The American Dollar

Topics: Federal Reserve System, Monetary policy, Central bank Pages: 46 (15038 words) Published: August 15, 2014
INTRODUCTION
The monetary systems are dynamic, and so is that of the United States of America. It has been a dynamic one with various changes being done on the traditional monetary systems. New systems are in place and as such, the economy of America runs on different systems from the other countries of the globe. With the introduction of currency in the world, the USA has used and changed the value of their currency with the help of various institutions such as the Federal Reserve system for a variety of reasons (The Federal Reserve, 2013). Various presidents wanted to achieve various goals by changing the operations in the economy through changes in the currency. As such, the trade with other countries has taken several different forms as a result of the changes introduced at various times in the history of America. This paper explores these developments as well as the various institutions and their impacts on the USD. It also looks at the various forms of money and the changes in value of the dollar. Various policies that changed the face and the value of the United States dollar from the time it was backed by gold or other valuable metals up to now that the dollar is just in the form of paper money will be explored. The reasons behind these changes and whether they were genuine or nor, if they have benefited the country or they have ruined its economy are facts that will be discussed in this paper. HISTORY OF US DOLLAR

The United States dollar is official the currency of America as well as its overseas provinces or territories. The dollar is subdivided into cents where one hundred cents that are equal to one dollar. It is among the hard currencies of the world and is commonly used in several countries as the medium of foreign exchange. The dollar is also an official currency in some other countries, on the globe such as the British Virgin Islands. Its history date more than two hundred years ago from the instance it was introduced by the Spanish national in America at that time. Its name comes from the Spanish dollar (Aiton, 1999). The American dollar has since been valued using various valuable items, precious metals being the most common in the early days. The most common precious metals were gold and silver. The dollar coins were minted from these metals and were designated to be a legal tender. A copper alloy dollar was named Sacagawea dollar while the silver dollar was called the American silver Eagle. The dollar coins ranged from one cent to fifty dollars. The administration of President George Washington paid much attention to the monetary issues of the state, and most of the changes began from there. He was backed by the then secretary of the treasury Alexander Hamilton. He proposed the coinage act in 1792 that was passed by the congress. It sought to establish the dollar to be a unit of account. Gold rose in the 19th century in relation to silver and so, all gold coins were removed from commerce as well as their melting. Another coinage act was passed in 1834 whereby the ratio of silver to gold in the dollar was altered from 15:1 to 16:1. As such, the new dollar was backed by 1.50 grams of gold from the earlier one of 1.60 grams. Its the first devaluation of the dollar as the value of gold was reduced by 6 %. The silver and gold were still useful in commerce (Nussbaum, 2000). The value of silver coins was again reduced in 1853 with the effect of placing the country on the gold standard effectively. Foreign coins like the Spanish dollar were still in use until 1857. The dollar became the sole currency in 1863, and it has remained as such even today. Bland-Alison act was enacted in 1878 providing for a freer coinage silver. The government was to buy from $ 2 million to $ 4 million worth of bullion of silver every month at the prices prevailing in the market and coin it into silver coins. This was seen as a subsidy to the politically influential producers of silver. Large silver deposits were discovered in...

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