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The U.S. Dollar

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U.S. Dollar (Credit: Getty Images)

What Is the United States Dollar:

The U.S. dollar is the most important currency in the world. That's because it's backed by the country with the largest economy, the United States of America. For that reason, it's often used as a global currency.

The U.S. dollar refers to a specific denomination, as well as the U.S. currency overall. It was initially traded as a coin worth its weight in silver or gold, then as a paper note redeemable in gold. In the 1970s, the gold standard was dropped and the dollar's value was allowed to float. Today, although its value fluctuates, it's in strong demand. Although the dollar is still represented by currency, its true value is represented by credit. Now more than ever, the U.S. dollar is the real symbol of faith in the power of the U.S. economy.

Dollar Denominations:

There are 18 denominations in U.S. coins and bills.

U.S. Coins -- There are six dollar denominations produced in coins.

  1. Penny - Its value is one cent. It only costs .81 cent to produce, so the U.S. Mint makes a profit every time it sells it. he profit totals $24 million in 2000, and goes toward the Mint's budget.
  2. Nickel - In 1793, the size of coins were proportional to the U.S. silver dollar. However, this made the five-cent coin too small. In 1866, the Mint made it larger by replacing the silver with nickel.
  3. Dime - Worth 10 cents.
  4. Quarter - Worth 25 cents.
  5. Half dollar - Worth 50 cents.
  6. Dollar - Worth 100 cents.
The U.S. no longer produces the half-cent coin, the two-cent coin, the three-cent coin, the half-dime coin, or the twenty-cent coin.(Source: U.S. Department of Treasury, Denominations)
U.S. Dollar Bills -- There are 12 denominations in bills. These seven are still being printed: $1, $2, $5, $10, $20, $50 and $100. There are five larger denominations that are no longer being printed, but are in circulation among collectors and are still considered legal tender: $500, $1,000, $5,000, $10,000 and $100,000. (Source: U.S. Treasury, Denominations; Small Denominations; Large Denominations) (Source: U.S. Department of Treasury, )

US Currency:

The Federal Reserve, as the nation's central bank, is responsible for making sure enough currency is in circulation. It commissions the U.S. Treasury Department's Office of Printing and Engraving to print the bills, and its Mint Department to cast the coins. Once produced, the currency is shipped to the Federal Reserve banks, where members can exchange credit for currency as needed.

The Secretary of the Treasury designs U.S. currency. No living person's picture can appear. For the most part, only past U.S. Presidents appear, except for:

  • Alexander Hamilton, the first Secretary of the Treasury, on the $10 bill.
  • Benjamin Franklin on the $100 bill.
  • Salmon P. Chase, Treasury Secretary during the Civil War, on the $10,000 bill (no longer printed).

U.S. Dollar Symbol:

The $ symbol itself is derived from a combination of the P and S for Mexican pesos, Spanish piastres, or pieces of eight. This theory is based on the study of old manuscripts, which show that the $ symbol was widely used before the U.S. started using the dollar in 1785. (Source: Bureau of Engraving and Printing, Currency Notes)

There has been a great deal of controversy surrounding the enigmatic symbols on the U.S. dollar. In fact, our founding fathers used the symbols to convey strong messages, which have gotten garbled through the years. The dollar bill shows the Great Shield of the United States, which contains:

  • The American eagle flying free, holding 13 arrows of war in its non-dominant left talon and an olive branch for peace in its dominant right talon.
  • The banner in its beak reads "E Pluribus Unum" -- Out of Many, One.
  • The shield's horizontal blue band represents Congress uniting the original 13 colonies, represented by 13 red and white vertical stripes.
  • Thirteen stars above the eagle represents a new constellation, or nation, in the universe.
  • Red stands for valor, white stands for purity and blue stands for justice.
On the reverse of the Great Seal stands an unfinished pyramid of 13 rows, symbolizing strength and duration. The first row reads "1776" in Roman numerals. The banner below reads "Novus Ordo Seclorum" which means "A New Order of the Ages," referring to a new form of government or "the beginning of the new American Era." The all-seeing eye of the Divine, with the phrase "Annuit Coeptis," which means "Providence Has Favored Our Undertakings." (Source: Federal Reserve Bank of Philadelphia, Symbols on American Money)

Dollar Exchange Rate Conversion:

When you travel overseas, or conduct any international business, you want to know how much your dollars will buy. To find out, you must convert your dollars to the local currency using an exchange rate. Traders in the foreign exchange market determine the dollar's value compared to other currencies every moment. It's determined by a wide variety of factors, including the interest rate paid on the dollar, how fast the economy is growing, and how large the country's debt-to-GDP ratio is.

Dollar Value:

In addition to exchange rates, the dollar's value is also measured by U.S. Treasury notes and the amount of dollars held in reserves by foreign governments. Countries that export more to us than they import from us hold an excess of dollars. That's fine with them, because they want to sop up excess supply of dollars, and keep its value strong. That makes the value of their currency weaker in comparison, allowing their goods to seem cheaper. In addition to holding dollars, they also buy Treasury notes. This also makes the dollar stronger. For more, see Value of the U.S. Dollar.

The U.S. Dollar Is the World's Reserve Currency:

Part of the reason for the dollar's strength is its role as the world's reserve currency. This means that most people will accept a dollar for payment, even in lieu of their own currency. Nearly 50% of all international trade is done in dollars, and most oil contracts must be paid in dollars. How did the dollar get this fortunate status? Thank the Bretton Woods Agreement. In 1944, the victors of World War II agreed they would peg their currency to the dollar, which would be backed by a fixed amount of gold. However, this system fell apart in 1971, so the U.S. let the dollar's value float. (Article updated July 20, 2012)

U.S. Dollar FAQ:

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