United States dollar

The US dollar is the official currency of the United States and its overseas territories. It is a Federal Reserve Note, made up of 100 smaller cent units. After more than 200 years in circulation, the dollar remains the currency most used in international transactions and is the world's most prevailing reserve currency.

The first US dollar was issued on September 8, 1789, by the Continental Congress of the United States. However, the term dollar was already in common usage at the time and had been since the colonial period when it referred to an eight-real coin used by the Spanish throughout New Spain (Spanish dollar). Several monetary systems were suggested for the early republic, but the dollar was chosen by Congress and was formalized in the Coinage Act of 1792. It was then distributed in a variety of denominated coins and currency bills.

The US dollar banknotes are made from cotton fiber paper and are printed by the Bureau of Engraving and Printing. Since 1914, they have been issued by the Federal Reserve. Notes issued before 1928 were large—7.42 inches (in) (188 millimeters [mm]) by 3.125 in (79.4 mm). They were reduced to measure 6.14 in (156 mm) by 2.61 in (66 mm) the same year.

The US coins are still produced by the United States Mint in various denominations of cents (¢) and dollars ($). They are produced in 1¢, 5¢, 10¢, 25¢, 50¢, and $1 coins. Paper bills are issued in denominations of $1, $2, $5, $10, $20, $50, and $100 bills, though the $500, $1,000, $5,000, and $10,000 bills that were once produced remain valid currency.

Background

The currency of the United States goes back to 1690, when the region was still a group of British independent colonies. The Massachusetts Bay Colony used paper notes to finance military expeditions, and the other colonies soon followed.

When, in 1776, the thirteen original colonies won their independence from Great Britain, the new Union found itself in financial chaos. The War of Independence lasted longer and was more costly than anticipated. To pay its debts and keep the war going, Benjamin Franklin, one of the founding fathers of the new nation, issued paper bills known as Continentals, named after the Continental Congress, which had helped win the war against Britain and write the Declaration of Independence. By the end of the war, however, these Continentals were worthless, and a new currency was needed.

The choice was either to keep the British pound or continue with one used by most citizens at the time—the dollar. The new American dollar replaced the British pound as the official currency of the new United States when the Continental Congress met in New York on July 6, 1785.

The Coinage Act of 1792 created a decimal system for US currency; it also introduced the silver dollar as the unit of currency for the United States. The act called for denominations of 1, 1⁄2, 1⁄4, 1⁄10, and 1⁄20 in dollars with 90 percent silver alloy coins.

The gold and silver (and copper) values, referred to as the bimetallic standard, contained in the dollar maintained a relative value in the US economy and formed a basis for buying and selling goods and services. The gold backing provided a sense of permanency and allowed the value of things to remain fairly constant over time.

The ratios of the metals in the coins changed several times until the Gold Standard Act of 1900 defined the dollar as 23.22 grains (1.505 grams) of gold. This was equivalent to setting the price of 1 troy ounce of gold at $20.67. (A troy is a weight used primarily for precious metals and gems, equivalent to a pound of 12 ounces or 5,760 grains.) Silver remained in dimes and quarters until 1964 when they were removed entirely. The silver in the half dollar was reduced to 40 percent, and the coin was removed from circulation in 1970.

Gold coins were last minted in 1933; under President Roosevelt, the gold standard was changed to 13.71 grains (0.888 g). This was equivalent to setting the price of 1 troy ounce of gold to $35. This standard continued until 1968; it came to an end on August 15, 1971, when Richard Nixon removed all traces of gold and allowed the US dollar to float freely on currency markets.

Paper notes or "greenbacks" were introduced in 1861 to help finance the Civil War. The first real dollar note was created by the Federal Reserve Act of 1913, which introduced the concept of one central bank with a national banking system that could, in a sense, control the financial requirements of the country.

Since 1971, dollar notes have been the only form of printed money in the United States. With currency coins having no gold or silver backing, US dollars are to be backed by the "full faith and credit" of the US government.

Additional Data

The largest bill ever produced by the US Bureau of Engraving and Printing was printed between December 18, 1934, and January 9, 1935. It was worth $100,000 and had the portrait of President Woodrow Wilson on the front. These never circulated and were used mostly for transactions among Federal Reserve banks.

The $ symbol first showed up in print after 1800 and was found in manuscript documents of English Americans who did business with Spanish Americans. There are several theories as to its origin.

One of the most common explanations is that the sign reflects the Spanish peso. The standard abbreviation of the peso was a p, but the plural was a large P with a small s above and to the right of it. This was simplified by retaining only the upward stroke of the P and superimposing the S upon it, thus forming what looks like the dollar symbol.

Another theory also links it to the Spanish peso, which was subdivided into eight reals and was represented as P8 or /8/. Eventually, it became common to add oblique strokes across the figure 8, which became a letter S with two strokes since S looks like an 8 that has been split, as when people broke a peso to provide change in reals. Eventually, one of the strokes was dropped.

A popular explanation for the dollar sign is based on the initials of the United States. By superimposing a capital U on a capital S and dropping the lower part of the U, you end up with what looks like today’s dollar symbol.

One view has it that the sign derives from the abbreviation for the shilling, which was used in Great Britain for both a coin and a monetary unit until it was decimalized in 1971. The Brits used a stroke across a letter to indicate that the letter was abbreviated. Hence, a line through an s would look like a dollar sign.

Bibliography

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