United States dollar

United States dollar (symbol: $; currency code: USD), commonly referred to as the U.S. dollar, American dollar, or simply the dollar, is the official currency of the United States and several of its territories. It is also the official or de facto currency of several sovereign states and territories outside the United States. The United States dollar is issued by the Federal Reserve System and is the world's principal reserve currency, international trading currency, and most widely used currency in global finance. It is subdivided into 100 cents and is represented internationally by the ISO 4217 currency code USD. The dollar plays a central role in international trade, foreign exchange markets, global banking, commodity pricing, and central bank reserve management.

History

The origins of the United States dollar date to the establishment of the United States following the American Revolutionary War. The Coinage Act of 1792 established the dollar as the country's official unit of currency and created the United States Mint. The dollar was modeled largely on the widely circulated Spanish dollar, which had become an important medium of exchange in North America during the colonial period.

During the nineteenth century, the United States employed various forms of metallic standards, including bimetallism and the gold standard. Paper currency was introduced in greater volume during the American Civil War through the issuance of United States Notes, commonly known as "greenbacks."

The creation of the Federal Reserve System in 1913 centralized the issuance of banknotes and established the modern U.S. central banking system. Following the Bretton Woods Conference in 1944, the U.S. dollar became the cornerstone of the post-war international monetary system, with many currencies pegged to the dollar and the dollar convertible into gold.

In 1971, President Richard Nixon suspended the dollar's convertibility into gold, ending the Bretton Woods system and establishing the modern system of floating exchange rates.

Legal framework

The United States dollar is governed by several federal statutes, including:

The authority to issue Federal Reserve Notes rests with the Federal Reserve System, while coin production is undertaken by the United States Mint, a bureau of the United States Department of the Treasury.

Currency issuance

Paper currency in circulation consists primarily of Federal Reserve Notes issued by the twelve regional Federal Reserve Banks under the authority of the Board of Governors of the Federal Reserve System.

Coins are produced by the United States Mint and include:

one-cent coin (cent)
five-cent coin (nickel)
ten-cent coin (dime)
twenty-five-cent coin (quarter dollar)
fifty-cent coin (half dollar)
one-dollar coin

Federal Reserve Notes currently circulate in denominations of:

$1
$2
$5
$10
$20
$50
$100

Larger denominations were historically issued but are no longer produced for circulation.

Role in the international monetary system

The United States dollar serves as the world's primary reserve currency and is held extensively by central banks and monetary authorities as part of their foreign exchange reserves. It is the principal currency used in international banking, cross-border lending, sovereign debt issuance, and global financial markets.

Many international commodities, including crude oil, gold, and numerous agricultural products, are quoted and traded primarily in U.S. dollars. The dollar is also the dominant currency in the global foreign exchange market, where it is involved in the majority of international currency transactions.

Exchange rate system

Since the early 1970s, the value of the United States dollar has generally been determined under a system of floating exchange rates. Its value fluctuates in response to market forces, including interest rates, inflation, economic growth, international trade, geopolitical developments, and monetary policy implemented by the Federal Reserve System.

Some countries maintain exchange rate arrangements that peg or closely manage their currencies relative to the U.S. dollar.

International use

In addition to the United States, the dollar serves as the official currency or legal tender in several jurisdictions and is widely used internationally.

The currency is officially used in:

Ecuador
El Salvador
Panama
Timor-Leste
Zimbabwe (alongside other currencies)
several United States territories, including Puerto Rico, Guam, the United States Virgin Islands, the Northern Mariana Islands, and American Samoa

The practice of adopting the U.S. dollar as a country's official currency is commonly known as Dollarization.

Reserve currency

The United States dollar is the largest reserve currency held by central banks worldwide. Governments maintain dollar-denominated reserves to facilitate international trade, stabilize exchange rates, meet external debt obligations, and support financial market confidence.

Dollar-denominated assets commonly held by monetary authorities include:

United States Treasury securities
deposits with foreign central banks
Federal Reserve accounts
highly rated dollar-denominated financial instruments

Security features

Modern Federal Reserve Notes incorporate numerous security features intended to deter counterfeiting.

These include:

security threads
watermarks
color-shifting ink
microprinting
raised printing
three-dimensional security ribbons (on selected denominations)
embedded security fibers

The design and security features of U.S. banknotes are periodically updated by the Bureau of Engraving and Printing in cooperation with the Federal Reserve and the United States Secret Service.

Impact

The United States dollar occupies a central position within the international financial system. Its widespread use in trade, investment, reserve management, and international finance has contributed to its role as the dominant global currency. Decisions of the Federal Reserve System, movements in U.S. interest rates, and changes in the value of the dollar have significant effects on international capital flows, commodity prices, exchange rates, inflation, and economic activity worldwide. The currency continues to serve as one of the principal foundations of the contemporary global monetary system.