The United States Dollar (USD) is the official currency of the United States of America. It is also the official currency in several other countries and territories, either exclusively or together with one or more other currencies.

usdThe United State Dollar is sold freely on forex markets around the world and its value fluctuates in relation to other major currencies. It is, with a very wide margin, the most widely traded currency in the world. Statistics from the 2013 Triennial Central Bank Survey show that USD was one of the currencies in 87 percent of all forex transactions for the year 2013. The most traded pairs were EURUSD (24 percent of total forex trade), USDJPY (18 percent of totalt forex trade) and GBPUSD (nearly 9 percent of total forex trade).

The USD is still the most common reserve currency, with EUR trailing as #2. The margin between USD and EUR is huge – the world’s combined currency reserves contain twice as much USD.

USD, EUR, GBP and JPY make up the currency basket used by the International Monetary Fund (IMF) to calculate the value of IMF:s special drawing rights.

Until quite recently, any large bank that wished to exchange EUR into a non-European currency (except JPY) on the interbank spot market had to make two transactions. First one where EUR was changed into USD, and then one where USD was changed into the desired non-European currency. Today, it has become easier to do this in one transaction only, without involving the USD.

Facts about the USD

  • The central bank for the USD is The Federal Reserve System.
  • The ISO-4217 currency code for the United States Dollar is USD.
  • The symbol $ denotes the dollar. To distinguish the United States Dollar from other currencies named dollar, you can write US$.
  • The United States Dollar has had a gold standard and a silver standard, but is today fiat money. The gold standard was abolished on August 15, 1971. At that time, the peg for one ounce of gold was 44.22 USD.
  • 1 United States Dollar is comprised of 100 cents. 1 cent is comprised of 10 mill. There are no mill coins or bills in circulation. The mill unit is chiefly used in documents regarding taxes and accounting, and by a some gas stations.
  • Within the forex trade, you may notice the nickname cable for the USDGBP. During the second half of the 1800s, the exchange rate for USDGBP was sent between Europe and North America via transatlantic telegraph cable and this is how USDGBP got this nickname.

The Federal Reserve System

The Federal Reserve System of the United States of America was founded in 1913. The United States has been plagued by several major bank runs and wanted to stabilize the banking system. The Federal Reserve Act establishes three major goals for the Federal Reserve System: maximal employment, stable prizes and moderate long-term interest rates. Since the 1970’s, the Federal Reserve System has aimed for low and stable inflation rather than no inflation.

From an international perspective, the US Federal Reserv System is rather unique since it consists of a combination of representatives from both the public sector and the private sector. Also, the United States Department of the Treasury is completely separated from the central bank. Decisions made by the Federal Reserve System do not require the approval of the congress, of the president or by any other public authority. Since the Federal Reserve System is self-financed, the congress can not aim to influence it indirectly by increasing or decreasing its budget.

Countries and territories where the USD is the only official currency

  • The United States of America and their Overseas Territories
  • El Salvador
  • Palau
  • British Virgin Islands
  • The Caribbean special municipalities of the Netherlands
  • The Federated States of Micronesia
  • The Marshall Islands
  • Turks and Caicos Islands

East Timor, Ecuador and Panama have USD as their official currency but mint their own respective coins, which are pegged against the USD.