The United States Dollar is an important currency created by the United States of America. Although it is a US currency, it is also a currency with international importance.

Currently, the dollar is used as an international reserve by several countries. It is also considered to be the most important international currency. This strengthening was only possible after the Second World War, in which the United States emerged as a world power.

About Dollar

Created by the US government and is therefore mainly known as the official currency of the United States, however, the dollar is also the currency of Panama, El Salvador and Ecuador, the currency is used in other countries as a reserve fund, i. e., part of company profits that are not spent on expenses or dividends and are deposited as a kind of reserve money.

A $ symbol is generally used for the dollar, as is the case for all other currencies. The International Monetary Fund (IMF), however, prefers to use the symbol US$. Another possibility is the USD symbol used mainly on the stock exchange. 

The history of the dollar

The history of the US dollar dates back to 1690 before the birth of the country, when the region was no more than a group of European colonies. The earliest known trace of the dollar comes from a colony in Massachusetts, which began using paper notes to finance military expeditions. Thus, after the introduction of paper money in Massachusetts, the rest of the colonies adopted this technique of exchange.

The British imposed various restrictions on paper money, however, and when it began to become popular they decided to outlaw it. In 1775, as the colonists prepared to go to war against the British, continental currency was introduced to unify transactions. However, this currency did not last long as there was not enough financial backing and the notes could easily be counterfeited.

Later, the newly created US Congress instituted the first national bank in Philadelphia, the Bank of North America, in order to help with government finances. Eventually, the dollar was the currency chosen to become the monetary unit of the US in 1785, It was at this time, due to the need to finance the war and foster the nation, that the dollar was created.

It was only in 1786 that the 13 independent colonies, through the Continental Congress, adopted the dollar as their national currency. The name dollar came from the word thaler, which was a coin made in Joachimsthaler and used in Europe.

However, the United States did not have any law in its Constitution aimed at controlling the exclusivity of the currency issue, which led to a chaotic scenario, since anyone could open a bank and issue money.

The lack of state control caused several banks to appear and the most diverse forms of payment were adopted, various colonial currencies were mixed with the dollar.

Even the lack of a national bank meant that the federal government had to carry out its transactions through private institutions or in cash.

Monetary policy

Control of the issuance of money, in 1792, the Mint Law was passed. But even with the law, many other colonial currencies still circulated. In 1840 the independent treasury system was created by President Martin Van Buren.

In this way, the government’s financial operations were carried out through its agencies throughout the country. The problem was that since it was not a bank, it could not issue money.

Therefore, government expenditure and profits had to be made in gold or silver and the state could not make disbursements that went beyond the taxes collected, unless it turned to bonds subscribed in gold.

In 1861, during the War of Secession, the government started issuing notes, called demand notes, which had the possibility of being exchanged for gold. However, due to the scarcity of gold, the exchange had to be suspended. Thus, the war was financed by the issue of US Notes which had no ballast and were based only on trust in the government.

These notes became known as greenbacks, meaning that this name, popular for so many years, is still used today when referring to the US dollar. Initially greenbacks had a limit of 433 million notes issued.

As borrowing became more difficult and spending grew, the solution found in 1864 by Salman P. Chase, Secretary of the Treasury, was the National Banking Act, a system of free movement of banks, a law authorizing any group consisting of five persons to create a national banking association and issue notes corresponding to their federal government obligations deposited with the Comptroller of the Currency.

To prevent competition between these notes and state banks, state banks had to pay a 10 per cent levy, which resulted in these banks withdrawing their notes from circulation.

On the other hand, state banks started offering cheque payment services against accounts on deposit, which became a good substitute for private bank issues. By the time the War of Secession came to an end, the huge diversity of payment options had been reduced to greenbacks and the notes of the private banks, known as National Banks.

 Instability of the US currency

USA was an agrarian country, currency movements depended heavily on the harvest cycle. When farmers sold their commodities and the like, deposits were accumulated in banks in agricultural regions and caused a shortage of funds in banks in more industrial regions.

Since there was no central bank, no way to channel the surplus resources or to lend reserves the scenario resulted in instability and crises. Some people believed that this instability was a result of the lack of cash which benefited those interested in silver becoming the basis of the country’s monetary system.

Thus arose William Jennings Bryan’s free silver movement, which aimed at the freedom to coin silver as legal tender. By means of the Bland-Allison Act in 1878, the Treasury silver bond was authorised, which was converted into legal money in 1886.

Subsequently, the government was virtually forced to purchase the entire output of the US silver mines and this scenario was repeated with gold bonds. However, none of these measures worked as a way to make monetary circulation more flexible.

FEAR

In 1893 there was fear that the USA would default on its public debt in gold and make payment in silver, since the metal’s price was falling internationally. The result was the flight of gold and the bankruptcy of several banks.

Through the Federal Reserve Act adopted in 1913, the US was divided into 12 districts and each of them was given a federal reserve bank. These banks were allowed to issue the Federal Reserve notes, which was legal money used for the debts and obligations of the banks and the US government.

The issue had a gold backing of at least 40%. Through these banks the problem of the lack of payment flexibility that could increase or reduce the money supply was solved. Years later, in 1929, the Federal Reserve was put to the test during the Crisis of 1929, but it was not able to prevent either bank fraud or bank failure during the crisis.

The internationalisation of the US dollar

During the global crisis of 1929, as a way of controlling the economic scenario, the dollar was devalued and gold was nationalised. The measures helped the economy to stabilise and the USA began to compete with England for the position of international currency.

Then, with the Second World War, the UK, which was previously an international creditor, moved to the position of international debtor. As the US was not so involved in the war, when the conflict came to an end it emerged as a financier of the reconstruction of various countries. Soon, the dollar became an international currency.

Before the dollar, the world’s accepted currency was the British pound and the United States was not seen as a trustworthy nation. In fact, the US was seen as a debtor with little international credibility.

For a long time, variations in the dollar exchange rate were linked to gold. Thus, until the early 1970s, the value of a gram of gold was determined as a fixed dollar value. However, the dollar eventually depreciated as technology developed. Eventually, it was based on gold and so came the floating exchange rate.

A curiosity is that there were dollar notes above $100, there were notes of $500, $1,000, $5,000, $10,000 and even $100. They were mainly used between banks and by criminals. However, they stopped being produced in 1946 and were withdrawn from circulation in 1969.

Importance of the dollar worldwide

The dollar occupies the place of international currency. This makes it one of the most important currencies in the world.

Even though initially it did not have international importance and was looked upon with suspicion by other countries, after the Second World War and the establishment of the USA as a world power, the dollar started to be recognised.

Therefore, today it is used in international reserves of central banks around the world, it is also used as a standard currency in international commodities markets and as a standard of prices of globalized companies.

In the stock market, it is possible to feel the influence of the dollar