of a selection of worn Spanish dollars (and later Mexican peso). Hamilton got the treasury to weigh a sample of Spanish dollars and the average weight came out to be 371 grains. A new Spanish dollar was usually about 377 grains in weight, and so the new U.S. dollar was at a slight discount in relation to the Spanish dollar. The gold equivalent of the Spanish dollar in sterling was ₤1 = $4.80, whereas the gold equivalent of the U.S. dollar was ₤1 = 4.86⅔. This exchange rate with sterling remained right up until Britain abandoned the gold standard in 1931.
The Coinage Act of 1792 set the value of an eagle at 10 dollars, and the dollar at 1/10 eagle. It called for 90% silver alloy coins in denominations of 1, 1/2, 1/4, 1/10, and 1/20 dollars; it called for 90% gold alloy coins in denominations of 1, 1/2, 1/4, and 1/10 eagles.
The value of gold or silver contained in the dollar was then converted into relative value in the economy for the buying and selling of goods. This allowed the value of things to remain fairly constant over time, except for the influx and outflux of gold and silver in the nation's economy.
The early currency of the USA did not exhibit faces of presidents, as is the custom now. In fact, George Washington was against having his face on the currency, a practice he compared to the policies of European monarchs. The currency as we know it today did not get the faces they currently have until after the early 20th century; before that "heads" side of coinage used profile faces and striding, seated, and standing figures from Greek and Roman mythology and composite native Americans. The last coins to be converted to profiles of historic Americans were the dime (1946) and the Dollar (1971).
For articles on the currencies of the colonies and states, see Connecticut pound, Delaware pound, Georgia pound, Maryland pound, Massachusetts pound, New Hampshire pound, New Jersey pound, New York pound, North Carolina pound, Pennsylvania pound, Rhode Island pound, South Carolina pound and Virginia pound.
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 |
|---|---|
| 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.
From 1792, when the Mint Act was passed, the dollar was defined as 371.25 grains (24.056 g) of silver. Many historians erroneously assume gold was standardized at a fixed rate in parity with silver; however, there is no evidence of Congress making this law. This has to do with Alexander Hamilton's suggestion to Congress of a fixed 15:1 ratio of silver to gold, respectively. The gold coins that were minted however, were not given any denomination whatsoever and traded for a market value relative to the Congressional standard of the silver dollar. 1834 saw a shift in the gold standard to 23.2 grains (1.50 g), followed by a slight adjustment to 23.22 grains (1.505 g) in 1837 (16:1 ratio).
In 1862, paper money was issued without the backing of precious metals, due to the Civil War. Silver and gold coins continued to be issued and in 1878 the link between paper money and coins was reinstated. This disconnection from gold and silver backing also occurred during the War of 1812. The use of paper money not backed by precious metals had also occurred under the Articles of Confederation from 1777 to 1788. With no solid backing and being easily counterfeited, the continentals quickly lost their value, giving rise to the phrase "not worth a continental". This was a primary reason for the "No state shall... make any thing but gold and silver coin a tender in payment of debts" clause in article 1, section 10 of the United States Constitution.
The Gold Standard Act of 1900 abandoned the bimetallic standard and defined the dollar as 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 1970.
Gold coins were confiscated by Executive Order 6102 issued in 1933 by Franklin Roosevelt. 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 August 15, 1971 saw the U.S. dollar freely float on currency markets.
According to the Bureau of Engraving and Printing, 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.
Official United States coins have been produced every year from 1792 to the present.
Collector coins for which everyday transactions are non-existent.[32]
Technically, all these coins are still legal tender at face value, though some are far more valuable today for their numismatic value, and for gold and silver coins, their precious metal value. From 1965 to 1970 the Kennedy half dollar was the only circulating coin with any silver content though the Mint still makes what it calls Silver Proof sets for collectors.
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.
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 U.S. coin that was not round as well as the largest and heaviest U.S. coin ever.
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.
The United States Mint produces Proof Sets specifically for collectors and speculators. Silver Proofs tend to be the standard designs but with the dime, quarter, half dollar, and in some cases the dollar having silver content. Another type of proof set is the Presidential Dollar Proof Set where four special $1 coins are minted each featuring a president.
The first United States dollar was minted in 1794. Known as the Flowing Hair Dollar, it contained 416 grains of "standard silver" (89.25% silver and 10.75% copper), as specified by Section 13 [33] of the Coinage Act of 1792. It was designated by Section 9 of that Act as having "the value of a Spanish milled dollar".
