The monetary policy of the United States is conducted by the Federal Reserve System, which acts as the nation's central bank. As of February 10, 2021, physical currency in circulation amounted to US$2.10 trillion, $2.05 trillion of which is in Federal Reserve Notes (the remaining $50 billion is in the form of coins and older-style United States Notes).9 As of January 1, 2025, the Federal Reserve estimated that the total amount of currency in circulation was approximately US$2.37 trillion.10
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Dollars or Units—each to be of the value of a Spanish milled dollar as the same is now current, and to contain three hundred and seventy-one grains and four sixteenth parts of a grain of pure, or four hundred and sixteen grains of standard silver.
Unlike the Spanish milled dollar, the Continental Congress and the Coinage Act prescribed a decimal system of units to go with the unit dollar, as follows: the mill, or one-thousandth of a dollar; the cent, or one-hundredth of a dollar; and the disme or dime, or one-tenth of a dollar.
Unlike the Spanish milled dollar, the Continental Congress and the Coinage Act prescribed a decimal system of units to go with the unit dollar, as follows: the mill, or one-thousandth of a dollar; the cent, or one-hundredth of a dollar; and the disme or dime, or one-tenth of a dollar.
Unlike the Spanish milled dollar, the Continental Congress and the Coinage Act prescribed a decimal system of units to go with the unit dollar, as follows: the mill, or one-thousandth of a dollar; the cent, or one-hundredth of a dollar; and the disme or dime, or one-tenth of a dollar.
Unlike the Spanish milled dollar, the Continental Congress and the Coinage Act prescribed a decimal system of units to go with the unit dollar, as follows: the mill, or one-thousandth of a dollar; the cent, or one-hundredth of a dollar; and the disme or dime, or one-tenth of a dollar.
In 1854, Secretary of the Treasury James Guthrie proposed creating $100, $50, and $25 gold coins, to be referred to as a union, half union, and quarter union, respectively, thus implying a denomination of 1 Union = $100.
In the 16th century, Count Hieronymus Schlick of Bohemia began minting coins known as joachimstalers, named for Joachimstal, the valley in which the silver was mined.
Though the Dutch pioneered in modern-day New York in the 17th century the use and the counting of money in silver dollars in the form of German-Dutch reichsthalers and native Dutch leeuwendaalders ('lion dollars'), it was the ubiquitous Spanish American eight-real coin which became exclusively known as the dollar si…
The colloquialism buck(s) (much like the British quid for the pound sterling) is often used to refer to dollars of various nations, including the U.S. dollar.
Terms the article defines in bold, quoted in context.
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7,555 words · 121 references · revision 1384853547 · CC BY-SA 4.0
Article I, Section 9 of the Constitution provides that "a regular Statement and Account of the Receipts and Expenditures of all public Money shall be published from time to time",13 which is further specified by Section 331 of Title 31 of the U.S. Code.14 The sums of money reported in the "Statements" are currently expressed in U.S. dollars, thus the U.S. dollar may be described as the unit of account of the United States.15 "Dollar" is one of the first words of Section 9, in which the term refers to the Spanish milled dollar, or the coin worth eight Spanish reales.
Coinage Act
In 1792, the U.S. Congress passed the Coinage Act, of which Section 9 authorized the production of various coins, including:3
Dollars or Units—each to be of the value of a Spanish milled dollar as the same is now current, and to contain three hundred and seventy-one grains and four sixteenth parts of a grain of pure, or four hundred and sixteen grains of standard silver.
Section 20 of the Act designates the United States dollar as the unit of currency of the United States:3
[T]he money of account of the United States shall be expressed in dollars, or units...and that all accounts in the public offices and all proceedings in the courts of the United States shall be kept and had in conformity to this regulation.
Decimal units
Unlike the Spanish milled dollar, the Continental Congress and the Coinage Act prescribed a decimal system of units to go with the unit dollar, as follows: the mill, or one-thousandth of a dollar; the cent, or one-hundredth of a dollar; and the disme or dime, or one-tenth of a dollar.116 The current relevance of these units:
Only the cent (¢) is used as an everyday division of the dollar, with the ubiquitous exception of vehicle fuel pricing.
Dime is used solely as the name of the coin with the value of ten cents.
