The American dollar is the main currency used for trade throughout the world. A number of countries around the world have tied their currency to the dollar on a onefor-one basis, including Argentina and the Bahamas. Although the value of the dollar fluctuates freely on world markets, it has remained relatively stable. In late 2001, 0.67 British pounds equaled 1 U.S. dollar; 1.56 Canadian dollars equaled 1 U.S. dollar; 1.09 EU euros equaled 1 U.S. dollar; and 120.63 Japanese yen equaled 1 U.S. dollar.
The banking system of the United States is overseen by the Federal Reserve System, which is made up of 12 regional Reserve banks. These banks control the nation's money and credit supply. The Federal Reserve (commonly referred to as "the Fed") can raise or lower the discount rate that it charges banks to borrow money, thereby raising or lowering national interest rates. It can also control the amount of money in circulation by altering the
|Exchange rates: United States|
|British pounds||Canadian dollars (Can$)||yen|
|per US$1||per US$1||per US$1|
|SOURCE: CIA World Factbook 2001 [Online].|
banks' reserve ratios . The Fed also buys and sells government bonds.
Traditionally, the nation had a number of laws that made it difficult to establish branches of banks in other states. Although many of these laws have been rescinded, their impact has led to the establishment of thousands of individual commercial banks. Only recently have large mega-banks begun to establish multiple branches across the country. The nation is also served by thousands of small non-profit credit unions and savings and loan organizations. About 40 percent of all commercial banks in the United States belong to the Federal Reserve System. These banks account for almost 75 percent of total deposits. All banks that are incorporated under national charters must belong to the system, which imposes various requirements on its members, including the maintenance of specific reserve funds.
The 2 largest stock exchanges in the country are both based in New York City. They are the New York Stock Exchange and the American Stock Exchange. Other major stock exchanges include the Boston Exchange, Cincinnati Exchange, Pacific Exchange, and the Philadelphia Exchange. The main commodity exchange is the Chicago Board of Trade and the main currency market is the Chicago Mercantile Exchange. There are also a number of smaller stock markets across the country. The NASDAQ, which is part of the American Stock Exchange, was created in 1971 as the world's first electronic stock trading index (a listing of a predetermined group of stocks within an exchange). The NASDAQ contains many of the nation's high-tech companies and is the fastest growing of the indexes. Other major indexes include the Dow Jones Industrial Average (which lists the 30 largest industrial companies in the United States) and the Standard and Poor 500 (which lists 500 medium-sized companies).
From 1995 to 1998, the nation's stocks experienced one of their most dramatic periods of growth in U.S. history. However, beginning in 1998 the major stock markets underwent a series of corrections that lowered their overall value and contributed to an eventual economic slowdown. The total value of U.S. stock markets declined from $6.88 trillion in 1997 to $5.58 trillion in 1998. At the end of 1998, the value of the major U.S. stock markets were: New York, $4.695 trillion; American Exchange, $207.6 billion; Boston, $79.9 billion; Cincinnati, $58.6 billion; Pacific, $113.4 billion; and Philadelphia, $63.9 billion. In addition, the value of the Chicago Board of Trade was $131.2 billion, while the value of the Chicago Mercantile Exchange was $212.9 billion. Reevaluations of the value of technology stocks and an economic slowdown that began in 2000 have led to dramatic declines in the U.S. stock market. By March of 2001 the NASDAQ had fallen to its lowest level since November of 1998, while the Dow Jones declined by 8 percent to its lowest level since 1999. With declines of more than 20 percent in the major American stock exchanges, by early 2001 the United States was precariously close to slipping into a bear market as well as a recession .