US Dollar History

The US dollar (“USD”) was officially created by an act of the US Continental Congress in 1785. The “$” symbol is thought to be based on a similar design used by the Mexican Peso and the Spanish Coat of Arms, and it was hoped that it would compete with Spanish/Mexican currency, which was the leading currency at the time.

As with virtually all currencies predating the 20th century, the US dollar was valued based on gold. This allowed the dollar’s value to remain fairly constant. From the date of its inception until the creation of the US Federal Reserve in 1913, the value of the USD remained relatively strong. Thereafter, the value of the USD has declined to a level of approximately 4% of its peak purchasing value. Valuation of the USD based on gold ended in 1975, when the currency was floated freely on exchange markets.

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Current Status

Approximately two-thirds of US dollars are held outside of the United States. Because of the strength and relative stability of the US economy, the US dollar is the currency most used in international transactions and national currency reserves. In addition, various countries use USD as their official currency, while others use it as a de facto currency. However, the dominance of USD for international transactions is being challenged by the Euro. The Euro has roughly doubled in value since its low point against the USD in 2000. Some claim that the Euro will become the dominant global currency by 2015.

Future Outlook

Different schools of thought exist as to the future value of the USD and its place in international economics. The dollar faces tough times over the next few years, but may recover due to a fundamentally strong US economy. Some believe that the Euro will maintain or increase its value against the dollar; yet there are those who say that the long term stability of the Euro is in question due to severe economic differences between various Euro holding countries. Developing economies such as those in China and Russia have stayed healthy despite US and European downturns, yet these nations have not yet found the level of success of more stable economies, despite decades of trying.

Other Currencies:

The Yen
The Swiss Franc
The Euro
The Pound

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