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United States Dollar (USD)

The national currency of the U.S.

What is the United States Dollar (USD)?

The United States Dollar refers to the national currency of the U.S and is represented by the ISO code USD and is often abbreviated as US$. It is considered a standard currency and is the most widely used currency in international transactions. Additionally, USD is used as the main currency in many regions other than the U.S. However, many others use it along with their national currency as an alternate and unofficial currency.

 

United States Dollar (USD)

 

The U.S. Federal Reserve is responsible for ensuring that enough money is in circulation in the country. It is commissioned by the U.S. Treasury Department of Engraving and Printing for the printing of bills. It also authorizes its Mint Department to make coins available.

 

Summary

  • The United States Dollar refers to the national currency of the U.S. and is represented by the ISO code USD.
  • The U.S. Federal Reserve is accountable for ensuring that enough money is in circulation.
  • The U.S. dollar was first established as a currency of the world in the Bretton Woods Agreement of 1944.

 

History of the United States Dollar

The United States dollar coin was originally based on the worth and appearance of the eight-dollar coin or the Spanish dollar, commonly used in Spanish America between the 16th and 19th centuries. The United States Mint, established in 1792, issued the first dollar coins. The coins were similar in scale and composition to the Spanish dollar minted in Peru and Mexico.

The Spanish coins, the Mexican pesos, and U.S. coins traded at the same time in the United States. After the Coinage Act of 1857, both the Spanish dollar and the Mexican peso were removed from circulation as legal currency in the U.S. The coinage of numerous British colonies was also circulated.

The first United States dollar notes were published as demand notes to fund the Civil War of 1861. The notes were known as greenbacks because of their green color. The legal tender, called the United States Notes, was first published in 1862, and a standardized system for printing the notes was first developed in 1869.

The U.S. dollar was first established as a currency of the world in the Bretton Woods Agreement of 1944, becoming the most dominant currency in the world afterward. It was originally traded as a coin valued by its weight in gold or silver and later traded as a paper note, which was redeemable in gold. In the 1970s, the gold standard was removed, and the value of USD was permitted to float.

The U.S. Constitution accords the U.S. Congress the right to borrow money in the United States. Congress exerted its authority by allowing the Federal Reserve banks to circulate paper notes. The notes are U.S. commitments and can be exchanged in legal money on demand from the U.S. Treasury Department, in Washington City, Columbia District, or from other Federal Reserve banks.

 

Current United States Dollar Notes

The currencies currently printed are $1, $2, $5, $10, $20, $50, and $100. In 1946, the printing of notes higher than $100 was stopped, and their circulation was formally stopped in 1969. Then-President Richard Nixon introduced legislation to stop the printing of the large denominations, following their increasing usage by criminal organizations and the growing popularity of electronic banking.

While still primarily green, the post-2004 series integrates other colors to help differentiate various denominations. In 2008, the Bureau of Engraving and Printing planned to add the improved tactile feature in the subsequent redesigning of each dollar, with the exception of $1 and the new edition of the $100 bill. It also planned larger, higher-contrast numerals, more color variations, and the provision of currency readers to support visually disabled citizens.

The United States issues a variety of denominations, with the most common denominations are 1 cent, 5 cents, 10 cents, 25 cents, 50 cents, and $1. The U.S. Mint manufactures and distributes coins to pay for products and services. It also issues collectible and remembrance coins for auction. The coins are used to honor an individual, event, or place.

The volume of money in circulation is enhanced (or lowered) by the activities of the Federal Reserve System. The 12-person Federal Open Market Committee (FOMC) meets eight times a year to evaluate U.S. monetary policy. The Federal Reserve System invests in open-market activities each business day to execute the monetary policy.

If the Federal Reserve needs to boost its money supply, it will acquire securities, unidentified, from banks in return for dollars. Contrarily, for getting dollars out of circulation, it would sell securities to the banks.

 

Additional Resources

CFI is the official provider of the global Capital Markets & Securities Analyst (CMSA)™ certification program, designed to help anyone become a world-class financial analyst. To keep advancing your career, the additional resources below will be useful:

  • Australian Dollar (AUD)
  • Gold Standard
  • Monetary Policy
  • Swiss Franc (CHF)

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