U.S Dollar – Currency Overview

• ISO Code: USD
• Symbol: $ or US$
• Subunit: 1/100 Cent
• Inflation: 2.7%
• Nickname: Buck, Green, Greenback

Historical Overview

The U.S. dollar was created and defined as official currency by the Coinage Act of 1792. It specified that a "dollar" was to be between 371 and 416 grains of silver, depending on purity. An additional coin, the eagle, was minted in gold and was valued at $10 a coin but discontinued in the first half of the 20^th century and now only minted as commemoratives.

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The value of the gold or silver contained in the dollar equaled its buying and selling power in the economy. This monetary system allowed the cost of goods and services to remain constant except for the flow of gold and silver in and out of the nation's economy. And indeed, between 1635 and 1913, the monetary value of goods in the U.S managed to retain relative stability. According to Department of Treasury data, in those days the dollar had roughly 25 times the buying power of the dollar in 2006.

In the past, paper money was used to denominate fractions of the dollar (cents), while coins were used for large denominations, up to $100. It is widely believed that the original green color and design of the paper dollar was introduced by two immigrant Armenian brothers from Massachusetts. Since 1975, the currency is no longer attached to the gold or silver standard, which means that the dollar note is not a certificate representing the gold in the country's reserves, but rather has value because society has assigned it value. Since the installment of the Federal Reserve, the value of the dollar note has plummeted, and like all free floating currency, it is bound to eventually fail.

The U.S dollar, along with the dollar currencies of other countries, is colloquially nicknamed "buck", a term which may have originated in the colonial fur trade. Another popular nickname is "greenback" is referring specifically to the Demand Note dollars which Abraham Lincoln created in order to finance the Civil War for the North.

Current Global Status

Today the U.S dollar is the number one international reserve currency, by amounts of currency kept in reserves, followed by the euro in close second. Since the introduction of the Euro its standing has improved considerably and most of this improvement has come at the expense of the dollar. The dollar however is still by far the dominant international reserve currency, with an accumulated amount of more than double that of the euro.

The majority of U.S. notes are actually owned by persons and organizations outside the United States. All US dollar bank deposits held by non-residents of the US are called eurodollars, regardless of the bank's actual location which may be in the U.S. Economists hold that the large overseas demand for dollars allows the United States to maintain constant trade deficits without causing the value of the currency to drop thus readjusting the flow of trade. Some believe that in the future the pressure of these deficits will precipitate a run against the U.S. dollar with dire global financial consequences.

Against the Euro

The introduction of the euro as the cash currency of the European Union in 2002, began the dollar's steady depreciation. U.S. budget and trade deficits continued to rise, which aided the euro's consistent rising in value. By the end of 2004, the dollar was struggling to hold its own against all major currencies, and the euro had risen above $1.36 (€0.74/$). Since 2002, 2005 had been the only year in which the dollar managed to recover some ground from the euro, finishing 2005 with an increase against the euro, climbing to €0.83/$. In September 2007 however, the dollar fell to a new low below €0.70, due a reduction of the interest rate by the Federal Reserve.

March 4th 2008 saw the dollar burying to new depths against the euro after a series of unfavorable reports on the U.S. economy and expectations that the Fed will proceed to cut interest rates even further.

Some economists like Alan Greenspan suggest that the continued fall of the dollar is at least partially due to its diminishing role as the world's foremost reserve currency. Jim Rogers estimated that the dollar's value will continue to depreciate even further, especially against the Chinese yuan, seeing as Chinese officials showed intentions of diversifying the nation's $1.43 trillion reserve in response to the dollar's plummet.

Against the Pound Sterling

The dramatic rise of the pound against the euro in late 2006 had a secondary effect against other major currencies, and the pound reached a 15-year high against the US dollar in April 2007, rising above the $2 level for the first time since 1992. Thereafter the dollar continued to weaken against the pound, as well as many other world currencies, and the pound reached a 26-year high of $2.11610 in November 2007. Since the beginning of 2008, the pound has been in a general down trend, affording the Dollar a chance to correct the huge losses of 2007.

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