38 Incredible Facts on the Modern U.S. Dollar
We’ve previously showed you 31 Fascinating Facts About the Dollar’s Early History, which highlighted the history of U.S. currency before the 20th century. This was a very interesting period in which we looked at the money used by the first colonists, the extreme bust of the Continental currency, the era of privately-issued bank notes, and Congress’ emergency issuance of the fiat “greenback” during the Civil War.
However, the modern era of the U.S. dollar is just as interesting. We have it starting in 1913, when the Federal Reserve Act was passed by Woodrow Wilson. Not only did it establish a new central bank, but it also gave the Fed the authority to issue the Federal Reserve Note, which is now the dominant form of U.S. currency both domestically and abroad.
A New Legal Tender
Leading up to the 20th century, there were four main forms of U.S. currency being used:
- Gold and silver coins
- Gold and silver certificates
- Commercial bank notes, issued by private banks and backed by government bonds
- “Greenbacks”, a fiat currency declared legal by Congress to help fund the Civil War
In 1913, however, the Federal Reserve Note was authorized as U.S. currency. The new notes were supposed to be backed by gold or other “lawful money”, based on the stipulations of the Federal Reserve Act of 1913.
However, this only lasted about 20 years. By the time of the Great Depression, the Fed considered itself to be in a tight spot. It simply did not have enough gold to back all Federal Reserve Notes and Gold Certificates in circulation, and at the same time wanted flexibility with monetary policy to fight deflation and unemployment.
In 1933, the Emergency Banking Act was passed by President Roosevelt, and Executive Order 6102 was also signed. The latter move famously criminalized monetary gold, and ended the gold standard.
After all, if gold can’t be legally owned, it can’t be legally redeemed.
Modern Paper Money
After a brief return to a pseudo gold standard after WWII, Nixon severed all remaining ties between gold and money in 1971. Since then, U.S. money has been purely fiat, and backed by the government rather than any physical commodity or precious metal.
Some facts on today’s paper money:
- There is $1.54 trillion of U.S. currency in circulation, and 97% of that is Federal Reserve Notes
- Over two-thirds of all $100 bills are held outside the U.S.
- Dollar bills can be folded at least 8,000 times, which is 20x more than a normal sheet of paper
- That’s because dollar bills are made of a special 75% cotton and 25% linen blend, patented by Crane & Co.
- The U.S. Bureau of Engraving and Printing produces 38 million notes every day, worth $541 million
- The two facilities, located in Washington, D.C. and Fort Worth, Texas use 9.7 tons of ink per day
- For 2017, the Fed ordered 7.1 billion new notes, worth $209 billion
- More than 70% of these notes are used to replace damaged ones
- Notes with smaller denominations ($1, $5, $10) tend to last for shorter periods of time, due to more frequent usage
The coins used today are similar to U.S. Federal Reserve Notes in that their face values tend to greatly exceed their intrinsic values.
This is because cheaper metals such as copper, zinc, and nickel are used instead of gold or silver.
- The average lifespan of a coin is 25 years, according to the U.S. Mint
- It’s estimated that Americans throw away around $62 million of coins every year
- In 2016, the U.S. Mint produced 16 trillion coins, valued at over $1.09 billion
- The amount of copper in a penny has fluctuated over the years. It ranges from 0% (in WWII, pennies were made of steel so copper could be used for ammunition) to 95%.
- Today’s pennies are 2.5% copper, with the remainder being 97.5% zinc
The 7 Major Flaws of the Global Financial System
Since the invention of banking, the global financial system has increasingly become more centralized. Here are the big flaws it has, as a result.
The 7 Major Flaws of the Global Financial System
Since the invention of banking, the global financial system has become increasingly centralized.
In the modern system, central banks now control everything from interest rates to the issuance of currency, while government regulators, corporations, and intergovernmental organizations wield unparalleled influence at the top of this crucial food chain.
There is no doubt that this centralization has led to the creation of massive amounts of wealth, especially to those properly connected to the financial system. However, the same centralization has also arguably contributed to many global challenges and risks we face today.
Flaws of the Global Financial System
Today’s infographic comes to us from investment app Abra, and it highlights the seven major flaws of the global financial system, ranging from the lack of basic access to financial services to growing inequality.
1. Billions of people globally remain unbanked
To participate in the global financial sector, whether it is to make a digital payment or manage one’s wealth, one must have access to a bank account. However, 1.7 billion adults worldwide remain unbanked, having zero access to an account with a financial institution or a mobile money provider.
2. Global financial literacy remains low
For people to successfully use financial services and markets, they must have some degree of financial literacy. According to a recent global survey, just 1-in-3 people show an understanding of basic financial concepts, with most of these people living in high income economies.
Without an understanding of key concepts in finance, it makes it difficult for the majority of the population to make the right decisions – and to build wealth.
3. High intermediary costs and slow transactions
Once a person has access to financial services, sending and storing money should be inexpensive and fast.
