People measure the value of the U.S. dollar based on the exchange rate, movement of U.S. Treasury notes and foreign exchange reserves, with the exchange rate being the most common measurement, as of 2015. The exchange rate shows the value of the dollar against international currencies.Continue Reading
Currency is traded on the foreign exchange market, or forex, and thus the value of the U.S. dollar changes every day. Most countries' currencies are traded on the forex market, and their value is based on factors such as central bank interest rates, the country's level of debt and the overall strength of its economy. From 2002 to 2007 the debt of the United States grew by 60 percent, and there was a drop in the value of the U.S. dollar of 40 percent in the same time period.
The U.S. Treasury sells notes at face value plus a fixed interest rate, and investors bid at auctions and resell the notes. When there is high demand, investors pay more than face value and gain less in returns, and when there is low demand, they pay less and gain a higher yield. High yields indicate that the demand and thus the value of the dollar has gone down. Foreign governments hold U.S. dollars in reserves after receiving them as payment for exports. As the value of the dollar goes down, these countries sell off their dollars and move to currencies with more value.Learn more about Currency & Conversions