Trading History of the US Dollar (USD)

The US dollar is the official currency in the United States. It is also the legal and official currency in the British Virgin Islands, Marshall Islands, Turks and Caicos Islands, Bonaire, Ecuador, El Salvador, Liberia, Micronesia, East Timor, Cambodia, Panama, Palau, Saba, Zimbabwe and Saint Eustatius. The abbreviation for the United States Dollar is USD, the symbol is the well-known $.

A dollar is divided into 10 dimes or 100 cents – the latter are abbreviated with the symbol ȼ or c. Less common is the subdivision into 1000 mill, ₥ for short. Since the backs of dollar banknotes are green, the colloquial term greenback is in circulation. Even more popular is the term Buck.

The Bureau of Engraving and Printing, based in Washington, D.C., is responsible for printing the banknotes. The coins, however, are minted by the United States Mint. The US dollar is a freely convertible currency, which means that it can be freely and indefinitely exchanged for other currencies in foreign trade.

Origin of the $ symbol

The origin of the sign $ as a symbol for the US dollar is still based on conjecture. There are two hypotheses: One is that the dollar symbol originated from the abbreviation Ps for the Spanish peso, which was used in North America until it was replaced by the US dollar in 1785. It is said that the P was pushed over the S when writing and that the curves of the P gradually disappeared, leaving $. The other thesis sees in the sign an abstraction of the Pillars of Heracles, which are plausible as an explanation in so far as they represent an important Spanish state symbol and are even integrated into the current Spanish coat of arms.

It remains to be mentioned that the $ symbol is not in exclusive use for the US currency, but has been used as a symbol for the peso in several Spanish-speaking countries of Latin America up to now.

History of the US Dollar

The idea of creating a single currency emerged at the end of the 17th century, when trade in raw materials such as tobacco and cotton flourished between the British and American colonies on the east coast of North America. Since the English pound was prohibited as a means of payment and there were many currencies in circulation in the American colonies, the Massachusetts Bay Colony decided to use its own paper money. Soon after other colonies followed this example. The British, however, tried to boycott the development of a financial economy and industry independent of the mother country by imposing restrictions. In 1704 the minting of coins was prohibited in all colonies. In the meantime, Dutch guilders and Spanish reales were used to continue trading. Even if the introduction of a single US currency was to be delayed by several decades, the term dollar was nevertheless already used to describe silver coins of Spanish origin.

When, after the outbreak of the American War of Independence, the Continental Congress introduced the first US currency of its own – the continental dollar – in 1776, confidence in paper money was dwindling due to the rapidly growing money supply and high counterfeiting rate. Currency reform soon became necessary, and Congress asked the Bank of North America in Philadelphia for support. In 1785 the US dollar was finally introduced as the official currency.

Coins

All dollar coins issued since 1793 contain the coinage LIBERTY (“freedom”). Likewise, the motto E pluribus unum – one of many – is part of all US coins. The inscription In God we trust was first found on the newly introduced 2-cent coin in 1864. Since 1938 it has been minted uniformly on all coins.

Coins made of gold were withdrawn in the course of the ban on gold in 1933. This affected the 10-dollar coin known as the eagle, the quarter, half and double eagle coins, as well as the 1- and 3-dollar gold coins. About 20 of the double eagle coins minted with the year 1933 are still in existence worldwide and have high collector value. One of these unmelted specimens was sold at a Sotheby’s auction in New York in 2002 for a record price of $6.6 million.

Penny

The 1-cent piece has been in existence since 1793 and the front of the latest version shows a portrait of Abraham Lincoln, while the back shows a coat of arms.

Nickel

The obverse of the 5-cent coin shows a portrait of Thomas Jefferson since 2006. The inscription LIBERTY (“freedom”), is modelled after Jefferson’s own handwriting.

Dime

The ten-cent coin minted in 1946 bears the image of President Franklin D. Roosevelt. The reverse of the coin shows a torch, an olive branch and the branch of an oak tree, which symbolise freedom, peace, independence and strength.

Quarter Dollar

The 25-cent piece has been in circulation since 1796. In terms of motifs, five national parks and other sites of national importance will be depicted each year from 2010 onwards.

