This is an opinion editorial by Dan Ashmore, financial analyst, journalist and contributor to Bitcoin Magazine.
Within financial and macroeconomic circles, it can sometimes feel like the USA is the only country in the world. Inflation data is accepted as the CPI reading in the U.S. The stock market is the S&P 500. The currency is the ever-dominant dollar.
On this note, you don’t need me to tell you that the market environment right now in the U.S. is abject. Inflation is printing 40-year highs, the Federal Reserve is yo-yoing between hawkish and super-hawkish while sentiment is free-falling.
correlates with a weakening of many emerging economies’ currencies.
DXY Index, which measures the value of the dollar against a basket of foreign currencies (this basket does also include the euro). The DXY has been on an absolute surge this year, as the graph below shows.
Why Is The Dollar So Strong?
In times of uncertainty, investors dump risk-on assets and flee to safety. This means volatile assets see a wave of selling while safe-haven assets such as cash and gold experience inflows. But not all cash is created equal. And in the fiat universe, one currency is the clear king of them all: the U.S. dollar.
Time and time again throughout economic crises, when the economy wobbles and investors jump risk-off, the dollar appreciates due to its status as the world’s reserve currency. Being the strongest of any fiat money, it thrives amid market turbulence and uncertain times.
clear at this time that the COVID pandemic was more impactful than originally thought, the WHO declaring it a pandemic on March 11, 2020. Over the course of a 10-day period, the dollar jumped 8%.
So the dollar has actually been immensely strong in this current period, despite mass debasement — a show of strength typical of recessions.
However, the below graph shows that this dollar strength is onlyrelative to other fiat currencies. When graphed against real goods — gas, eggs, chicken breasts and bread, let’s say — one needs ever increasing numbers of dollars to purchase these goods.
similar levels of inflation. The below is a great graph from Jeffrey Snider demonstrating that Germans paid 35% more for 9% less imports. That’s a pretty wild statistic highlighting the sheer scale of the movements here and Europe’s plight.