What is the USD (United States Dollar)?

The USD (United States Dollar) is the official currency of the United States of America. The United States dollar, or U.S. dollar, is made up of 100 cents. It is represented by the symbol $ or US$ to differentiate it from other dollar-based currencies.

The U.S. dollar is considered a benchmark currency, and is the most-used currency in transactions across the world. In addition, it is used as the official currency in many countries outside of the U.S., while many others use it alongside their own as an unofficial currency.

Origins of USD (United States Dollar)

The United States dollar, often referred to as the greenback, was created through the Coinage Act of 1792, which specified that a dollar of currency would be equal to between 371 and 416 grains of silver, and an "eagle" (US$10) at between 247 and 270 grains of gold. Gold coins with equivalent weights were used, and based on this system, the value of the dollar (in purchasing power), would be equal to the purchasing power of the gold or silver on which it was based.

The first greenbacks, as the US dollar is popularly known, were issued as demand notes to finance the 1861 civil war. They were referred to as "greenbacks" because they were green in color. Legal tender known as "United States Notes" were first issued in 1862 and a centralized system for printing the notes was first established in 1869. Non-interest bearer notes continued to gain in popularity across a system of competing local currencies with the establishment of a national banking system and establishment of the Federal Reserve system in 1913.

In 1933, gold coins were taken back, and the gold standard was changed, setting the price of a troy ounce to $35. This gold standard continued until 1968 when a series of pegs to gold were put in place until 1975. In January of 1975, the U.S. dollar was removed from the gold standard, and was allowed to float freely on the international currency markets.

Key Takeaways

  • The United States dollar is the most-used currency in the world and has a rich and varied history.
  • It plays an important role in the world economy and has its own index.

USD's International Role

The U.S. dollar is the most traded currency in the world. According to the 2016 Triennial bank survey conducted by the Bank of International Settlements, the US dollar accounted for 88% of all foreign exchange trading transactions. (For related reading, see "How the U.S. Dollar Became the World's Reserve Currency")

The Euro was a distant second with 31% of all transactions. The reach of the U.S. dollar has resulted in its own index, the USDX, which is a weighted value index against a basket of six other currencies; the euro, Japanese yen, British pound, Swiss franc, Swedish krona, and the Canadian dollar.  

Furthermore, the U.S. dollar is the official currency of many Central American countries and republics including Puerto Rico, El Salvador, Guam, and the U.S. Virgin Islands. (See also: Countries That Use The U.S. Dollar)