United States dollar

• 1. Introduction

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  The United States dollar, symbol $ and currency code USD, is the official currency of the United States and of several other countries. Its founding law, passed in 1792, did something unusual for a new nation. It tied the new money to a coin minted abroad. Americans did not invent the word, the sign, or the weight of silver behind their dollar. They borrowed all three, then spent generations changing what a dollar actually promised. Where does the word dollar come from? What happened when the metal behind it was taken away? And how did one nation's currency end up in the vaults of central banks around the world? The answers start with a coin that was already circulating before the Mint opened.

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• 2. Names and Symbols

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  Count Hieronymus Schlick of Bohemia began minting silver coins in the 16th century and called them joachimstalers. The name honored Joachimstal, the valley where the silver was mined, and the valley itself carried the name of Saint Joachim. In German, thal or tal means valley, a cousin of the English word. The long coin name was soon clipped to taler, and that short word travelled far. Czech, Slovak and Slovenian have tolar. Danish and Swedish use daler, Polish says talar, Italian says tallero and Hungarian says tallér. Arabic took the word too, and English turned it into dollar.

  In the 17th century the Dutch were already counting money in silver dollars in what is now New York. They used German-Dutch reichsthalers and native Dutch leeuwendaalders, which means lion dollars. From the 18th century on, however, it was the Spanish American eight-real coin that became known exclusively as the dollar.

  Three explanations compete for the origin of the $ sign. One says it grew out of ps, the scribal shorthand for the Spanish peso, with the p and the s eventually written over each other. A second points to the Pillars of Hercules on the Spanish coat of arms. On the silver coin they appear as two vertical bars and a swinging cloth band shaped like an S. A third says the sign combines the capital letters U and S. Novelist Ayn Rand popularized that theory in Atlas Shrugged, but the symbol was already in use before the United States existed.

  The word buck dates to the 18th century and may come from the colonial leather trade or from a poker term. Greenback began as the name for the 19th-century Demand Notes, which were printed in black and green on the back. Abraham Lincoln created them to finance the North in the Civil War. Financial newspapers in Australia, New Zealand, South Africa and India still use the word. The portraits on most bills explain another nickname, dead presidents. A $100 bill is a Benjamin, after Benjamin Franklin, while a $10 bill can be a sawbuck or a Hamilton. A $20 bill is sometimes called a Jackson, and a multiple of $1,000 is a grand.

  Piastre was the original French word for the dollar, and it appears in the French text of the Louisiana Purchase. Cajun French speakers, New England French speakers and people in Haiti and other French Caribbean islands still use it. The quarter has its own nickname, two bits, which still echoes the pieces of eight from which the dollar descends.

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• 3. The Spanish Template

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  Spanish American silver was minted into coins in Mexico City, in Potosí in Bolivia, in Lima in Peru and in other mints. From the 16th to the 19th centuries these coins circulated across the Americas, Asia and Europe. Machine-milled production began in 1732, which raised the coin's reputation as a trade coin. That reputation made it the natural model for the new American money.

  Even after the Mint began striking its own coins, American dollars and cents were scarcer than Spanish American pesos and reales. Spanish, Mexican and American dollars therefore all stayed legal tender until the Coinage Act of 1857. Colonists knew the Spanish two-real quarter peso so well that the United States issued a 25-cent quarter dollar instead of a 20-cent coin.

  Alexander Hamilton fixed the silver content by having the Treasury assay a selection of worn Spanish dollars. The average came out at 371 grains of fine silver. He then applied the prevailing gold-silver ratio of 15 to calculate the gold standard. Rounding the result to 27.0 grains of 22-karat gold finalized it at 24.75 grains of fine gold.

  A Spanish dollar freshly minted after 1772 should in theory hold 377.1 grains of fine silver. Reliable assays of the time, however, found that the average coin in circulation held 370.95 grains. The new American silver dollar of 371.25 grains therefore compared favorably, and foreign payments accepted it at par with the Spanish coin. After 1803 the Mint had to stop making it, because it failed to stay in domestic circulation. Mexican independence in 1821 brought a peso whose silver content of 377.1 grains was firmly upheld. The United States later competed with it by issuing a heavier Trade dollar of 378.0 grains.

