USD

United States Dollar from the United States of America. Also used in American Samoa, British Virgin Islands, Ecuador, Federated States of Micronesia, Guam, Marshall Islands, Northern Mariana Islands, Palau, Panama (with Balboa), Puerto Rico, Turks and Caicos Islands, United States Minor Outlying Islands, US Virgin Islands.

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. Currently, the issuance of currency is controlled by the Federal reserve Banking system. The most commonly used symbol for the U.S. dollar is the dollar sign ($). As at 1995, over $380 billion in U.S. currency was in circulation, two-thirds of it overseas.

The U.S. dollar is divided into 100 cents. 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. (Both one dollar coins and notes exist; although the note form is significantly more common.)

U.S. coins are produced by the United States Mint. U.S. dollar banknotes have been printed by the Federal reserve since 1914. They began as large-sized notes. In 1928, they switched to small-sized notes, for reasons that are to be explained.

notes above the $100 denomination ceased being printed in 1946. These notes were used primarily in inter-bank transactions. However, with the advent of electronic banking, they became useless. notes in denominations of $500, $1000, $5000, $10000, and $100000 were all produced at one time; see large denomination bills in U.S. currency for details.

The dollar was unanimously chosen as the money unit for the United States on July 6, 1785. This was the first time a nation had adopted a decimal currency system.

Until 1974 the value of the United States dollar was tied to and backed by either silver, gold, or a combination of the two. From 1792 to 1873 the U.S. dollar was freely backed by both gold and silver at a ratio of 15:1 under a system known as bimetallism. Through a series of legislative changes from 1873 to 1900, the status of silver was slowly diminished until 1900 when a gold standard was formally adopted. The gold standard survived, with several modifications, until 1971.

Under the post-World War II Bretton Woods Agreement, all other currencies were valued in terms of United States dollars, and were thus indirectly linked to the gold standard. The need for the U.S. government to maintain both a $35 per ounce market price of gold and also the conversion to foreign currencies caused economic and trade pressures. By the early 1960s, compensation for these pressures started to become too complicated to manage.

In March 1968, the effort to control the private market price of gold was abandoned. A two-tier system began. In this system all central bank transactions in gold were insulated from the free market price. Central banks would trade gold among themselves at $35 per ounce but would not trade with the private market. The private market could trade at the equilibrium market price and there would be no official intervention. The price immediately jumped to $43 per ounce. The price of gold touched briefly back at $35 near the end of 1969 before beginning a steady price increase. This gold price increase turned exponential through 1972 and hit a high in this year of over $70. By that time floating exchange rates had also begun to emerge which indicated the de facto dissolution of the Bretton Woods Agreement. The two-tier system was abandoned in November 1973. By then the price of gold had reached $100 per ounce.

In the early 1970s, inflation caused by rising prices for imported commodities, especially oil, and spending on the Vietnam War, which was not counteracted by cuts in other government expenditures, combined with a trade deficit created a situation in which the dollar was worth less than the gold used to back it.

In 1972, the United States reset the value to 38 dollars per troy ounce (122.17 cent/gram) of gold. Because other currencies were valued in terms of the United States dollar, this failed to resolve the disequilibrium between the United States dollar and other currencies. In 1975 the United States began to float the dollar with respect to both gold and other currencies. With this the US was, for the first time, on a fully fiat currency.

The sudden jump in the price of gold after central banks gave up on controlling it was a strong sign of a loss of confidence in the U.S. dollar. In the absence of a gold market valued US dollar, investors were choosing to continue to put their faith in actual gold. Consequently the price of gold rose from $35 in 1969 to almost $900 in 1980. Fearing the emergence of a specie gold-based economy separate from central banking, and with the corresponding threat of the collapse of the U.S. dollar, the U.S. government approved several changes to the trading on the COMEX. These changes resulted in a steep decline of the traded value of precious metals from the early 1980s onward.

As at May 2004, the U.S. reserve assets include $11,045,000,000 of gold stock, valued at $42.22 per fine troy ounce.