Dollar Value Today: Why It’s Less, Who Keeps Track

US & World Economies World Economy Trade Policy Value of the Dollar Today Why the Dollar Is Worth So Much Less Than It Used to Be By Kimberly Amadeo Updated on August 21, 2020 Reviewed by Michael J Boyle Reviewed by Michael J Boyle Michael Boyle is an experienced financial professional with more than 10 years working with financial planning, derivatives, equities, fixed income, project management, and analytics. learn about our financial review board In This Article View All In This Article Tracking the Dollar’s Value How Much Value Has the Dollar Lost? Why the Dollar’s Value Is Lower What It Means to You Frequently Asked Questions (FAQs) A dollar doesn’t buy nearly as much as it once did, as the cliché goes. Since the early 20th century, the decline in the value of a dollar has been dramatic due to inflation. A dollar in 1913 had the same buying power as $26 in 2020. Three separate factors all can create inflation: Increased demand for products and servicesConstraints on available supplies for goods and servicesAn increase in the amount of money being printed The first two examples cause costs to rise, limiting how much can be purchased, while the third example devalues each dollar because there are more of them. Tracking the Dollar’s Value The Consumer Price Index (CPI) determines the value of the U.S. dollar by the goods and services it purchases. The CPI compares the prices of a basket of goods and services each month. As the dollar’s value falls, the cost of living increases. Exchange rates tell you how much the dollar’s value is at any given time in overseas markets. One easy way to find out the dollar’s value against most of the world’s currencies is to use the dollar index, which compares the U.S. dollar to the euro, the Japanese yen, pound sterling, the Canadian dollar, Swedish krona, and the Swiss franc. How Much Value Has the Dollar Lost? Hyperinflation after World War I reduced the dollar’s value by nearly half from 1913 to 1919, but the Great Depression created deflation, which occurs when prices drop 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 spent to fight it. Using a CPI inflation calculator, we can start with $100 in 1913 and track its equivalent value in dollars in future years: Year =$100 (1913) Comments 1913 $100 The first inflation measurement 1920 $197 End of World War I 1930 $175 The Great Depression 1940 $142 1950 $240 World War II Inflation 1960 $299 Less inflation from recessions 1970 $386 Increased inflation from deficit spending 1980 $794 End of the gold standard 1990 $1,300 Reaganomics 2000 $1,722 Expansive monetary policy to fight 2001 recession 2010 $2,211 2018 $2,529 2019 $2,625 2020 $2,634 Global health crisis Why the Dollar’s Value Is Lower Inflation is necessary for an expanding economy. The Federal Reserve keeps interest rates low to stimulate spending. This drives demand and ultimately economic growth. The Fed targets a 2% core inflation rate. In other words, as long as prices rise only 2% a year, the economy grows at a healthy rate. These prices exclude volatile markets such as 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 could be much lower for multiple reasons: 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 U.S. 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. Treasurys. 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. What It Means to You When the dollar loses value, it drives import prices higher, which is one of the reasons gas prices sometimes rise. Oil is one of our nation’s biggest imports. A declining dollar also makes trips overseas more expensive, but it 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. Since the recession of 2007-2009, the rich have gotten richer. As of tax year 2018, the top 10% of earners took home almost 50% of all adjusted gross income reported on tax returns. The top 1% earned about 20% of all income. Frequently Asked Questions (FAQs) What is the value of a silver dollar? A silver dollar, when used as currency, is worth $1. However, some types of currency have become collectible, such as silver dollars minted in the late 19th and early 20th centuries. A collector may be willing to pay more than $1 for a silver dollar or more than $2 for a $2 bill, but a bank or government entity probably won’t. What happens when the value of the U.S. dollar increases relative to other currencies? When the U.S. dollar increases in value, this deflation can have the opposite effects of inflation. In other words, when the dollar gains relative value, it can mean that imports and commodities get cheaper, and economic growth slows. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. Federal Reserve Bank of San Francisco. “What Are Some of the Factors That Contribute to a Rise in Inflation?” Bureau of Labor Statistics. “Consumer Price Index.” Bureau of Labor Statistics. “BLS Handbook of Methods, Chapter 17. The Consumer Price Index (Updated 2-14-2018),” Pages 2, 4. FRED, Federal Reserve Bank of St. Louis. “Trade Weighted U.S. Dollar Index: Broad, Goods.” Federal Reserve Bank of San Francisco. “FRBSF Economic Letter.” National Bureau of Economic Research. “From New Deal Banking Reform to World War II Inflation,” Page 129. Bureau of Labor Statistics. “CPI Inflation Calculator.” Board of Governors of the Federal Reserve System. “Why Does the Federal Reserve Aim for 2 Percent Inflation Over Time?” U.S. Department of the Treasury. “Appendix 1: An Historical Perspective on the Reserve Currency Status of the U.S. Dollar,” Page 1. U.S. Census Bureau. “Monthly U.S. International Trade in Goods and Services, February 2020.” U.S. Department of the Treasury. “Major Foreign Holders of Treasury Securities.” Tax Foundation. “Summary of the Latest Federal Income Tax Data, 2018 Update.” Related Articles What Is the Consumer Price Index? 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