The Value of the Dollar Today

Why the Dollar Is Worth So Much Less Than It Used to Be

A dollar doesn't buy as much as it used to.
••• Photo: Jeff Greenough/Getty Images

The value of the dollar today is much less than it was in the past. When the dollar loses value, it's called inflation. Each dollar buys less, so prices of imported goods rise. The biggest import is oil.

The dollar's strength increased 28 percent between 2014 and 2016. But it has fallen14 percent since then.

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.

Exchange rates tell you how much the dollar's value is today 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.

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 Consumer Price Index Inflation Calculator.

Year  = $100 TodayComments
1913    $100The first inflation measurement.
1920    $197World War I.
1930    $175Deflation from the Great Depression.
1940    $142
1950    $240World War II inflation.
1960    $299Recessions mean less inflation.
1970    $386Deficit spending increased inflation.
1980    $794Nixon ended the gold standard. 
1990 $1,300Reaganomics increased inflation.
2000 $1,722Expansive monetary policy to fight 2001 recession.
2010 $2,211Expansive policy to fight the Great Recession
2018 $2,529

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 F​ed 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:

  1. 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.
  1. 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.
  2. 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.

President Trump and many in Congress accused China of manipulating its currency, the yuan. 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. 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 top 1 percent earned 20 percent of all income. These are the highest percentages recorded in the last 100 years.