The United States dollar (sign: $; code: USD) was first coined in 1794. It was made of a silver alloy and it was designated by law as having "the value of a Spanish milled dollar". The current U.S. dollar was first coined in 2000 and it is made of a copper alloy. The U.S. dollar is normally abbreviated as the dollar sign, $, or as USD or US$ to distinguish it from other dollar-denominated currencies and from others that use the $ symbol. It is divided into 100 cents.
The U.S. dollar is the currency most used in international transactions.[9] Several countries use it as their official currency, and in many others it is the de facto currency.[10]
Overview
editThe word "dollars" is one of the words in the first paragraph of Section 9 of Article 1 of the Constitution of the United States of America. In that context, "dollars" is a reference to the Spanish milled dollar, a coin that had a value of eight Spanish monetary units, or reales.
The fifth paragraph of Section 8 of Article 1 of the U.S. Constitution provides that "Congress shall have the power to... coin money, regulate the value thereof, and of foreign coin". Congress exercised those powers by adopting the Coinage Act of 1792: "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". The first U.S. dollar was known as the Flowing Hair Dollar and it contained 416 grains of "standard silver" (89.25% silver and 10.75% copper).
In 1971 the United States began issuing Eisenhower dollars, which were made of a copper alloy. In 2000 the United States began issuing Sacagawea dollars, which are also made of a copper alloy. The Sacagawea dollar is being minted and issued in accordance with Section 5112(a)(1) of Title 31 of the United States Code.[11]
The original U.S. dollar was a commodity money. It was valuable because, like the average Spanish milled dollar, it contained 0.7737 troy ounce of silver. That amount of silver has a current market value of about $13.73 (0.7737 troy ounces x $17.75 per troy ounce). In contrast, the current U.S. dollar is fiat money. It has value because it is designated by law as a legal tender in the payment of debts. The market value of the copper and other metals in a current U.S. dollar is much less than the coin's face value of $1. The copper and other metals in it have a market value of only about $0.06 (six cents).[12]
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".[13] That provision of the Constitution is made specific by Section 331 of Title 31 of the United States Code.[14] 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).[15] The U.S. dollar may therefore be described as the unit of account of the United States.
The U.S. dollar bill uses the decimal system, consisting of 100 equal cents (symbol ¢). In another division, there are 1,000 mills or ten dimes to a dollar, or 4 quarters to a dollar. 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 (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. 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,"[16] 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).
Value
editThe 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".[18]
Purchasing power
editThe following chart shows that the value or purchasing power of the U.S. dollar cyclically increased and decreased until the enactment of the Federal Reserve Act in 1913. Since that time, the purchasing power of the U.S. dollar has diminished significantly. According to the Bureau of Labor Statistics Inflation Calculator,[19] "$1 in 1913 has the same buying power as $21.89 in 2010". In other words, the U.S. dollar has lost about 95% of its value since the establishment of the Federal Reserve System.
The following table shows the equivalent amount of goods that, in a particular year, could be purchased with $1.[21] The table shows that from 1774 through 2008 the U.S. dollar lost about 97% of its buying power, and that from 1980 through 2008 the U.S. dollar lost 62% of its buying power.
| Year | Equivalent buying power | Year | Equivalent buying power | Year | Equivalent buying power |
|---|---|---|---|---|---|
| 1774 | $10.53 | 1860 | $10.22 | 1950 | $3.42 |
| 1780 | $6.20 | 1870 | $6.51 | 1960 | $2.78 |
| 1790 | $9.30 | 1880 | $8.31 | 1970 | $2.12 |
| 1800 | $6.77 | 1890 | $9.34 | 1980 | $1.00 |
| 1810 | $6.91 | 1900 | $10.12 | 1990 | $0.63 |
| 1820 | $7.25 | 1910 | $8.94 | 2000 | $0.48 |
| 1830 | $9.21 | 1920 | $4.11 | 2007 | $0.40 |
| 1840 | $9.83 | 1930 | $4.93 | 2008 | $0.38 |
| 1850 | $10.88 | 1940 | $5.87 |
Monetary inflation
editThe supply of United States dollars, as measured by the Federal Reserve Bank of St. Louis "Adjusted Monetary Base",[22] increased by approximately 150% between January 1, 2008 and February 1, 2010. This increase in the money supply is an example of very rapid monetary inflation. Economists generally agree that excessive growth of the money supply can cause high rates of price inflation and hyperinflation.[23]
Price inflation
editPrice inflation is a rise in the general level of prices of goods and services in an economy over a period of time.[24] Economists view price inflation as a result or necessary outcome of monetary inflation.
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 is a measure estimating the average price of consumer goods and services in the United States. The following chart shows that the average price of consumer goods and services in the United States has been rising significantly since the 1970s.
References
edit- ^ US Dollar and Pakistani rupee are widely accepted.
- ^ Alongside Cambodian Riel
- ^ Alongside East Timor centavo coins
- ^ Alongside Ecuadorian centavo coins
- ^ Salvadoran colón is now used only by some banks in few electronic transactions.
- ^ Alongside Panamanian balboa coins
- ^ Alongside Zimbabwean dollar (suspended indefinitely from 12 April 2009), Euro, Pound Sterling, South African rand and Botswana pula. The US Dollar has been adopted as the official currency for all government transactions.
- ^ Alongside Bermudian dollar)
- ^ The Implementation of Monetary Policy - The Federal Reserve in the International Sphere
- ^ Benjamin J. Cohen, The Future of Money, Princeton University Press, 2006, ISBN 0-691-11666-0; cf. "the dollar is the de facto currency in Cambodia", Charles Agar, Frommer's Vietnam, 2006, ISBN 0-471-79816-9, p. 17
- ^ "Section 5112 of Title 31 of the United States Code". Retrieved 2010-03-16.
- ^ "Melt value of the current U.S. dollar". Retrieved 2010-04-18.
- ^ Paragraph 7 of Section 9 of Article 1 of the Constitution of the United States of America.
- ^ Section 331 of Title 31 of the United States Code.
- ^ 2009 Financial Report of the United States Government.
- ^ Mehl, B. Max. "United States $50.00 Gold Pieces, 1877", in Star Rare Coins Encyclopedia and Premium Catalogue (20th edition, 1921)
- ^ Paragraph 5 of Section 8 of Article 1 of the Constitution of the United States of America.
- ^ Section 9 of the Coinage Act of 1792.
- ^ Bureau of Labor Statistics Inflation Calculator.
- ^ Purchasing Power of Money in the United States from 1774 to 2007 from measuringworth.com
- ^ "Measuring Worth - Purchasing Power of Money in the United States from 1774 to 2007". Retrieved 2008-05-24.
- ^ St. Louis Adjusted Monetary Base.
- ^ Robert Barro and Vittorio Grilli (1994). European Macroeconomics, Ch. 8, p. 139, Fig. 8.1. Houndmills, Basingstoke [England]: Macmillan Press. ISBN 0333577647.
- ^ Oliver Blanchard (2000). Macroeconomics (2nd ed.), Englewood Cliffs, N.J: Prentice Hall, ISBN 013013306x Parameter error in {{ISBN}}: invalid character