The mill (₥) is relatively unknown but before the middle of the 20th century was familiar in matters of sales taxes. It is ubiquitous in prices of gasoline and diesel fuels, which are usually in the form of $xx.xx9 per gallon (e.g., $3.599, commonly written as $3.59+9⁄10).1718
The Spanish peso, or dollar, was historically divided into eight reales (colloquially, bits) – hence pieces of eight. Americans also learned counting in non-decimal bits of 12+1⁄2 cents before 1857 when Mexican bits were more frequently encountered than American cents; in fact this practice survived in New York Stock Exchange quotations until 2001.1920
In 1854, Secretary of the TreasuryJames Guthrie proposed creating $100, $50, and $25 gold coins, to be referred to as a union, half union, and quarter union, respectively,21 thus implying a denomination of 1 Union = $100. However, no such coins were ever struck, and only patterns for the $50 half union exist.
When currently issued in circulating form, denominations less than or equal to a dollar are emitted as U.S. coins, while denominations greater than or equal to a dollar are emitted as Federal Reserve Notes, disregarding the following special cases:
Gold coins issued for circulation until the 1930s, up to the value of $20 (known as the double eagle)
In the 16th century, Count Hieronymus Schlick of Bohemia began minting coins known as joachimstalers, named for Joachimstal, the valley in which the silver was mined. In turn, the valley's name is titled after Saint Joachim, whereby thal or tal, a cognate of the English word dale, is German for 'valley.'22 The joachimstaler was later shortened to the German taler, a word that eventually found its way into many languages, including:22tolar (Czech, Slovak and Slovenian); daler (Danish and Swedish); talar (Polish); dalar and daler (Norwegian); daler or daalder (Dutch); talari (Ethiopian); tallér (); (); (); and ().
Though the Dutch pioneered in modern-day New York in the 17th century the use and the counting of money in silver dollars in the form of German-Dutch reichsthalers and native Dutch leeuwendaalders ('lion dollars'), it was the ubiquitous Spanish American eight-real coin which became exclusively known as the dollar since the 18th century.23
The colloquialismbuck(s) (much like the British quid for the pound sterling) is often used to refer to dollars of various nations, including the U.S. dollar. This term, dating to the 18th century, may have originated with the colonial leather trade, or it may also have originated from a poker term.24
Greenback is another nickname, originally applied specifically to the 19th-century Demand Note dollars, which were printed black and green on the backside, created by Abraham Lincoln to finance the North for the Civil War.25 It is still used to refer to the U.S. dollar (but not to the dollars of other countries). The term greenback is also used by the financial press in other countries, such as Australia,26New Zealand,27South Africa,28 and India.29
Other well-known names of the dollar as a whole in denominations include greenmail, green, and dead presidents, the latter of which referring to the deceased presidents pictured on most bills. Dollars in general have also been known as bones (e.g. "twenty bones" = $20). The newer designs, with portraits displayed in the main body of the obverse (rather than in cameo insets), upon paper color-coded by denomination, are sometimes referred to as bigface notes or Monopoly money.
Piastre was the original French word for the U.S. dollar, used for example in the French text of the Louisiana Purchase. Though the U.S. dollar is called dollar in Modern French, the term piastre is still used among the speakers of Cajun French and New England French, as well as speakers in Haiti and other French Caribbean islands.
Nicknames specific to denomination:
The quarter dollar coin is known as two bits, alluding the dollar's origins as the "piece of eight" (bits or reales).19
The symbol $, usually written before the numerical amount, is used for the U.S. dollar (as well as for many other currencies). The sign was perhaps the result of a late 18th-century evolution of the scribal abbreviationps for the peso, the common name for the Spanish dollars that were in wide circulation in the New World from the 16th to the 19th centuries. The p and the s eventually came to be written over each other giving rise to $.30313233
Another popular explanation is that it is derived from the Pillars of Hercules on the Spanish coat of arms of the Spanish dollar. These Pillars of Hercules on the silver Spanish dollar coins take the form of two vertical bars (||) and a swinging cloth band in the shape of an S.34
Yet another explanation suggests that the dollar sign was formed from the capital letters U and S written or printed one on top of the other. This theory, popularized by novelist Ayn Rand in Atlas Shrugged,35 does not consider the fact that the symbol was already in use before the formation of the United States.36
The U.S. dollar was introduced at par with the Spanish-American silver dollar (or Spanish peso, Spanish milled dollar, eight-real coin, piece-of-eight). The latter was produced from the rich silver mine output of Spanish America, was minted in Mexico City, Potosí (Bolivia), Lima (Peru), and elsewhere, and was in wide circulation throughout the Americas, Asia, and Europe from the 16th to the 19th centuries. The minting of machine-milled Spanish dollars since 1732 boosted its worldwide reputation as a trade coin and positioned it to be the model for the new currency of the United States.
Even after the United States Mint commenced issuing coins in 1792, locally minted dollars and cents were less abundant in circulation than Spanish Americanpesos and reales; hence Spanish, Mexican, and American dollars all remained legal tender in the United States until the Coinage Act of 1857. In particular, colonists' familiarity with the Spanish two-real quarter peso was the reason for issuing a quasi-decimal 25-cent quarter dollar coin rather than a 20-cent coin.
