Dollar (U.S.)

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The United States dollar is the official currency of the United States. It is also widely used as a reserve currency outside of the United States. It is a form of fiat money.

Contents

Bimetallism

The dollar grew out of the need for a single currency to unite the colonies. The creation of the dollar was authorized by the Continental Congress as a currency backed by both gold and silver. The fluctuations in the prices of gold and silver led to the decrease in the amount of metal exchangeable.

Inflation was an issue during the Civil War, notably in the Confederacy. For this reason, privately-minted currency (today referred to as "civil war tokens") was used. Following the Civil War, private currencies failed, state-specific currencies were taxed out of existence, and the US dollar became the medium exchange for the United States. After the Civil War, the United States experienced an extreme deflationary period, ending after the Presidential campaign of 1896.

Eventually, the discovery of large silver deposits in the western United States caused the price of silver to drop. Farming interests and borrowers wanted to continue the silver system which would build in inflation, allowing the easier payment of debts. Banking interests advocated switching to the Gold Standard, which could allow for some inflation by changing the gold to dollar ratio, but would make for a more stable dollar. This led to the populist "Cross of Gold" speech by William Jennings Bryan.

Gold standard

During most of the twentieth century, the US dollar was backed by gold and silver. This was true even after the creation of the Federal Reserve System in 1913, when gold was fixed at $20/ounce. During this time, there were several circulating forms of paper currency, including Federal Reserve Notes, Silver Certificates, Gold Certificates, and United States Notes (which were issued directly by the Treasury and exchangeable for any of these). The Treasury seal on each type of bill was stamped with a different color (Green, Blue, Gold, and Red, respectively).

During the Great Depression, Franklin Delano Roosevelt issued an executive order (like a financial eminent domain "theft") which forced all Americans to exchange their gold for $35/ounce in fiat currency. This began the Bretton Woods system in which ownership of most forms of gold were illegal, as it was needed to back the currency.

Pre-1965 Silver

During the 1960s, the demand for silver (and its price) rose due to the dawn of electronics. Quarters and dimes (then made from 90% silver - now called "Junk silver", "Constitutional silver" or "pre-1965 silver coins") were issued with a new "clad" composition in 1965, and Silver Certificates were redeemed by holders and no longer circulated. The half dollar was given a 40% "silver-clad" composition until it also became clad in 1971.[1]

Richard Nixon ends the Gold Standard

In the early 1970s, the trade deficit and inflation in the United States caused a bank run on the gold reserves used to back the United States dollar. To combat this, President Richard Nixon removed the Bretton Woods System in 1971. This resulted in the value of the dollar being set via trading in the foreign exchange (FOREX) market, the removal of restrictions on gold ownership, and the price of gold in the US being set by the free market.

The US Treasury stopped issuing United States Notes in 1971[2], leaving only the "green seal" Federal Reserve Notes in production and circulation.

Fiat Currency

Since the dollar is not backed by a commodity, it is considered a "fiat currency" (or "soft money"). Metal-backed currency is also called "hard money" (or "sound money" by supporters of its re-institution)


The Dollar Bill

The current dollar bill designs are as follows:


$500, $1000, $5000, and $10,000 bills were formerly (and rarely) printed, though credit cards and checking accounts eventually made them obsolete. A $100,000 gold certificate also was printed, but it was only for circulation within the banking system and not for use by the public.[3]

The $2 bill is rarely used in circulation, although most large banks have them for customers who request them.

Dollar Coins

Historically, 90% silver Morgan Dollars (1878-1921) and Peace Dollars (1921-1935) circulated[4] and were redeemable with Silver Certificates.

Since then, the United States Mint has produced dollar coins for circulation featuring:[5]:


The Susan B. Anthony dollar, which was smaller than its predecessors, did not gain acceptance due to its similarity to the quarter. Sacajawea and Presidential coins were brass-colored in an attempt to address this issue. However, none of these have gained widespread acceptance. This may be due to the inconvenient nature of carrying coins in one's pocket.

See also

References

  1. http://www.coinflation.com/
  2. http://www.treas.gov/education/faq/currency/legal-tender.shtml
  3. http://www.moneyfactory.gov/uscurrency/largedenominations.html
  4. http://www.coinflation.com/
  5. http://www.usmint.gov/mint_programs/circulatingCoins/index.cfm?action=CircDollar

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