The U.S. dollar, the official unit of currency of the United States of America, is the most used currency in international transactions and it remains the world’s foremost reserve currency i.e. a currency that is held in significant quantities by many governments and institutions as part of their foreign exchange reserves. But where did it come from, and where is it going?

The word “dollar” is an Anglicized form of the German word “thaler”, the name given to silver coins minted in the 1500’s in Joachimsthal in what is now the Czech Republic. Later on, the English version of thaler (dollar) was applied to the Spanish peso or eight-real piece (also known as “pieces of eight”, famously used in tales of pirates in the Caribbean).

 Prior to gaining their independence, Britain’s North American colonies began to issue their own paper money to serve as a convenient medium of exchange and to pay debts. But when colonial governments issued too much money, inflation resulted. This depreciation of colonial currency was harmful to creditors in Britain when colonists paid their debts with money that had lost value. As a result Britain restricted the colonies’ rights to print paper money. These restrictions created tension between the colonies and Britain, and have been seen as a contributing factor to the American Revolution.

 In 1775, when the colonists were preparing to go to war with Britain, the U.S. Continental Congress began issuing paper money known as Continental currency, or “Continentals”. As a result of the popularity of the Spanish dollar in the colonies, the rebel colonies chose to denominate their currency in dollars, rather than pounds. To finance the war with Britain, the various colonies printed vast numbers of Continental dollars, and the British also waged economic warfare by counterfeiting “Continentals” on a large scale. The value of Continental dollars depreciated so badly that they became almost worthless, giving rise to the phrase “not worth a continental”.

After the U.S. won its independence from Britain, the term “dollar” was chosen for the monetary unit of the new nation. With the fate of the Continental dollars in mind, the U.S. Constitution made no provision for paper currency. Until the American Civil War in the mid-1800’s, the U.S. government did not issue paper money as we know it today. U.S. currency consisted of dollar coins and foreign coins, including the Spanish dollar and Mexican peso, both of which remained acceptable as legal tender until 1857.

Paper banknotes were introduced into the American financial system in 1861 to help finance the Civil War. Abraham Lincoln’s government brought these into circulation by using them to pay salaries of government workers and soldiers. Mindful of the British strategy of forging American banknotes during the War of Independence, and as photographic technology of the day could not reproduce colour, it was decided that the reverse of the new dollar bills would be printed in a color other than black. The colour green was selected and these bills became known as “greenbacks”. This started a tradition of the U.S. printing the back of its money in green and the term “greenback” was applied to future issues of paper U.S. Dollars.

There are some regulations to which the U.S. Treasury must adhere when designing dollar banknotes. The U.S. national motto “In God We Trust” must appear on every banknote and the portraits appearing on the banknotes can feature only deceased individuals. At some point, a committee decided to feature only portraits of U.S. Presidents but other statesmen have also appeared. Given the tendency for the faces of departed former leaders to appear on U.S. Dollar banknotes, dollar notes have also become known as “dead presidents”; this even though two statesmen appearing on the current dollar bill series were never president: Alexander Hamilton, the first Secretary of the Treasury, appears on the $10 bill, and Benjamin Franklin, a signatory to the Declaration of Independence, appears on the $100 bill.

 US dollars are currently printed in denominations of $1, $2, $5, $10, $20, $50, and $100. At one time, however, U.S. currency included five larger denominations. Notes in the denominations of $500, $1,000, $5,000, $10,000, and $100,000 were printed, although the last-mentioned denomination was never officially released for public use. The common use of notes above $100 by organized crime prompted President Richard Nixon to issue an executive order in 1969 stopping their use.

One of the unusual characteristics of U. S. dollar banknotes is that all denominations are the same size and are largely the same combination of black and green. In recent years, this resulted in a lawsuit being brought by the American Council of the Blind in terms of which the court ruled this practice denies the blind “meaningful access” to the U.S. currency system. The judge noted that the U.S.A. “was the only nation out of 180 issuing paper currency that printed bills that were identical in size and color in all their denominations”. As a result of the court ruling, it is planned that a raised tactile feature on each bill will be included in the next redesign.

For now, the U.S. dollar remains the world’s dominant currency. However, the Euro is becoming increasingly important; as from September 2012, the Euro surpassed the U.S. dollar as the currency having the highest combined value of banknotes and coins in circulation in the world. There have also recently been increasing calls to replace the U.S. dollar with a single international currency, to the extent that at a meeting of G8 leaders some years ago, former Russian President (now Prime Minister) Medvedev cheekily produced a sample coin of his proposed “United future world currency.”