The dollars we all use today operate independently of gold prices or any precious metals of intrinsic value. This is known as “fiat currency” – that is, the dollar’s value is only that which we collectively ascribe to it. Insofar as we value, accept and seek dollars as compensation, they have and will continue to have value. Transformation of the U.S. dollar into a fiat currency began in earnest in 1963, when the words “payable to bearer on demand” were left out of all newly printed Federal Reserve notes. Holders of pre-1963 currency could still redeem it for gold until 1968, when redemption was discontinued. Additionally, 1965’s Coinage Act stopped the practice of using silver in quarters and dimes, which were composed 90% of silver prior. In sum, this means that all of the roughly $829 billion worth of U.S. currency estimated to be in worldwide circulation in 2007 is redeemable for and intrinsically worth precisely nothing. The “real” value of U.S. currency begins and ends with the value of the paper it is printed on.

Despite being a fiat currency, the U.S. dollar serves as a sort of barometer for the health of the world’s financial system. Today, entire countries (such as Panama, the British Virgin Islands and El Salvador) peg their currency to the dollar just as the U.S. once pegged the dollar to gold; others go so far as using dollars in lieu of – or alongside – their own currencies. Evidently, the fact that the the dollar is backed by nothing but “the full faith and credit of the United States government” is convincing enough for our citizens and the rest of the world. Whether faith in the dollar will withstand unprecedented debt spending and a shaky world economy, however, is a question yet to be answered.

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