However, just the opposite is true. Around the globe, the average cost of a remittance is 7.01% in fees per transaction – and when using banks, that rises to 10.53%. Even worse, these transactions can take days at a time, which seems quite unnecessary in today’s digital era.
4. Low trust in financial institutions and governments
The financial sector is the least trusted business sector globally, with only a 57% level of trust according to Edelman. Meanwhile, trust in governments is even lower, with only 40% trusting the U.S. government, and the global country average sitting at 47%.
5. Rising global inequality
In a centralized system, financial markets tend to be dominated by those who are best connected to them.
These are people who have:
- Access to many financial opportunities and asset classes
- Capital to deploy
- Informational advantages
- Access to financial expertise
In fact, according to recent data on global wealth concentration, the top 1% own 47% of all household wealth, while the top 10% hold roughly 85%.
On the other end of the spectrum, the vast majority of people have little to no financial assets to even start building wealth. Not only are many people living paycheck to paycheck – but they also don’t have access to assets that can create wealth, like stocks, bonds, mutual funds, or ETFs.
6. Currency manipulation and censorship
In a centralized system, countries have the power to manipulate and devalue fiat currencies, and this can have a devastating effect on markets and the lives of citizens.
In Venezuela, for example, the government has continually devalued its currency, creating runaway hyperinflation as a result. The last major currency manipulation in 2018 increased the price of a cup of coffee by over 772,400% in six months.
Further, centralized power also gives governments and financial institutions the ability to financially censor citizens, by taking actions such as freezing accounts, denying access to payment systems, removing funds from accounts, and denying the retrieval of funds during bank runs.
7. The build-up of systemic risk
Finally, centralization creates one final and important drawback.
With financial power concentrated with just a select few institutions, such as central banks and “too big too fail” companies, it means that one abject failure can decimate an entire system.
This happened in 2008 as U.S. subprime mortgages turned out to be an Achilles Heel for bank balance sheets, creating a ripple effect throughout the globe. Centralization means all eggs in one basket – and if that basket breaks it can possibly lead to the destruction of wealth on a large scale.
The Future of the Global Financial System?
The risks and drawbacks of centralization to the global financial system are well known, however there has never been much of a real alternative – until now.
With the proliferation of mobile phones and internet access, as well as the development of decentralization technologies like the blockchain, it may be possible to build an entirely new financial system.
But is the world ready?
How Every Asset Class, Currency, and Sector Performed in 2018
Investors saw a sea of red in 2018 – here’s a visual recap of how markets performed, including the big winners and losers from a volatile year.
We’re only a few days into 2019, but it appears markets have picked up exactly where they left off.
There is growing uncertainty and volatility almost everywhere, and individual events are starting to become catalysts for sell-offs or rallies. Whether it’s Apple’s recent profit warning or Fed chair Jerome Powell saying that he is “listening closely” to the markets, investors are taking cues from current events to figure out where the herd is grazing.
It’s hard to say where markets will head in 2019 – but before we get into the nitty-gritty of a new year, it’s worth taking one final look back at 2018 to see how it impacted investors.
How Markets Did in 2018
We’ll start with broad asset classes, including stocks, bonds, commodities, and cash:
Note: Figures for equity markets are not including dividends
As you can see, it’s mostly a sea of red.
Cash turned out to be best option for the year, and several asset classes were crushed over the course of 2018, including crude oil and nearly all stocks. Despite this, large cap U.S. stocks (S&P 500) had no issues in outperforming equity alternatives, like smallcap stocks, foreign stocks, or emerging markets.
Breaking down the S&P 500 further into its sectors, it’s clear that nearly every industry struggled simultaneously.
Energy (-20.5%) and Materials (-16.4%) sectors were the hardest hit, and even the Technology sector eventually capitulated by the end of the year. Amazingly, Apple was considered a $1 trillion company in August, but today the tech giant’s market capitalization has already dropped down to a measly $700 billion.
The one exception to the general trend in S&P 500 stocks was Healthcare, which posted 4.7% returns over the course of 2018. Companies like Merck, Eli Lilly, and Pfizer all saw their stocks grow by double-digits, and it’s possible the sector could stay strong in 2019 as the world continues to age.
Lastly, here’s how major currency markets fared.
The U.S. dollar was the strongest major currency, and the Japanese yen had an impressive year as well. The Aussie dollar was routed, and now sits at 10-year lows.
Winners and Losers
Lastly, here’s an ad hoc list of some of the biggest winners and losers in 2018 – it includes some of the stocks and assets that saw notable gains or declines over the course of the year:
Interestingly, it was the finer things in life that outperformed most major asset classes. Both fine wine and fine art gained close to 10%, leaving most other indices behind in the dust.
AMD had a roller coaster year, finishing up nearly 80% as the biggest winner on the S&P 500. That said, owners of AMD stock may see things differently: the stock had actually tripled by September, and has fallen precipitously ever since.
Given the above recap, what are you investing in for 2019?
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