  The Coinage Act borrowed the dollar but not the Spanish habit of dividing it into eight reales. It prescribed decimal units: the mill, worth a thousandth of a dollar; the cent, a hundredth; the dime, a tenth; and the eagle, worth ten dollars. Only the cent is an everyday division today. The mill survives at the gas pump, where prices end in a ninth of a cent, as in $3.599 per gallon. Before the middle of the 20th century the mill was also familiar in sales taxes.

  Americans kept counting in bits for a long time, because before 1857 Mexican bits were more common than American cents. The habit survived in New York Stock Exchange quotations until 2001. In 1854, Treasury Secretary James Guthrie proposed gold coins of $100, $50 and $25, to be called a union, a half union and a quarter union. None was ever struck, and only patterns of the $50 half union exist.

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• 4. Revolution and Constitution

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  After the American Revolution, the Thirteen Colonies were free of British monetary rules, and each issued its own paper money to pay for military expenses. The Continental Congress added Continental Currency denominated in Spanish dollars. It depreciated so badly that the phrase "not worth a continental" became famous. Congress and the states did not coordinate, and the states kept issuing bills of credit. Neither level of government had the will or the means to retire the bills through taxes or bond sales. In the end silver dollars replaced the old paper at a rate of 1 silver dollar to 1000 continental dollars.

  That experience helped produce a clause in Article 1, Section 10 of the Constitution. It says that "No state shall... make anything but gold and silver coin a tender in payment of debts".

  On the 6th of July 1785, the Continental Congress resolved that the dollar would contain 375.64 grains of fine silver. On the 8th of August 1786 it continued that definition. The Constitution then handed the matter to Congress, which received the power "to coin money" and to "regulate the value" of domestic and foreign coins in Article I, Section 8.

  The word dollar itself appears in Article I, Section 9. There it means the Spanish milled dollar, the coin worth eight Spanish reales. That section requires a regular statement of receipts and expenditures of all public money, and those sums are now reported in dollars. For this reason the dollar can be called the unit of account of the United States. The Coinage Act made it explicit, declaring that "the money of account of the United States shall be expressed in dollars, or units".

  The law is now codified in Title 31 of the U.S. Code, Section 5112. It covers coins from one cent to 100 dollars. Its examples include the copper alloy Sacagawea dollar and, in contrast, the pure silver American Silver Eagle.

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• 5. Metal and Paper

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  For its first century the dollar stood on two metals at once, defined as either 371.25 grains of fine silver or 24.75 grains of fine gold. The Coinage Act of 1834 revised the gold figure to 23.2 grains, and a small adjustment in 1837 made it 23.22. The gold-silver ratio moved to about 16. The same 1834 act set the silver alloy at 412.5 grains and 90% fineness, which still held 371.25 grains of fine silver. The California Gold Rush then raised the price of silver, and silver coins disappeared from circulation. The Coinage Act of 1853 responded by cutting the standard for silver coins below $1 from 412.5 grains to 384 grains.

  Paper had already appeared during the War of 1812, when Congress authorized interest-bearing Treasury Notes that worked as money to a limited extent. In 1861 the Civil War brought Demand Notes, a $50 million loan that paid no interest but could be redeemed on demand for precious metals. By December 1861 the demand for redemption outstripped the Union government's supply of specie, and redemption was suspended. In February 1862 the Legal Tender Act of 1862 created United States Notes. They paid no interest and could not be redeemed on demand, but creditors had to accept them at face value, except for import tariffs and interest on public debts. Because gold and silver coins kept being issued, the new notes lost value through Gresham's law.

  In 1869 the Supreme Court ruled in Hepburn v. Griswold that Congress could not require creditors to accept United States Notes. It overturned that ruling the next year in the Legal Tender Cases. In 1875 the Specie Payment Resumption Act required the Treasury to redeem U.S. Notes for gold after the 1st of January 1879.

  The Coinage Act of 1873 suspended the minting of the standard silver dollar of 412.5 grains. It was the only fully legal tender coin that individuals could fill with their own bullion in unlimited quantities. The timing came just as the silver rush from the Comstock Lode began in the 1870s. The episode became known as the "Crime of '73".