For the relationship between the Spanish dollar and the individual state colonial currencies, see Connecticut pound, , , , , , , , , , , , and .
The United States Mint has issued legal tender coins every year from 1792 to the present. From 1934 to the present, the only denominations produced for circulation have been the familiar penny, nickel, dime, quarter, half dollar, and dollar.
Worldwide use of the U.S. dollar: United States External adopters of the US dollar Currencies pegged to the US dollar Currencies pegged to the US dollar w/ narrow band Worldwide use of the euro: Eurozone External adopters of the euro Currencies pegged to the euro Currencies pegged to the euro w/ narrow band
Ascendancy
The primary currency used for global trade between Europe, Asia, and the Americas has historically been the Spanish-American , which created a global system from the 16th to 19th centuries, due to abundant silver supplies in . The U.S. dollar itself was derived from this coin. The Spanish dollar was later displaced by the British in the advent of the international in the last quarter of the 19th century.
aOnly dollars and cents are written in practice (e.g. "$0.50" or "50¢"), but the dime was defined as an independent subunit in the Coinage Act 1792.1 As a result, the coin's inscription reads "ONE DIME" and does not use cents.2
bMinted for collectors only since 2025, but still widely used.
3Coins denominated at $25, $50, and $100 have also been released as bullion or commemorative coins, which are not meant for circulation.
dAlso abbreviated US$ to distinguish it from other dollar-denominated currencies; referred to as the dollar, U.S. dollar, American dollar, or colloquially buck
eThe dollar is also technically divided into two other subunits: with ten dimes, and 1000 mills in each dollar. In practice, neither usually function as modern units of account (only dollars and cents do), and the mill is now only used in .
References
1Fitzpatrick, John C., ed. (1934). "Tuesday, August 8, 1786". Journals of the Continental Congress 1774–1789. XXXI: 1786: 503–505. Archived from the original on May 7, 2021. Retrieved December 5, 2019.
2"Dime". www.usmint.gov. Retrieved August 8, 2026.
6 (PDF). (PDF) from the original on April 27, 2017. Retrieved October 17, 2018.
Further reading
Prasad, Eswar S. (2014). The Dollar Trap: How the U.S. Dollar Tightened Its Grip on Global Finance. Princeton, NJ: Princeton University Press. ISBN 978-0-691-16112-9.
Amounts or multiples of $1,000 are sometimes called grand in colloquial speech, abbreviated in written form to G, K, or k (from kilo; e.g. $10k = $10,000). Likewise, a large or stack can also refer to a multiple of $1,000 (e.g. "fifty large" = $50,000).
Alexander Hamilton finalized the details of the 1792 Coinage Act and the establishment of the U.S. Mint.
On July 6, 1785, the Continental Congress resolved that the money unit of the United States, the dollar, would contain 375.64 grains of fine silver; on August 8, 1786, the Continental Congress continued that definition and further resolved that the money of account, corresponding with the division of coins, would proceed in a decimal ratio, with the sub-units being mills at 1⁄1000 of a dollar, cents at 1⁄100 of a dollar, and dimes at 1⁄10 of a dollar.1
After the adoption of the United States Constitution, the U.S. dollar was defined by the Coinage Act of 1792. It specified a "dollar" based on the Spanish milled dollar to contain 371+4⁄16 grains of fine silver, or 416.0 grains (26.96 g) of "standard silver" of fineness 371.25/416 = 89.24%; as well as an "eagle" to contain 247+4⁄8 grains of fine gold, or 270.0 grains (17.50 g) of 22 karat or 91.67% fine gold.37Alexander Hamilton arrived at these numbers based on a treasury assay of the average fine silver content of a selection of worn Spanish dollars, which came out to be 371 grains. Combined with the prevailing gold-silver ratio of 15, the standard for gold was calculated at 371/15 = 24.73 grains fine gold or 26.98 grains 22K gold. Rounding the latter to 27.0 grains finalized the dollar's standard to 24.75 grains of fine gold or 24.75 × 15 = 371.25 grains = 24.0566 grams = 0.7735 troy ounces of fine silver.
