US Dollar in Decline: Part I – A Brief History Lesson

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The US dollar is at its weakest point in history, having steadily been in decline since approximately 1940.

As the economies of the world mature and continue to grow and interact with each other, the economy of each country becomes increasingly affected by and interdependent with the economies of countries around the world.

Specifically, the United States, as a large player in the world economy, has become more interconnected and influenced by the collective economic strength (or weakness) of that of other major countries including Brazil, Russia, India, China and South Africa, collectively known as the BRICS countries.

The birth of the US Dollar
The original US dollar began as a coin and was born of the Coinage Act (also known as the Mint Act) of 1792. The Coinage Act also signaled the creation of the United States Mint. The original dollar coins issued by the US Mint bore a resemblance in size and composition to the Spanish dollar.

The value of the US dollar was originally set to be equal to one Mexican peso and remained legal tender until 1857. Specifically, each US dollar contained 27.0 grams of silver, representing 90% silver alloy. Similarly, the Coinage Act called for denominations of ½ (half dollar), ¼ (quarter), 1/10 (dime; originally called disme) and 1/20 (half-dime or half-disme).

On May 8, 1792, legislation to provide for copper coinage (1/100 or cent and 1/200 or half-cent) was signed into law by President George Washington.

In addition to coin denominations of less than one dollar, the Coinage Act of 1792 authorized the creation and production of the following coins:
• Eagle ($10)
• Half Eagle ($5)
• Quarter Eagle ($2.50)
• Dollar ($1)

Interestingly, paper bills as currency were used from 1777 to 1788 and were not backed by precious metals (gold and silver) and were known as ‘Continentals’. In addition to the paper bills having no solid backing, they were also relatively easy to counterfeit. This caused Continentals to quickly diminish in value and led to the production of only coins as specified in the Coinage Act of 1792.

The implementation of paper being used as currency began prior to federal control and centralized banking. Commercial banks issued their own notes using paper through 1862. For the period from 1862 through 1913, the National Banking Act of 1863 caused the creation of a national banking system, still using bank notes.

It was not until the Federal Reserve Act of 1913 and the creation of the Federal Reserve System, that the US dollar as we know it today was created and exclusively printed by the US Treasury. Initial printing began in 1914 with a second printing in 1928.

Federal Reserve Notes remain in circulation as follows by denomination:
• $1 (21 months)
• $2 (136 months)
• $5 (16 months)
• $10 (18 months)
• $20 (24 months)
• $50 (55 months)
• $100 (89 months)

Buying power of one U.S. dollar compared to 1774 USD:

Year Value
1774 $1.00 1870 $0.62 1970 $0.20
1780 $0.59 1880 $0.79 1980 $0.10
1790 $0.89 1890 $0.89 1990 $0.06
1800 $0.64 1900 $0.96 2000 $0.05
1810 $0.66 1910 $0.85 2007 $0.04
1820 $0.69 1920 $0.39 2008 $0.04
1830 $0.88 1930 $0.47 2009 $0.04
1840 $0.94 1940 $0.56 2010 $0.03
1850 $1.03 1950 $0.33
1860 $0.97 1960 $0.26

Watch a brief video tutorial of the American Dollar as Money (Part 1):

And Part 2:

Return to HULIQ to read:
• The US Dollar Part II – The Gold Standard, and
• The US Dollar Part III – Global Reserve Currency

Image credit: Wikipedia

You can reach Michael Cerkas via email at mcerkas@gmail.com

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