  The Gold Standard Act of 1900 repealed the dollar's historic link to silver and defined it solely as 23.22 grains of fine gold, or $20.67 per troy ounce. In 1933 gold coins were confiscated under Executive Order 6102, issued under Franklin D. Roosevelt. The following year the standard became $35 per troy ounce, or 13.71 grains of gold per dollar.

  Rising government spending in the 1960s raised doubts that the United States could keep exchanging dollars for gold. Gold stocks dwindled as banks and international investors converted their dollars. A series of revisions to the gold peg began after 1968. They ended on the 15th of August 1971 with the Nixon Shock, when President Nixon suddenly ended convertibility. Since that day the dollar has floated freely on the foreign exchange markets.

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• 6. Faces and Pockets

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  Early American money carried no president's face. The newly formed government opposed putting leaders on its currency, a custom it compared to European monarchs. Today the law allows only a deceased person's portrait on United States currency. Before the early 20th century, the heads side of coins showed profile faces and striding, seated or standing figures from Greek and Roman mythology, including composite Native Americans. The last coins converted to portraits of historic Americans were the dime in 1946, the half dollar in 1948 and the dollar in 1971.

  Before 1928, American bills were large enough to earn the names horse blankets and saddle blankets. The small size introduced that year is identical to the Philippine peso banknotes issued under American administration after 1903, which had proven highly successful. Modern notes are printed by the Bureau of Engraving and Printing on cotton fiber paper, rather than the wood fiber used in common paper.

  Gold certificates ended in 1933, silver certificates in 1963 and United States Notes in 1971. That left the Federal Reserve Note as the only type of paper dollar still issued. Congress had authorized more than 10 other types of banknote over the years. Federal Reserve Notes are designated by law as legal tender for the payment of debts.

  Notes above $100 stopped being printed in 1946 and were officially withdrawn from circulation in 1969. They had been used mainly in transactions between banks or by organized crime. The latter use prompted President Richard Nixon to issue an executive order in 1969 halting their use. Notes of $500, $1,000, $5,000 and $10,000 were all produced at one time. A $100,000 bill was also produced, but only as a Series 1934 Gold Certificate. It never circulated publicly, and it is illegal to own.

  A 2008 decision in an accessibility lawsuit filed by the American Council of the Blind changed the plans for new designs. The Bureau of Engraving and Printing is planning a raised tactile feature in the next redesign of each note, except the $1 and the current $100. It also plans larger, higher-contrast numerals, more color differences, and currency readers to help visually impaired users during the transition. The post-2004 series is still predominantly green but adds other colors to tell denominations apart.

  The last gold coins for circulation were minted in 1933, the last 90% silver coins in 1964 and the last 40% silver half dollar in 1970. The one-dollar coin has never won popular circulation, mostly because the one-dollar bill stays popular, and it has not been produced for circulation since 2012. The nickel has kept the same 5 grams of 75% copper and 25% nickel since 1865, except for the silver-bearing Jefferson nickels of 1942-1945. In 2025 the Mint halted production of pennies for circulation. Pennies remain in circulation anyway, because only an act of Congress can eliminate a currency.

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• 7. The Dollar Abroad

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  From the 16th to the 19th centuries, the Spanish American silver dollar carried global trade between Europe, Asia and the Americas. Abundant silver supplies in Spanish America created what amounted to a global silver standard. The British pound sterling displaced that coin in the last quarter of the 19th century, as the international gold standard arrived.

  The 1920s brought the American dollar's first rise as a reserve currency. The United States had emerged from the First World War relatively unscathed, and it was a significant recipient of wartime gold inflows. The Bretton Woods Agreement of 1944 then made the dollar the world's primary reserve currency and the only post-war currency linked to gold. The same agreement founded the International Monetary Fund and the institutions of the World Bank Group. Together they built the infrastructure for international payments and access to global capital markets in dollars.