The same coinage act also set the value of an eagle at 10 dollars, and the dollar at 1⁄10 eagle. It called for silver coins in denominations of 1, 1⁄2, 1⁄4, 1⁄10, and 1⁄20 dollar, as well as gold coins in denominations of 1, 1⁄2 and 1⁄4 eagle. The value of gold or silver contained in the dollar was then converted into relative value in the economy for the buying and selling of goods. This allowed the value of things to remain fairly constant over time, except for the influx and outflux of gold and silver in the nation's economy.38
Though a Spanish dollar freshly minted after 1772 theoretically contained 417.7 grains of silver of fineness 130/144 (or 377.1 grains fine silver), reliable assays of the period in fact confirmed a fine silver content of 370.95 grains (24.037 g) for the average Spanish dollar in circulation.39 The new U.S. silver dollar of 371.25 grains (24.057 g) therefore compared favorably and was received at par with the Spanish dollar for foreign payments, and after 1803 the United States Mint had to suspend making this coin out of its limited resources since it failed to stay in domestic circulation. It was only after Mexican independence in 1821 when their peso's fine silver content of 377.1 grains was firmly upheld, which the U.S. later had to compete with using a heavier 378.0 grains (24.49 g) Trade dollar coin.
Design
The early currency of the United States did not exhibit faces of presidents, as is the custom now;40 although today, by law, only the portrait of a deceased individual may appear on United States currency.41 In fact, the newly formed government was against having portraits of leaders on the currency, a practice compared to the policies of European monarchs.42 The currency as we know it today did not get the faces they currently have until after the early 20th century; before that "heads" side of coinage used profile faces and striding, seated, and standing figures from Greek and Roman mythology and composite Native Americans. The last coins to be converted to profiles of historic Americans were the dime (1946), the half Dollar (1948), and the Dollar (1971).
After the American Revolution, the Thirteen Colonies became independent. Freed from British monetary regulations, they each issued £sd paper money to pay for military expenses. The Continental Congress also began issuing "Continental Currency" denominated in Spanish dollars. For its value relative to states' currencies, see Early American currency.
Continental currency depreciated badly during the war, giving rise to the famous phrase "not worth a continental".43 A primary problem was that monetary policy was not coordinated between Congress and the states, which continued to issue bills of credit. Additionally, neither Congress nor the governments of the several states had the will or the means to retire the bills from circulation through taxation or the sale of bonds.44 The currency was ultimately replaced by the silver dollar at the rate of 1 silver dollar to 1000 continental dollars. This resulted in the clause "No state shall... make anything but gold and silver coin a tender in payment of debts" being written into the United States Constitution article 1, section 10.
Silver and gold standards, 19th century
From implementation of the 1792 Mint Act to the 1900 implementation of the gold standard, the dollar was on a bimetallic silver-and-gold standard, defined as either 371.25 grains (24.056 g) of fine silver or 24.75 grains of fine gold (gold-silver ratio 15).
Subsequent to the Coinage Act of 1834 the dollar's fine gold equivalent was revised to 23.2 grains; it was slightly adjusted to 23.22 grains (1.505 g) in 1837 (gold-silver ratio ≈16). The same act also resolved the difficulty in minting the "standard silver" of 89.24% fineness by revising the dollar's alloy to 412.5 grains, 90% silver, still containing 371.25 grains fine silver. Gold was also revised to 90% fineness: 25.8 grains gross, 23.22 grains fine gold.
Following the rise in the price of silver during the California Gold Rush and the disappearance of circulating silver coins, the Coinage Act of 1853 reduced the standard for silver coins less than $1 from 412.5 grains to 384 grains (24.9 g), 90% silver per 100 cents (slightly revised to 25.0 g, 90% silver in 1873). The Act also limited the free silver right of individuals to convert bullion into only one coin, the silver dollar of 412.5 grains; smaller coins of lower standard can only be produced by the United States Mint using its own bullion.
In order to finance the War of 1812, Congress authorized the issuance of Treasury Notes, interest-bearing short-term debt that could be used to pay public dues. While they were intended to serve as debt, they did function "to a limited extent" as money. Treasury Notes were again printed to help resolve the reduction in public revenues resulting from the Panic of 1837 and the Panic of 1857, as well as to help finance the Mexican–American War and the Civil War.
Paper money was issued again in 1862 without the backing of precious metals due to the Civil War. In addition to Treasury Notes, Congress in 1861 authorized the Treasury to borrow $50 million in the form of Demand Notes, which did not bear interest but could be redeemed on demand for precious metals. However, by December 1861, the Union government's supply of specie was outstripped by demand for redemption and they were forced to suspend redemption temporarily. In February 1862 Congress passed the Legal Tender Act of 1862, issuing United States Notes, which were not redeemable on demand and bore no interest, but were legal tender, meaning that creditors had to accept them at face value for any payment except for import tariffs and interest on public debts. However, silver and gold coins continued to be issued, resulting in the depreciation of the newly printed notes 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, but overturned that ruling the next year in the Legal Tender Cases. In 1875, Congress passed the Specie Payment Resumption Act, requiring the Treasury to allow U.S. Notes to be redeemed for gold after January 1, 1879.
