Value of the Dollar Today
Why the Dollar Is Worth So Much Less Than It Used to Be
The value of the dollar today is much less than it was in the past. When the dollar loses value, it's called inflation. That's when prices rise, so your dollar buys less than it used to. Inflation has three causes. First, the federal government creates more money, making each dollar less valuable. It also occurs when demand rises, or there are constraints on supply.
The value of the dollar improved a little between 2014 and 2016.
The dollar's strength increased 28 percent, but by 2018 it had fallen 14 percent.
Who Tracks the Dollar's Value
The value of the U. S. dollar today is determined by the goods and services it purchases. As the dollar's value falls, the cost of living increases. The Consumer Price Index measures the cost of living. It compares the prices of a basket of goods and services for each month.
How Much Value the Dollar Has Lost
Over the last 105 years, the dollar has plummeted in value. In 1913, a person with $100 could buy the same amount of food, clothing, and other necessities as $2,529 would buy today. By 1920, he'd need double that amount or $197. Hyperinflation after World War I cut the dollar's value in half.
In 1930, the person would need less, only $175. That's because the Great Depression created deflation. That's when prices drop or deflate while the dollar gains value. After World War II, the global economy grew and inflation returned.
Through the years, recessions initially created deflation. But inflation followed as the government spendt to fight it.
By 2018, the dollar's value was almost half what it was in 1990. The following table shows how much the dollar has fallen each decade according to the .
|Year||= $100 Today||Comments|
|1913||$100||The first inflation measurement.|
|1920||$197||World War I.|
|1930||$175||Deflation from the Great Depression.|
|1950||$240||World War II inflation.|
|1960||$299||Recessions mean less inflation.|
|1970||$386||Deficit spending increased inflation.|
|1980||$794||Nixon ended the gold standard.|
|1990||$1,300||Reaganomics increased inflation.|
|2000||$1,722||Expansive monetary policy to fight 2001 recession.|
|2010||$2,211||Expansive policy to fight the Great Recession.|
Why the Dollar's Value Is Lower Today than 100 Years Ago
Inflation is the necessary price for an expanding economy. The Federal Reserve keeps interest rates low to stimulate spending. This drives demand and ultimately economic growth. Currently, the Fed targets a 2 percent core inflation rate. In other words, as long as prices only rise 2 percent a year, the economy grows at a healthy rate. These prices exclude volatile food and energy.
Many countries that export to the United States accumulate dollars as payments.
They keep these on hand as foreign currency reserves. Without these reserves, the value of the dollar today would be much lower. There are three reasons why:
- The dollar is the world's reserve currency. Most international transactions are made in dollars. Foreign governments keep dollars on hand in case their businesses need it for international trade.
- Some countries, like China and Japan, export a lot to the United States. Their companies receive many dollars as payment for their goods. The government exchanges those dollars for local currency.
- The central banks of China and Japan use the dollars to purchase U.S. Treasuries. This practice keeps the dollar's value higher relative to their currencies. Their exports become cheaper in comparison. It gives their firms a competitive advantage.
They want China to force the yuan's value higher. That would allow U.S. exporters in many states to be more competitive. But this would be disastrous to most of us. Many experts say that the yuan is 30 percent lower than it should be. If the yuan rose 30 percent, so would the prices of the things China exports. Next time you want to buy something that says "Made in China," imagine it costing about a third more.
What It Means to You
When the dollar loses value it drives import prices higher. That's of the reasons for high gas prices. The biggest import is oil. It also makes trips overseas more expensive. But, a declining dollar helps U.S. manufacturers export because their products cost less in foreign countries.
A decline in the dollar's value eats away at your standard of living. For many Americans, that is exactly what has happened. Income inequality has increased. Between 2000 and 2006, average wages remained flat despite an increase in worker productivity of 15 percent. In those six years, corporate profits increased 1.3 percent per year. And that was before the recession.
Since the recession, the rich have just gotten richer. In 2012, the top 10 percent of earners took home 50 percent of all income. The . These are the highest percentages recorded in the last 100 years.