# The 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, that'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 fallen 14 percent since then.

### Who Keeps Track of the Dollar's Value?

The value of the 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

The dollar has plummeted in value in the last 105 years. 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 That's because 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 create deflation. But inflation follows as the government spends to fight it. By 2018, the dollar's value was almost half what it was in 1990. You would need more than \$2,500 to buy what \$100 could buy 105 years ago.The following table shows how much the dollar has fallen each decade according to the Consumer Price Index Inflation Calculator.

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 cost of an expanding economy. The Fed keeps interest rates low to stimulate spending. This drives demand and ultimately economic growth. In fact, the F​ed targets a 2percent core inflation rate. In other words, as long as prices only rise two percent a year, the economy will grow 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 foreign currency reserves, the value of the dollar today would be much lower. Here are three reasons why:

1. The dollar is the world's reserve currency. That means that most international transactions are made in dollars. Foreign governments keep dollars on hand in case their businesses need it for global trade.
1. Some countries, like China and Japan, export a lot to the United States. They get a lot of dollars in return for their goods. If some companies have too much, the government will exchange it for them.
2. China and Japan also like to keep buying dollars. This practice keeps its value higher relative to their currencies. That makes their exports cheaper in comparison. Their companies then gain a competitive advantage.

President Trump and many Congressmen have accused China of manipulating its currency, the yuan. They want China to let the yuan's value rise. 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

The dollar's loss in value means that imports from places other than China or Japan will cost more. That's one reason why gas prices kept rising. They have fallen since 2014. It also means that trips overseas will be more expensive over time. However, a declining dollar value 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. That's because income inequality has increased. Between 2000-2006, 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. (Source: “The Rich Get Richer Through the Recovery,” The New York Times, September 10, 2013.)