Though the dollar came under the gold standard de jure only after 1900, the bimetallic era was ended de facto when the Coinage Act of 1873 suspended the minting of the standard silver dollar of 412.5 Troy grains = 26.73 g; 0.859 ozt, the only fully legal tender coin that individuals could convert bullion into in unlimited (or Free silver) quantities,f and right at the onset of the silver rush from the Comstock Lode in the 1870s. This was the so-called "Crime of '73".
The Gold Standard Act of 1900 repealed the U.S. dollar's historic link to silver and defined it solely as 23.22 grains (1.505 g) of fine gold (or $20.67 per troy ounce of 480 grains). In 1933, gold coins were confiscated by Executive Order 6102 under Franklin D. Roosevelt, and in 1934 the standard was changed to $35 per troy ounce fine gold, or 13.71 grains (0.888 g) per dollar.
After 1968 a series of revisions to the gold peg was implemented, culminating in the Nixon shock of August 15, 1971, which suddenly ended the convertibility of dollars to gold. The U.S. dollar has since floated freely on the foreign exchange markets.
The U.S. dollar first emerged as an important international reserve currency in the 1920s, displacing the British pound sterling as it emerged from the First World War relatively unscathed and since the United States was a significant recipient of wartime gold inflows. After the United States emerged as an even stronger global superpower during the Second World War, the Bretton Woods Agreement of 1944 established the U.S. dollar as the world's primary reserve currency and the only post-war currency linked to gold. Despite all links to gold being severed in 1971, the dollar continues to be the world's foremost reserve currency for international trade to this day.
The Bretton Woods Agreement of 1944 also defined the post-World War II monetary order and relations among modern-day independent states, by setting up a system of rules, institutions, and procedures to regulate the international monetary system. The agreement founded the International Monetary Fund and other institutions of the modern-day World Bank Group, establishing the infrastructure for conducting international payments and accessing the global capital markets using the U.S. dollar.
For most of the post-war period, the U.S. government has financed its own spending by borrowing heavily from the dollar-lubricated global capital markets, in debts denominated in its own currency and at minimal interest rates. This ability to borrow heavily without facing a significant balance of payments crisis has been described as the United States's exorbitant privilege.
These images are to scale at 2.5 pixels per millimetre. For table standards, see the coin specification table.
Gold and silver coins have been previously minted for general circulation from the 18th to the 20th centuries. The last gold coins were minted in 1933. The last 90% silver coins were minted in 1964, and the last 40% silver half dollar was minted in 1970.
The one-dollar coin has never been in popular circulation from 1794 to present, despite several attempts to increase their usage since the 1970s, the most important reason of which is the continued production and popularity of the one-dollar bill. It has not been produced for circulation since 2012.45Half dollar coins were commonly used currency since inception in 1794, but has fallen out of use from the mid-1960s when all silver half dollars began to be hoarded.
The nickel is the only coin whose size and composition (5 grams, 75% copper, and 25% nickel) is still in use from 1865 to today, except for wartime 1942–1945 Jefferson nickels which contained silver.
Due to the penny's low value, debate exists over the penny's status as circulating coinage.4647 In 2025, the Mint halted the production of pennies for circulation, but pennies remain in circulation as only an act of Congress can eliminate a currency.48
Collector coins are technically legal tender at face value but are usually worth far more due to their numismatic value or for their precious metal content. These include:
The U.S. Constitution provides that Congress shall have the power to "borrow money on the credit of the United States."11 Congress has exercised that power by authorizing Federal Reserve Banks to issue Federal Reserve Notes. Those notes are "obligations of the United States" and "shall be redeemed in lawful money on demand at the Treasury Department of the United States, in the city of Washington, District of Columbia, or at any Federal Reserve bank".53 Federal Reserve Notes are designated by law as "legal tender" for the payment of debts.54 Congress has also authorized the issuance of more than 10 other types of banknotes, including the United States Note55 and the Federal Reserve Bank Note. The Federal Reserve Note is the only type that remains in circulation since the 1970s. Federal Reserve Notes are printed by the Bureau of Engraving and Printing and are made from cotton fiber paper (as opposed to wood fiber used to make common paper). The "large-sized notes" issued before 1928 measured 7.42 in × 3.125 in (188.5 mm × 79.4 mm), while small-sized notes introduced that year measure 6.14 in × 2.61 in × 0.0043 in (155.96 mm × 66.29 mm × 0.11 mm).56 The dimensions of the modern (small-size) U.S. currency is identical to the size of Philippine peso banknotes issued under United States administration after 1903, which had proven highly successful.57 The American large-note bills became known as "horse blankets" or "saddle blankets".58
Currently printed denominations are $1, $2, $5, $10, $20, $50, and $100. Notes above the $100 denomination stopped being printed in 1946 and were officially withdrawn from circulation in 1969. These notes were used primarily in inter-bank transactions or by organized crime; it was the latter usage that prompted President Richard Nixon to issue an executive order in 1969 halting their use. With the advent of electronic banking, they became less necessary. Notes in denominations of $500, $1,000, $5,000, $10,000 (discontinued, but still legal tender); $100,000 were all produced at one time; see large denomination bills in U.S. currency for details. With the exception of the $100,000 bill (which was only issued as a Series 1934 Gold Certificate and was never publicly circulated; thus it is illegal to own), these notes are now collector's items and are worth more than their face value to collectors.