Dollar coins have not been very popular in the United States.[34] 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 19th century. The Susan B. Anthony dollar coin was introduced in 1979; these proved to be unpopular because they were often mistaken for quarters, due to their nearly equal size, their milled edge, and their similar color. Minting of these dollars for circulation was suspended in 1980 (collectors' pieces were struck in 1981), but, as with all past U.S. coins, they remain legal tender. As the number of Anthony dollars held by the Federal Reserve and dispensed primarily to make change in postal and transit vending machines had been virtually exhausted, additional Anthony dollars were struck in 1999. In 2000, a new $1 coin, featuring Sacagawea, (the Sacagawea dollar) was introduced, which corrected some of the mistakes of the Anthony dollar by having a smooth edge and a gold color, without requiring changes to vending machines that accept the Anthony dollar. However, this new coin has failed to achieve the popularity of the still-existing $1 bill and is rarely used in daily transactions. The failure to simultaneously withdraw the dollar bill and weak publicity efforts have been cited by coin proponents as primary reasons for the failure of the dollar coin to gain popular support.[35]
In February 2007, the U.S. Mint, under the Presidential $1 Coin Act of 2005,[36] introduced a new $1 U.S. Presidential dollar coin. Based on the success of the "50 State Quarters" series, the new coin features a sequence of presidents in order of their inaugurations, starting with George Washington, on the obverse side. The reverse side features the Statue of Liberty. To allow for larger, more detailed portraits, the traditional inscriptions of "E Pluribus Unum," "In God We Trust," the year of minting or issuance, and the mint mark will be inscribed on the edge of the coin instead of the face. This feature, similar to the edge inscriptions seen on the British £1 coin, is not usually associated with U.S. 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 U.S. coins, this will be the first time there will be circulating U.S. coins of different denominations with the same President featured on the obverse (heads) side. (Lincoln/penny, Jefferson/nickel, Franklin D. Roosevelt/dime, Washington/quarter and Kennedy/half dollar/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 U.S. President to be elected to two non-consecutive terms.[37]
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.[38] 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.
Most U.S. coins bear a mint mark as part of the design, usually found on the front of the coin near the date although in the past it was more commonly found on the reverse. The Philadelphia Mint issues coins bearing a letter P (or no mark at all), while the Denver Mint uses a letter D. The San Francisco Mint uses an S, though no coins have been released from that mint for general circulation since 1980. It does, however, continue to strike proof coins for collectors. The West Point Mint uses a W, though this is rarely seen as the West Point mint generally only makes high denomination coins (with face values over $1.00) which are not meant for everyday use. A CC mark, for the Carson City Mint, was used from 1870 to 1893, but the mint at that location was only a temporary establishment. The New Orleans Mint used a mint mark O. It operated from 1838 until Louisiana seceded from the Union in 1861, and again from 1879 to 1909. The letter D was also used for coinage of the Dahlonega Mint from 1837 to 1861, and C was used for the Charlotte Mint during the same timespan. The latter two mints struck gold coins only.
The U.S. Constitution provides that Congress shall have the power to "borrow money on the credit of the United States".[39] Congress has exercised that power by authorizing Federal Reserve Banks to issue Federal Reserve Notes. Those notes are "obligations of the United States" and "shall be redeemed in lawful money on demand at the Treasury Department of the United States, in the city of Washington, District of Columbia, or at any Federal Reserve bank."[40] Federal Reserve Notes are designated by law as "legal tender" for the payment of debts.[41] Congress has also authorized the issuance of more than 10 other types of banknotes, including the United States Note[42] and the Federal Reserve Bank Note. The Federal Reserve Note is the only type that remains in circulation since the 1970s.
Currently printed denominations are $1, $2, $5, $10, $20, $50, and $100. Notes above the $100 denomination stopped 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. These notes are now collector's items and are worth more than their face value to collectors.
