What Is USD? The US Dollar Explained

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USD is the ISO 4217 code for the United States dollar, the official currency of the United States. One dollar is divided into 100 cents. Its symbol is $, often written US$ to separate it from other currencies that are also called dollars. Beyond US borders, the US dollar serves as the main reserve currency held by central banks, the usual pricing unit for commodities, and the currency on one side of most foreign exchange trades.

How USD Works in Forex Quotes

Every forex price compares two currencies. The first is the base currency and the second is the quote currency. The price tells you how many units of the quote currency one unit of the base currency buys.

• USD as quote currency: EUR/USD, GBP/USD, AUD/USD. A rising price means the dollar is weakening against the other currency.
• USD as base currency: USD/JPY, USD/CHF, USD/CAD. A rising price means the dollar is strengthening.

Example of USD in a Trade

Hypothetical figures for illustration only.

Suppose EUR/USD is quoted at 1.1000. One euro buys 1.10 dollars. If the rate moves to 1.1100, the euro has gained and the dollar has lost value against it, since a dollar now buys fewer euros (1 ÷ 1.11 ≈ 0.901 versus 1 ÷ 1.10 ≈ 0.909).

Because USD is the quote currency here, profit and loss are calculated in dollars. On a standard lot of 100,000 euros, a one-pip move (0.0001) is worth 100,000 × 0.0001 = $10. That fixed dollar value per pip applies to any pair quoted in USD at standard lot size. For pairs where USD is the base currency, such as USD/JPY, the pip value is in yen and must be converted back to dollars at the current rate. A position size calculator handles that conversion when your account is funded in another currency.

History of the US Dollar

The Coinage Act of 1792 defined the dollar in metal: 371.25 grains of pure silver, with the $10 gold eagle set at 247.5 grains of pure gold. Paper dollars followed in 1861, when green-inked demand notes issued to finance the Union during the Civil War earned the nickname “greenback.” United States Notes became legal tender in 1862, and the Federal Reserve, created in 1913, eventually replaced competing local currencies with a single national note issue.

From Gold Standard to Fiat

The dollar’s break from gold took more than four decades:

1. 1933: The government stopped redeeming notes for gold and required gold to be turned in at $20.67 per troy ounce.
2. January 1934: The official price was raised to $35, devaluing the dollar’s gold content. Convertibility remained only for international transactions.
3. 1968: The requirement for gold reserves to back Federal Reserve notes was repealed.
4. 1971: The US stopped freely converting dollars into gold at the official rate.
5. 1972 and 1973: The dollar was devalued again against gold.
6. October 1976: The gold definition of the dollar was removed from law.

Since then the dollar’s value has rested on US law, the Federal Reserve’s monetary policy and confidence in the US economy, not on a metal reserve.

Why USD Matters Globally

The BIS 2025 survey counted the dollar in 89.2% of foreign exchange transactions. Because every trade involves two currencies, the shares add up to 200%, so this figure means the dollar was one leg of nearly nine in ten trades. The euro came second at 28.9%.

That central role shows up in several ways:

• Reserve currency: central banks hold dollar assets, and dollar-denominated government bonds are widely used as a safe holding.
• Commodity pricing: oil, gold and many other commodities are quoted in dollars, so a dollar move changes their local-currency cost worldwide.
• Official use abroad: US territories such as Puerto Rico, Guam and the US Virgin Islands use the dollar, and some other countries adopt it officially or use it alongside their own currency.
• The US Dollar Index (USDX): measures the dollar against a weighted basket of the euro, yen, pound, Swiss franc, Swedish krona and Canadian dollar.

Limitations and Common Confusions

USD is not the only “dollar.” The Canadian (CAD), Australian (AUD), New Zealand (NZD) and Hong Kong (HKD) dollars are separate currencies with their own central banks and exchange rates. A bare “$” sign can be ambiguous, which is why the US$ form and the ISO codes exist.

USD vs. the Dollar Index. USD is the currency. The USDX is a measure of its value against six others, weighted heavily toward the euro. The dollar can rise against the yen while the index falls.

Fiat money loses purchasing power to inflation. A dollar held in cash buys less over time when prices rise, regardless of how strong the currency is against other currencies.

Dominance is debated. The euro’s rise and China’s growing economic weight (see China’s currency, the yuan) raise questions about whether the dollar’s international role is shrinking. US economic stability, the dollar’s existing network of users and commodity pricing in dollars support its staying power.

Currency exposure for non-US holders. Anyone earning, saving or trading in another currency takes on exchange rate risk when holding dollars. Businesses and traders often manage this through hedging.

FAQs

The Bottom Line

Forex traders and anyone holding dollars from another currency need to know how USD sits in a quote, since its position decides what a rising price means and which currency profit lands in. The dollar's value now rests on US law, Federal Reserve policy and confidence in the economy. Non-US holders carry exchange rate risk, and businesses and traders often manage it through hedging.