Though still predominantly green, the post-2004 series incorporate other colors to better distinguish different denominations. As a result of a 2008 decision in an accessibility lawsuit filed by the American Council of the Blind, the Bureau of Engraving and Printing is planning to implement a raised tactile feature in the next redesign of each note, except the $1 and the current version of the $100 bill. It also plans larger, higher-contrast numerals, more color differences, and distribution of currency readers to assist the visually impaired during the transition period.i
Monetary policy refers to actions made by central banks that determine the size and growth rate of the money supply available in the economy, and which would result in desired objectives like low inflation, low unemployment, and stable financial systems. The economy's aggregate money supply is the total of
M0 money, or Monetary Base – "dollars" in currency and bank money balances credited to the central bank's depositors, which are backed by the central bank's assets,
plus M1, M2, M3 money – "dollars" in the form of bank money balances credited to banks' depositors, which are backed by the bank's assets and investments.
The FOMC influences the level of money available to the economy by the following means:
Reserve requirements – specifies a required minimum percentage of deposits in a commercial bank that should be held as a reserve (i.e. as deposits with the Federal Reserve), with the rest available to loan or invest. Higher requirements mean less money loaned or invested, helping keep inflation in check. Raising the federal funds rate earned on those reserves also helps achieve this objective.
Open market operations – the Federal Reserve buys or sells US Treasury bonds and other securities held by banks in exchange for reserves; more reserves increase a bank's capacity to loan or invest elsewhere.
Discount window lending – banks can borrow from the Federal Reserve.
Monetary policy directly affects interest rates; it indirectly affects stock prices, wealth, and currency exchange rates. Through these channels, monetary policy influences spending, investment, production, employment, and inflation in the United States. Effective monetary policy complements fiscal policy to support economic growth.
The adjusted monetary base has increased from approximately $400 billion in 1994, to $800 billion in 2005, and to over $3 trillion in 2013.71
When the Federal Reserve makes a purchase, it credits the seller's reserve account (with the Federal Reserve). This money is not transferred from any existing funds—it is at this point that the Federal Reserve has created new high-powered money. Commercial banks then decide how much money to keep in deposit with the Federal Reserve and how much to hold as physical currency. In the latter case, the Federal Reserve places an order for printed money from the U.S. Treasury Department.72 The Treasury Department, in turn, sends these requests to the Bureau of Engraving and Printing (to print new dollar bills) and the Bureau of the Mint (to stamp the coins).
The Federal Reserve's monetary policy objectives to keep prices stable and unemployment low is often called the dual mandate. This replaces past practices under a gold standard where the main concern is the gold equivalent of the local currency, or under a gold exchange standard where the concern is fixing the exchange rate versus another gold-convertible currency (previously practiced worldwide under the Bretton Woods Agreement of 1944 via fixed exchange rates to the U.S. dollar).
The U.S. dollar began to displace the pound sterling as international reserve currency from the 1920s since it emerged from the First World War relatively unscathed and since the United States was a significant recipient of wartime gold inflows.74 After the U.S. emerged as an even stronger global superpower during the Second World War, the Bretton Woods Agreement of 1944 established the post-war international monetary system, with the U.S. dollar ascending to become the world's primary reserve currency for international trade, and the only post-war currency linked to gold at $35 per troy ounce.75
Foreign companies, entities, and private individuals hold U.S. dollars in foreign deposit accounts called eurodollars (not to be confused with the euro), which are outside the jurisdiction of the Federal Reserve System. Private individuals also hold dollars outside the banking system mostly in the form of US$100 bills, of which 80% of its supply is held overseas.
The U.S. dollar is predominantly the standard currency unit in which goods are quoted and traded, and with which payments are settled, in the global commodity markets.79 The U.S. Dollar Index is an important indicator of the dollar's strength or weakness versus a basket of six foreign currencies.
