Tag Archives: Currency Wars

USDX Adversarial Relationships

USDX [courtesy Google Images]

[courtesy Google Images]

The U.S. Dollar Index (USDX) is a number that measures a “teeter-totter” relationship between the U.S. fiat dollar (on one end of the “teeter-totter”) and six foreign, fiat currencies (sitting on the other end of the “teeter-totter”). That relationship measures the relative inflation/deflation between the U.S. dollar and the other six currencies.

The six foreign currencies and their relative “weights” in the USDX are:

Euro (EUR), 57.6% weight

Japanese yen (JPY) 13.6% weight

English pound sterling (GBP), 11.9% weight

Canadian dollar (CAD), 9.1% weight

Swedish krona (SEK), 4.2% weight

Swiss franc (CHF) 3.6% weight

First, note that the most heavily-weighted foreign currency is the euro which makes up almost 58% of the total “weight” of the six foreign currencies in the USDX. Changes in the perceived purchasing power of the euro can have a significant effect on the USDX. Changes in the purchasing power of the Swiss franc (just 3.6% of the total weight of the six foreign currencies) will have only a negligible effect on the USDX.

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Allies Revolt?

[courtesy Google Images]

[courtesy Google Images]

The New York Times recently reported in “Hostility From U.S. as China Lures Allies to New Bank” that,


“ When Xi Jinping, then the newly minted Chinese leader, first broached the idea of a new Asian development bank in a public speech in 2013, few in Washington paid it much heed.

“But as Beijing systematically recruited longtime American allies to help fund and oversee the new bank, it became clear that the push was more than a public relations gesture to China’s Asian neighbors.  It was also a direct threat to the post-World War II financial institutions led primarily by the United States, and to President Obama’s pledges to make a “pivot” to Asia in American foreign policy.

“Now with Britain, France, Germany and Italy signing up to join the new bank, despite direct pleas from Washington to steer clear, the question is whether the Obama administration mishandled a significant challenge from China, and what it might have done differently.”


No, that’s not “the question”.

“The questions” are:

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Currency War’s Prize: Privilege to Print “World Reserve Currency”?

Dali: a surrealist artist for a surreal currency [courtesy Google Images]

Salvador Dali: a surrealist artist for a surreal currency
[courtesy Google Images]

Salvador Dali (1904-1989) was one of the world’s premier surrealist artists.  During his peak popularity he enjoyed a peculiar privilege: Whenever he wrote a check, he embellished the check with so many distinctive flourishes and artwork, that many people refused to cash his checks. 

Why?  Because they believed his check (an intrinsically worthless piece of paper) was—as a work of art signed by the Dali—worth more than the face value of the check. 

Result?  Dali frequently didn’t have to actually pay for many of the goods and services he purchased by check with a deduction from his bank account.  Dali could buy dinner or a new pair of tools and discharge his debt with nothing more than a few doodles.

Dali was essentially printing his own fiat currency (an intrinsically worthless piece of paper just like a US fiat dollar).  His celebrity allowed him to use that “currency” to discharge his debts without redeeming that currency at Dali’s bank.

In that regard, Dali was able to emulate the US government’s ability to issue fiat dollars (the World Reserve Currency) and never have to actually redeem the fiat dollar. 

I.e, whoever prints the world reserve currency doesn’t have to actually pay his bills.  At least not for a couple of generations.

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Current Currency Wars

World Reserve Currency Teeter-Totter-- if they go up, we go down

World Reserve Currency Teeter-Totter–
if they go up (inflate), we go down (deflate)

In “Currency Battle Is Tethered to Obama Trade Agenda,” The New York Times recently offered some bases for insight and conjecture concerning currency:



“A number of countries — China most prominent among them — have long acted to hold down the value of their currencies against the dollar, helping their industries by keeping exports to American consumers cheaper and making goods from the United States more expensive.”


Since the fiat dollar is still the World Reserve Currency, there’s a teeter-totter relationship between US dollars and the rest of the world’s major fiat currencies.  When foreign countries hold their currencies down in relation to the dollar, they hold the dollar up. That is, by inflating foreign currencies they make the dollar more valuable and thereby contribute to dollar deflation.

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“Currency Wars” Against Whom?

Inflation & Gold

Inflation & Gold (Photo credit: Paolo Camera)

When you have a “war,” it is presumably waged against a particular “enemy”.  If the governments of the world are about to engage in “currency wars,” who, pray tell, are their enemies?

PremiseBy inflating its currency and thereby lowering its currency’s value, a nation fosters its “competitiveness” in foreign markets—but simultaneously robs its domestic creditors of their savings and robs  its own working people of their standard of living. 

•  Inflation makes the fiat dollar “cheaper” and thereby benefits two primary groups:

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First to “See”?


Seeing (Photo credit: parker yo!)

In July of A.D. 2009, I posted an article on this blog entitled “The Undefined Dollar, Part II”.  In that article, I wrote in part:


“Our current economic problem began in 1934 when President Roosevelt removed gold-backed dollars from domestic circulation.  The problem was aggravated in 1968 when the gov-co stopped redeeming paper silver certificates with silver dollars and thereby removed all tangible definition from the domestic dollar.  The problem was further exacerbated in 1971 when President Nixon closed the “gold window” in international trade and thereby left the dollar without definition in both the domestic and international spheres.

“Once the dollar was completely undefined, the U.S. should’ve soon suffered a massive economic failure.  However, Nixon and Kissinger devised a brilliant deal with Saudi Arabia whereby the U.S. guaranteed the Saudi’s security and the Saudi’s guaranteed to sell their crude oil for dollars only.  OPEC quickly followed the Saudi’s lead and for the next 30 years, any nation that wanted to purchase oil on the international market could do so only with dollars.

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Posted by on October 7, 2012 in Currency Wars, Money, US Dollar, Video, War


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Currency Wars: The Final Battle?

Français : plusieurs billets de 5000, de diffé...

Français : plusieurs billets de 5000, de différentes monnaies : franc, yen, lire, dollar (Photo credit: Wikipedia)

The Society for Worldwide Interbank Financial Telecommunication (SWIFT) describes itself as, “a member-owned cooperative through which the financial world conducts its business operations with speed, certainty and confidence. More than 9,000 banking organisations, securities institutions and corporate customers in 209 countries trust us every day to exchange millions of standardised financial messages.”

SWIFT is the backbone of global free trade.  By means of SWIFT, businessmen in virtually any country can digitally buy or sell products to other businesses anywhere else on the globe.  Without access to SWIFT, global trade would be slow, uncertain and difficult.

The US gov-co has recently ordered Iranian banks be denied access to SWIFT until the Iranian government agrees to meet US demands concerning Iranian nuclear weapons.  Nations such as India (which are buying crude oil from Iran) are also threatened with restricted access to SWIFT unless they stop purchasing Iranian crude.

According to Bloomberg (“U.S. Wants Iran Oil Buyers to Pledge Cuts or Risk Sanctions”),


“If a country doesn’t prove it’s making the necessary reductions [in the purchase of Iranian crude oil] by the end of June, any institution in that nation that settles petroleum trades through Iran’s central bank will be cut off from the U.S. banking system.”

And conversely, the US banking system (and US dollar) will be “cut off” from any nation that continues to trade with Iran.

The question is:  Who needs who?

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