Though still predominantly green, post-2004 series incorporate other colors to better distinguish different denominations. As a result of a 2008 decision in an accessibility lawsuit filed by the American Council of the Blind, the Bureau of Engraving and Printing is planning to implement a raised tactile feature in the next redesign of each note, except the $1 and the version of the $100 bill already in process. It also plans larger, higher-contrast numerals, more color differences, and distribution of currency readers to assist the visually impaired during the transition period.[43]
Currently, the US government maintains over 800 billion US dollars in cash money (primarily Federal Reserve Notes) in circulation.[44][45] The amount of cash in circulation is increased (or decreased) by the actions of the Federal Reserve System. Eight times a year, the 12-person Federal Open Market Committee meet to determine US monetary policy.[46] Every business day, the Federal Reserve System engages in Open market operations to carry out that monetary policy.[47] If the Federal Reserve desires to increase the money supply, it will buy securities (such as US Treasury Bonds) anonymously from banks in exchange for dollars. Conversely, it will sell securities to the banks in exchange for dollars, to take dollars out of circulation.[48]
When the Federal Reserve makes a purchase, it credits the seller's reserve account (with the Federal Reserve). This money is not transferred from any existing funds – it is at this point that the Federal Reserve has created new high-powered money. Commercial banks can freely withdraw in cash any excess reserves from their reserve account at the Federal Reserve. To fulfill those requests, the Federal Reserve places an order for printed money from the US Treasury Department.[49] The Treasury Department in turn sends these requests to the Bureau of Engraving and Printing (to print new dollar bills) and the Bureau of the Mint (to stamp the coins).
Usually, the short term goal of open market operations is to achieve a specific short term interest rate target. In other instances, monetary policy might instead entail the targeting of a specific exchange rate relative to some foreign currency or else relative to gold. For example, in the case of the USA the Federal Reserve targets the federal funds rate, the rate at which member banks lend to one another overnight. The other primary means of conducting monetary policy include: (i) Discount window lending (as lender of last resort); (ii) Fractional deposit lending (changes in the reserve requirement); (iii) Moral suasion (cajoling certain market players to achieve specified outcomes); (iv) "Open mouth operations" (talking monetary policy with the market).
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The 5th paragraph of Section 8 of Article 1 of the U.S. Constitution provides that the U.S. Congress shall have the power to "coin money" and to "regulate the value" of domestic and foreign coins. Congress exercised those powers when it enacted the Coinage Act of 1792. That Act provided for the minting of the first U.S. dollar and it declared that the U.S. dollar shall have "the value of a Spanish milled dollar as the same is now current".[50]
The table to the right shows the equivalent amount of goods that, in a particular year, could be purchased with $1. The table shows that from 1774 through 2009 the U.S. dollar has lost about 96.4% of its buying power.[51]
The decline in the value of the U.S. dollar corresponds to price inflation, which is a rise in the general level of prices of goods and services in an economy over a period of time.[52] A consumer price index (CPI) is a measure estimating the average price of consumer goods and services purchased by households. The United States Consumer Price Index, published by the Bureau of Labor Statistics, is a measure estimating the average price of consumer goods and services in the United States.[53] It reflects inflation as experienced by consumers in their day-to-day living expenses.[54] A graph showing the U.S. CPI relative to 1982-1984 and the annual year-over-year change in CPI is shown at right.
The value of the U.S. dollar declined significantly during wartime, especially during the American Civil War, World War I, and World War II.[55] The Federal Reserve, which was established in 1913, was designed to furnish an "elastic" currency subject to "substantial changes of quantity over short periods," which differed significantly from previous forms of high-powered money such as gold, national bank notes, and silver coins.[56] Over the very long run, the prior gold standard kept prices stable - for instance, the price level and the value of the U.S. dollar in 1914 was not very different from the price level in the 1880s. The Federal Reserve initially succeeded in maintaining the value of the U.S. dollar and price stability, reversing the inflation caused by the First World War and stabilizing the value of the dollar during the 1920s, before presiding over a 30% deflation in U.S. prices in the 1930s.[57]
