LeoGlossary: U.S. Dollar

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The U.S. dollar is legal tender in the United States. It is symbolized with the $ and is often written as US$ to distinguish it from other dollar denominated currencies. The ISO-4217 code is USD.

In 1792, the Coinage Act established the US Dollar and put it on par with the Spanish silver dollar. It is divided into 100 units called cents.

US banknotes are issued by the Federal Reserve who is also responsible for monetary policy.

The U.S. dollar became an important international reserve currency after the First World War, and displaced the pound sterling as the world's primary reserve currency by the Bretton Woods Agreement towards the end of the Second World War. The dollar is the most widely used currency in international transactions, and a free-floating currency. It is also the official currency in several countries and the de facto currency in many others, with Federal Reserve Notes (and, in a few cases, U.S. coins) used in circulation.

One of the key roles of the U.S. dollar is it acts as a vehicle currency. To facilitate trade between entities in two different countries using different currencies, the USD acts as an intermediary.

Here currency A is swapped into USD and then converted to currency B.

This ends up with the lowest exchange rates with the least amount of risk due to the liquidity associated with the U.S. dollar.


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