The United States Government is capable of borrowing trillions of dollars from the global capital markets in U.S. dollars issued by the Federal Reserve, which is itself under U.S. government purview, at minimal interest rates, and with virtually zero default risk. In contrast, foreign governments and corporations incapable of raising money in their own local currencies are forced to issue debt denominated in U.S. dollars, along with its consequent higher interest rates and risks of default.80 The United States's ability to borrow in its own currency without facing a significant balance of payments crisis has been frequently described as its exorbitant privilege.81
A frequent topic of debate is whether the strong dollar policy of the United States is indeed in America's own best interests, as well as in the best interest of the international community.82
The 6th paragraph of Section 8 of Article 1 of the U.S. Constitution provides that the U.S. Congress shall have the power to "coin money" and to "regulate the value" of domestic and foreign coins. Congress exercised those powers when it enacted the Coinage Act of 1792. That Act provided for the minting of the first U.S. dollar and it declared that the U.S. dollar shall have "the value of a Spanish milled dollar as the same is now current".83
The table above shows the equivalent amount of goods that, in a particular year, could be purchased with $1. The table shows that from 1774 through 2012 the U.S. dollar has lost about 97.0% of its buying power.84
The decline in the value of the U.S. dollar corresponds to price inflation, which is a rise in the general level of prices of goods and services in an economy over a period of time.85 A consumer price index (CPI) is a measure estimating the average price of consumer goods and services purchased by households. The United States Consumer Price Index, published by the Bureau of Labor Statistics, is a measure estimating the average price of consumer goods and services in the United States.86 It reflects inflation as experienced by consumers in their day-to-day living expenses.86 A graph showing the U.S. CPI relative to 1982–1984 and the annual year-over-year change in CPI is shown at right.
The value of the U.S. dollar declined significantly during wartime, especially during the American Civil War, World War I, and World War II.87 The Federal Reserve, which was established in 1913, was designed to furnish an "elastic" currency subject to "substantial changes of quantity over short periods", which differed significantly from previous forms of high-powered money such as gold, national banknotes, and silver coins.88 Over the very long run, the prior gold standard kept prices stable—for instance, the price level and the value of the U.S. dollar in 1914 were not very different from the price level in the 1880s. The Federal Reserve initially succeeded in maintaining the value of the U.S. dollar and price stability, reversing the inflation caused by the First World War and stabilizing the value of the dollar during the 1920s, before presiding over a 30% deflation in U.S. prices in the 1930s.89
Under the Bretton Woods system established after World War II, the value of gold was fixed to $35 per ounce, and the value of the U.S. dollar was thus anchored to the value of gold. Rising government spending in the 1960s, however, led to doubts about the ability of the United States to maintain this convertibility, gold stocks dwindled as banks and international investors began to convert dollars to gold, and as a result, the value of the dollar began to decline. Facing an emerging currency crisis and the imminent danger that the United States would no longer be able to redeem dollars for gold, gold convertibility was finally terminated in 1971 by President Nixon, resulting in the "Nixon shock".90
The value of the U.S. dollar was therefore no longer anchored to gold, and it fell upon the Federal Reserve to maintain the value of the U.S. currency. The Federal Reserve, however, continued to increase the money supply, resulting in stagflation and a rapidly declining value of the U.S. dollar in the 1970s. This was largely due to the prevailing economic view at the time that inflation and real economic growth were linked (the Phillips curve), and so inflation was regarded as relatively benign.90 Between 1965 and 1981, the U.S. dollar lost two thirds of its value.84
Over the thirty-year period from 1981 to 2009, the U.S. dollar lost over half its value.84 This is because the Federal Reserve has targeted not zero inflation, but a low, stable rate of inflation—between 1987 and 1997, the rate of inflation was approximately 3.5%, and between 1997 and 2007 it was approximately 2%. The so-called "Great Moderation" of economic conditions since the 1970s is credited to monetary policy targeting price stability.91
There is an ongoing debate about whether central banks should target zero inflation (which would mean a constant value for the U.S. dollar over time) or low, stable inflation (which would mean a continuously but slowly declining value of the dollar over time, as is the case now). Although some economists are in favor of a zero inflation policy and therefore a constant value for the U.S. dollar,89 others contend that such a policy limits the ability of the central bank to control interest rates and stimulate the economy when needed.92
fSilver bullion can be converted in unlimited quantities of Trade dollars of 420 grains, but these were meant for export and had legal tender limits in the US. See Trade dollar (United States coin).
ii1970–1992Archived October 23, 2018, at the Wayback Machine. 1980 derived from AUD–USD=1.1055 and AUD–GBP=0.4957 at end of Dec 1979: 0.4957/1.1055=0.448394392; 1985 derived from AUD–USD=0.8278 and AUD–GBP=0.7130 at end of Dec 1984: 0.7130/0.8278=0.861319159.
iiiValue at the start of the year
"The Implementation of Monetary Policy – The Federal Reserve in the International Sphere"
16Peters, Richard, ed. (1845). "Second Congress. Sess. I. Ch. 16". The Public Statutes at Large of the United States of America, Etc. Etc. 1: 246–251. Archived from the original on November 13, 2020. Retrieved December 5, 2019.