Under the Bretton Woods system established after World War II, the value of the U.S. dollar was fixed to $35 per ounce, and the value of the U.S. dollar was thus anchored to the value of gold. Rising government spending in the 1960s, however, led to doubts about the ability of the United States to maintain this convertibility, gold stocks dwindled as banks and international investors began to convert dollars to gold, and as a result the value of the dollar began to decline. Facing an emerging currency crisis and the imminent danger that the United States would no longer be able to redeem dollars for gold, gold convertibility was finally terminated in 1971 by President Nixon, resulting in the "Nixon shock."[58]
The value of the U.S. dollar was therefore no longer anchored to gold, and it fell upon the Federal Reserve to maintain the value of the U.S. currency. The Federal Reserve, however, continued to increase the money supply, resulting in stagflation and a rapidly declining value of the U.S. dollar in the 1970s. This was largely due to the prevailing economic view at the time that inflation and real economic growth were linked (the Phillips curve), and so inflation was regarded as relatively benign.[58] Between 1965 and 1981, the U.S. dollar lost two thirds of its value.[51]
In 1979, President Carter appointed Paul Volcker Chairman of the Federal Reserve. The Federal Reserve tightened the money supply and inflation was substantially lower in the 1980s, and hence the value of the U.S. dollar stabilized.[58]
Over the thirty-year period from 1981 to 2009, the U.S. dollar lost over half its value.[51] This is because the Federal Reserve has targeted not zero inflation, but a low, stable rate of inflation - between 1987 and 1997, the rate of inflation was approximately 3.5%, and between 1997 and 2007 it was approximately 2%. The so-called "Great Moderation" of economic conditions since the 1970s is credited to monetary policy targeting price stability.[58]
There is ongoing debate about whether central banks should target zero inflation (which would mean a constant value for the U.S. dollar over time) or low, stable inflation (which would mean a continuously but slowly declining value of the dollar over time, as is the case now). Although some economists are in favor of a zero inflation policy and therefore a constant value for the U.S. dollar,[57] others contend that such a policy limits the ability of the central bank to control interest rates and stimulate the economy when needed.[59]
Contrary to some urban legends, there is not now, nor has there ever been, any skins of animals contained in US monies. The term frog skin, in reference to the bill, is in regards to the coloration of the bill's back.
| 1970* | 1980* | 1985* | 1990* | 1993 | 1999 | 2000 | 2001 | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Euro | - | - | - | 0.8343 | 0.8551 | 0.9387 | 1.0832 | 1.1171 | 1.0578 | 0.8833 | 0.8040 | 0.8033 | 0.7960 | 0.7293 | 0.6791 | 0.7176 | 0.6739 |
| Japanese yen | 357.6 | 240.45 | 250.35 | 146.25 | 111.08 | 113.73 | 107.80 | 121.57 | 125.22 | 115.94 | 108.15 | 110.11 | 116.31 | 117.76 | 103.39 | 93.68 | 87.78 |
| Pound sterling | 0.4164 | 0.4484[61] | 0.8613[61] | 0.6207 | 0.6660 | 0.6184 | 0.6598 | 0.6946 | 0.6656 | 0.6117 | 0.5456 | 0.5493 | 0.5425 | 0.4995 | 0.5392 | 0.6385 | 0.4548 |
| Canadian dollar | 1.081 | 1.168 | 1.321 | 1.1605 | 1.2902 | 1.4858 | 1.4855 | 1.5487 | 1.5704 | 1.4008 | 1.3017 | 1.2115 | 1.1340 | 1.0734 | 1.0660 | 1.1412 | 1.0298 |
| Mexican peso | - | 2.801 | 2.671 | 2.501 | 3.1237 | 9.553 | 9.459 | 9.337 | 9.663 | 10.793 | 11.290 | 10.894 | 10.906 | 10.928 | 11.143 | 13.498 | 12.623 |
| Renminbi yuan | - | 1.7050 | 2.9366 | 4.7832 | 5.7620 | 8.2783 | 8.2784 | 8.2770 | 8.2771 | 8.2772 | 8.2768 | 8.1936 | 7.9723 | 7.6058 | 6.9477 | 6.8307 | 6.7696 |
| Singapore dollar | - | - | 2.179 | 1.903 | 1.6158 | 1.6951 | 1.7361 | 1.7930 | 1.7908 | 1.7429 | 1.6902 | 1.6639 | 1.5882 | 1.5065 | 1.4140 | 1.4543 | 1.24586 |
| South African Rand | 0.7182 | 0.7780 | 2.2343[62] | 2.5600 | 3.2729 | 6.1191 | 6.9468 | 8.6093 | 10.5176 | 7.5550 | 6.4402 | 6.3606 | 6.7668 | 7.0477 | 8.2480 | 8.4117 | 11.73161 |
| Source: Last 4 years 2005-2002 2003-2100 1996-1999 1993-1996 1990 1970-1992 1970-1985 Canada, China, Mexico 1. Mexican peso values prior to 1993 revaluation. |
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