The History of the Strength of the U.S. Dollar
For most of its history, the value of the US dollar was backed by precious metals. Today, the dollar fluctuates freely on currency markets, and is the world's foremost currency.
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Early History
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According to the US Mint, the US dollar was established as legal tender in the United States by the Coinage Act of 1792. Coins were minted from a gold-or silver alloy and a coin's face value matched the value of the precious metal used in the coin itself.
Gold Standard
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The Gold Standard Act of 1900 abandoned silver as a standard, and defined one dollar as 23.22 grains of gold. The gold standard was often suspended during times of war. In 1933, during the Great Depression, the gold standard was lowered to 13.71 grains, effectively setting the price of 1 ounce of gold at $35.
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World Currency
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The US dollar became, in effect, the world's currency after World War II when all world currencies were pegged to the US dollar. The dollar remained pegged to gold. The dollar continued as world currency even after president Nixon abandoned the gold standard in 1971.
Effects
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No longer backed by any precious metals, the strength of the US dollar weakened substantially in the 1970's (gold went from $35 per ounce in 1970 to nearly $900 per ounce in 1980), but the dollar is bolstered by being the standard international currency for oil.
Considerations
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Despite the US dollar's slow buy steady losses to the euro, the US dollar is still the preferred international reserve currency by a wide margin today.
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References
- Photo Credit Image by Flickr.com, courtesy of Charlie Ambler