18"Mills Currency". Past & Present. Stamp and Coin Place Blog. September 26, 2018. Archived from the original on May 3, 2021. Retrieved December 5, 2019.
32Nussbaum, Arthur (1957). A History of the Dollar. New York: Columbia University Press. p. 56. “The dollar sign, $, is connected with the peso, contrary to popular belief, which considers it to be an abbreviation of 'U.S.' The two parallel lines represented one of the many abbreviations of 'P,' and the 'S' indicated the plural. The abbreviation '$.' was also used for the peso, and is still used in Argentina.”
43Newman, Eric P. (1990). The Early Paper Money of America (3 ed.). Iola, Wisconsin: Krause Publications. p. 17. ISBN 0-87341-120-X.
44Wright, Robert E. (2008). One Nation Under Debt: Hamilton, Jefferson, and the History of What We Owe. New York, New York: McGraw-Hill. pp. 50–52. ISBN 978-0-07-154393-4.
60"El Salvador". CIA World Factbook. October 21, 2010. Archived from the original on May 7, 2021. Retrieved October 17, 2018. “The US dollar became El Salvador's currency in 2001”
61"Currency". Central Bank of Liberia. Archived from the original on January 15, 2023. Retrieved January 15, 2023.
62"Central Bank of Timor-Leste". Archived from the original on May 1, 2019. Retrieved March 22, 2017. “The official currency of Timor-Leste is the United States dollar, which is legal tender for all payments made in cash.”
63Nay Im, Tal; Dabadie, Michel (March 31, 2007). "Dollarization in Cambodia" (PDF). National Bank of Cambodia. Archived (PDF) from the original on May 11, 2022. Retrieved April 11, 2022.
64Nagumo, Jada (August 4, 2021). "Cambodia aims to wean off US dollar dependence with digital currency". Nikkei Asia. Archived from the original on April 15, 2022. Retrieved April 11, 2022. “Cambodia runs a dual-currency system, with the U.S. dollar widely circulating in its economy. The country's dollarization began in the 1980s and 90s, following years of civil war and unrest.”
89Broaddus Jr., J. Alfred (September 1, 1993). "Central Banking—Then and Now". Federal Reserve Bank of Minneapolis. Archived from the original on October 26, 2018. Retrieved October 17, 2018.
CommonsDelinkerRemoving US_union_shield_penny_reverse.png; it has been deleted from Commons by Túrelio because: Copyright violation: The Shield design is under copyright, See prior discussion−47diff
Dedollarisation refers to efforts by governments, firms and market participants to reduce the use of the U.S. dollar in reserves, trade invoicing and settlement, cross-border finance, and domestic transactions.
The monetary policy of the United States is the set of policies that the Federal Reserve follows to achieve its twin objectives (or dual mandate) of high employment and stable inflation.
Use of a foreign currency in parallel to or instead of a domestic currency
Currency substitution, also known as dollarization, is the use of a foreign currency in parallel to or instead of a domestic currency. Currency substitution can be full or partial.
The Bretton Woods system of monetary management established the rules for commercial relations among 44 countries, including the United Kingdom, United States, Canada, European countries, and Australia, after the 1944 Bretton Woods Agreement until the Jamaica Accords in 1976.
World War I, or the First World War (28 July 1914 – 11 November 1918), also known as the Great War, was a global conflict between two coalitions: the Allies (or Entente) and the Central Powers.
World War II, or the Second World War (1 September 1939 – 2 September 1945), was a global conflict between two coalitions: the Allies and the Axis powers.
Andrew Jackson (March 15, 1767 – June 8, 1845) was the seventh president of the United States from 1829 to 1837. He rose to fame as a U.S. Army general and served in both houses of the U.S. Congress.
Spanish America refers to the Spanish territories in the Americas, part of the Spanish overseas territories historically known as "the Indies" (Sp. las Indias), during the period of Spanish colonization of the Americas.
The American Civil War (April 12, 1861 – May 26, 1865; also known by other names) was a civil war in the United States between the Union ("the North") and the Confederacy ("the South"), which was…
