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The first U.S. dollar (USD) is one of the world's strongest currencies. It is the official currency of
the United States as well as several other countries. Although it has a deep-rooted history in
the United States, the dollar as we know it today was first printed in 1914. [1]
Printing began a year after the establishment of the Federal Reserve as the nation's central
bank with the passing of the Federal Reserve Act. [1] That's when the Fed started issuing
Federal Reserve notes in $10 denominations featuring Andrew Jackson's portrait. [1] Three
decades later, the dollar officially became the world’s reserve currency. However, its
ascendancy to the throne actually began not long after the ink was dry on that first printing in
1914. Keep reading to learn about how the dollar became the world's reserve currency.
KEY TAKEAWAYS
The first U.S. dollar was printed in 1914 after the Federal Reserve Bank was created.
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The Allies paid the U.S. for supplies in gold during World War I, propelling the U.S. to
become the largest holder of gold.
Countries pegged their currencies to the dollar after the war, ending the gold
standard.
The International Monetary Fund reported that 59% of all foreign bank reserves are
denominated in U.S. dollars.
Despite its position in the global markets, the U.S. isn't the strongest world currency,
ranking 10th on the list.
In 1863, the government established the Office of the Comptroller of the Currency (OCC) and
the National Currency Bureau. These two agencies were charged with handling new
banknotes. Centralized printing begins at the Bureau of Engraving and Printing in 1869. Prior
to this, money was printed by private companies. [1]
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The U.S. Treasury assumed the official responsibility of issuing the nation's legal tender in
1890—more than a decade before the creation of the Federal Reserve and the dollar as we
know it today. [1]
FAST FACT
Martha Washington's image was printed on the 1886 and 1896 series of $1 silver
certificates. [1]
The majority of developed countries pegged their currencies to gold as a way to stabilize
currency exchanges. But when World War I broke out in 1914, many countries suspended their
use of the gold standard to pay their military expenses with paper money, which devalued
their currencies. Britain, though, held to the gold standard to maintain its position as the
world’s leading currency and found itself borrowing money for the first time during the third
year of the war. [3]
The United States became the lender of choice for many countries that wanted to buy dollar-
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denominated U.S. bonds. Britain finally abandoned the gold standard in 1931, which
decimated the bank accounts of international merchants who traded in pounds. [4] By then,
the dollar replaced the pound as the leading international reserve currency. [5]
Delegates from 44 Allied countries met in Bretton Wood, New Hampshire, in 1944 to come up
with a system to manage foreign exchange that would not disadvantage any country. The
delegation decided that the world’s currencies would no longer be linked to gold but could be
pegged to the U.S. That's because the greenback was, itself, linked to gold. [6]
The arrangement came to be known as the Bretton Woods Agreement. It established the
authority of central banks, which would maintain fixed exchange rates between their
currencies and the dollar. In turn, the United States would redeem U.S. dollars for gold on
demand. Countries had some degree of control over currencies in situations wherein the
values of their own currencies became too weak or too strong relative to the dollar. They
could buy or sell their currency to regulate the money supply. [6]
Th U S D ll B h W ld’ R C
The U.S. Dollar Becomes the World’s Reserve Currency Ad
The U.S dollar was officially crowned the world’s reserve currency and was backed by the
world’s largest gold reserves thanks to the Bretton Woods Agreement. Instead of gold
reserves, other countries accumulated reserves of U.S. dollars. [6] Needing a place to store
their dollars, countries began buying U.S. Treasury securities, which they considered to be a
safe store of money.
The demand for Treasury securities, coupled with the deficit spending needed to finance the
Vietnam War and the Great Society domestic programs, caused the United States to flood the
market with paper money. With growing concerns over the stability of the dollar, the countries
began to convert dollar reserves into gold.
The demand for gold was such that President Richard Nixon was forced to intervene and de-
link the dollar from gold, which led to the floating exchange rates that exist today. [6] Although
there have been periods of stagflation, which is defined as high inflation and high
unemployment, the U.S. dollar has remained the world’s reserve currency.
Most people would believe that this makes the dollar the strongest currency in the world.
Despite its position in the global markets and how dependent they are on it, the dollar ranked
as the 10th strongest currency, according to CMC Markets. The site ranked the Kuwaiti dinar as
the strongest currency while the British pound and the euro earned the fifth and eighth spots
respectively. [9]
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When Did the U.S. Dollar Become the Global Reserve Currency?
The U.S. dollar became the official reserve currency of the world in 1944. The decision was
made by a delegation from 44 Allied countries called the Bretton Woods Agreement.
ARTICLE SOURCES
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Related Terms
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U.S. Dollar Index (USDX)
The U.S. dollar index (USDX) is a measure of the U.S. dollar's value relative to the majority of its most
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