1 dollar coin Eisenhower 1972, both sides, © Richard Huber, CC BY-SA 3.0
Eisenhower dollar (1972) with the portrait of US President Eisenhower (© Richard Huber, via Wikimedia Commons)

Half Dollar

The obverse of the 50 cent coin features the portrait of John F. Kennedy. The reverse shows the presidential seal consisting of a heraldic eagle holding a symbolic olive branch in one claw and a bundle of 13 arrows in the other. The eagle is surrounded by a wreath of 50 stars, which symbolize the 50 states.

Dollar

Currently two 1-dollar coin series are being produced: the Sacagawea dollar, whose annually changing motifs are inspired by Native Americans, and the presidential dollar, which could not prevail against the 1-dollar bill and is now minted primarily for collectors in limited editions. Both 1 dollar coin series are gold coloured, but do not contain gold. They are only rarely in circulation and are mainly found as change at traffic machines.

Banknotes

Unlike the euro, the size of all dollar bills is the same regardless of their value. The length measures 155.81 mm, the width 66.42 mm.

The back of the one-dollar note shows both sides of the seal of the United States.

Banknotes worth more than 100 US dollars are no longer produced. Although the earlier issues are still allowed as means of payment, they are only to be seen in museums and private collections due to their collector’s value, which far exceeds their face value.

The highest face value to date was a note printed by the Bureau of Engraving and Printing in 1934. Its value: 100,000 US dollars. The certificate could only be acquired in exchange for gold of the same value and was used exclusively for transactions between central banks.

Why are the “greenbacks” green?

So far there is no clear answer to this question. One possible explanation would be that in 1929 there were large quantities of the green dye, which was also preferred because of its resistance to physical and chemical changes in production. Some see the use of green as being rooted in colour psychology: the green is said to stand for the stability and strength of government and to promote confidence.

Security features

Since 1865, the United States Secret Service, the Federal Reserve System and the Bureau of Engraving and Printing have been jointly developing measures to keep counterfeiting to a minimum. Security features were first introduced on banknotes in 1966. In addition, every seven to ten years the design of all common banknotes changes, with the exception of the 1 and 2 dollar notes.

The security features include

Security thread: This is a thin strip that runs through the banknote and contains the face value of the note. It is present on all notes except the 1- and 2-dollar notes.
Microprinting: Imprints so tiny that they appear as a line when viewed normally. Again, the face value of the note is included.
Watermarks: These are created by the different densities of the paper and contain the image of the personality depicted on the banknote. If the banknote is held up to the light, the portrait becomes visible.
Optically variable ink: The colour of the inscription changes depending on the viewing angle.
Fine line structures: the line patterns are located on the front behind the portrait and on the back they surround the historic building. They are difficult to detect by printers and scanners, but they are easily visible to the eye.
Enlarged portraits: They make it more difficult to counterfeit banknotes by displaying images in greater detail.
Front of a USD 100 banknote from the 2009 Federal Reserve series
100 dollar banknote from the 2009 Federal Reserve series (© Bureau of Engraving and Printing, via Wikimedia Commons)

Additional security features have been added to a 100 dollar variant issued in 2013. The 3D security band, a “100” printed in gold, another watermark and a 3D image showing a bell or “100” depending on the angle of view are intended to make the note even more copy-proof.

Hawaii Dollar

In 1942, even before the chain of islands became the 50th state to join the USA, Hawaii introduced its own dollar banknotes. Although the motifs are the same as on the usual dollar banknotes, the Treasury seal and serial number were printed in brown instead of blue or red. Both the front and back of the banknote bear the HAWAII imprint. The series produced for the island chain consisted only of $1, $5, $10 and $20 banknotes.

Gold Standard

The times when the dollars produced by the USA were equally covered by gold reserves are over. The separation from the gold standard in 1933 helped the USA to an economic upswing. Today, like most world currencies, the US dollar is no longer bound to any standard. Rather, the currency correlates with the total national wealth of the country, its economic performance and is also dependent on the political stability of the United States as well as its military supremacy.

International significance of the US dollar

Since the Bretton Woods system took hold in 1944, the US dollar has secured its role as a reserve, reserve and transaction currency worldwide. In global terms, it is the most traded currency, accounting for over 50% of international financial transactions. Some countries in the world use the US dollar as an unofficial second or secondary currency. Some raw materials, including crude oil, are traded on the world market in US dollars, which has earned it the nickname “petrodollar”.

Nevertheless, experts predict that the US dollar as a reserve currency will increasingly give way to the euro, which is steadily growing in importance.


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