  Today the dollar shares the International Monetary Fund's special drawing rights basket with the euro, the pound sterling, the Japanese yen and the Chinese renminbi. Central banks worldwide hold huge dollar reserves and are significant buyers of U.S. treasury bills and notes. Foreign companies, entities and private individuals hold dollars in foreign deposit accounts called eurodollars. They sit outside the jurisdiction of the Federal Reserve System and have nothing to do with the euro. Private individuals also hold dollars outside the banking system, mostly as $100 bills, and 80% of that supply is held overseas.

  The Treasury Department exercises considerable oversight over the SWIFT financial transfers network. That gives it great sway over global financial transactions, including the ability to impose sanctions on foreign entities and individuals. Global commodity markets quote and settle mostly in dollars. The U.S. Dollar Index tracks the currency's strength against a basket of six foreign currencies.

  The United States can borrow trillions of dollars from global capital markets in its own currency, at minimal interest rates and with virtually zero default risk. Foreign governments and corporations that cannot raise money in their local currencies must issue debt in dollars. They face higher interest rates and greater risks of default. This advantage has often been described as the "exorbitant privilege" of the United States.

  Panama, Ecuador, El Salvador, the British Virgin Islands, the Turks and Caicos Islands and the Caribbean Netherlands use the dollar as their official currency. So do Palau, the Federated States of Micronesia, the Marshall Islands and Timor-Leste. Cambodia and Zimbabwe use it alongside other currencies. The Saudi riyal, the United Arab Emirates dirham and the Hong Kong dollar are among the currencies pegged to it. Argentina pegged its peso to the dollar at one to one from 1991 to 2002. Whether a strong dollar policy serves America and the wider world remains a frequent topic of debate.

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• 8. Buying Power and the Fed

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  The Panic of 1907 pushed Congress to found the Federal Reserve System in 1913 under the Federal Reserve Act. Its purpose was to furnish an elastic currency, one subject to "substantial changes of quantity over short periods", and to supervise the banking system. Its primary task today is to promote maximum employment, stable prices and moderate long-term interest rates. Stable prices and low unemployment together are often called the dual mandate. The Fed also promotes financial stability and acts as lender of last resort.

  The Federal Open Market Committee sets monetary policy. It is made up of the Federal Reserve Board of Governors and 5 of the 12 Federal Reserve Bank presidents. All twelve regional banks carry out its decisions. It has three levers: reserve requirements, open market operations in treasury bonds and other securities, and discount window lending to banks.

  When the Federal Reserve makes a purchase, it credits the seller's reserve account. That money is not transferred from any existing funds, so the Federal Reserve has created new high-powered money. If banks want physical cash, the Federal Reserve orders it from the Treasury Department. The Treasury passes the requests to the Bureau of Engraving and Printing for bills and to the Bureau of the Mint for coins. The adjusted monetary base grew from about $400 billion in 1994 to $800 billion in 2005, and to over $3 trillion in 2013.

  Between 1774 and 2012 the dollar lost about 97% of its buying power. The table of buying power shows a dollar worth $1.00 in 1775 and only about three cents by 2012. The decline corresponds to price inflation, and it was steepest in wartime, especially during the Civil War, the First World War and the Second World War. Under the gold standard, prices stayed stable over the very long run, so the price level in 1914 was not very different from the 1880s. The Federal Reserve initially reversed the inflation of the First World War and stabilized the 1920s. It then presided over a 30% deflation in prices in the 1930s.

  The 1970s brought stagflation, as the Federal Reserve continued to increase the money supply. Economists at the time held that inflation and real economic growth were linked, a view called the Phillips curve, so inflation seemed relatively benign. Between 1965 and 1981 the dollar lost two thirds of its value. In 1979 President Carter appointed Paul Volcker as chairman of the Federal Reserve. The Fed tightened the money supply, inflation fell substantially in the 1980s, and the dollar's value stabilized.

  From 1981 to 2009 the dollar still lost over half its value, because the Fed targets a low, stable rate of inflation rather than zero. Inflation ran at about 3.5% between 1987 and 1997 and about 2% between 1997 and 2007. Monetary policy aimed at price stability is credited for the "Great Moderation". Economists still argue over the target. Some favor zero inflation and a constant dollar, while others say that would limit a central bank's ability to cut interest rates and stimulate the economy when needed.

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