Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Politics : Moderate Forum -- Ignore unavailable to you. Want to Upgrade?

To: Sun Tzu who wrote (19844)	10/8/2005 8:45:43 AM
From: jttmab	Respond to of 20773

The problem with the USDX as a worldwide confidence measure in USD is that it does not take into account the erosion of dollar against pegged currencies that by definition does not show up as drop in exchange rate but rather in the trade balance. I think you could argue that the metric itself is obsolete irrespective of fixed currencies. I gathered from what I read that the composition of the Index doesn't change and reflects what the trade relationships with the US were in 1973[?]. [Presumably there is some effect as new countries take the Euro as their currency but I would think the effect would be relatively small.] If I wanted to construct a new index [Bold for not knowing what the hell I'm doing :o}] that might be more representative of the global strength of the dollar. I think I'd pick something that looked like. The [EU?], Canada, Mexico, China, Japan, UK, South Korea, Taiwan. census.gov The UK, South Korea, and Taiwan being the least important and there's quite a drop between Japan and the UK in total trade. Maybe one argues to drop the least significant trade partners. I haven't looked up or calculated total EU trade so it's in there somewhere. Whether it's one, two or three I don't know and make no claims. China is the only one on the list of primary trade partners that has a fixed currency. Also, the census data only reflects goods. I might think that services are more important now then they were in 1973. So that should be considered as well. Maybe some other country might get bumped onto the list. So for example USD has not dropped against Saudi Rial at all, but we do have to give them a lot more dollars per barrel of oil than we used to (which would have been the same effect if they had a floating currency and were quoting us oil in SAR). True, but it's not clear how significant that is in terms of total $ of world trade. We get more oil from Canada then we do Saudi Arabia. Also from the above link [which ignores EU as an entity] Saudi Arabia doesn't even make the top 15. Trade with Malaysia, Brazil, and Venezuela is more important than trade with the Saudis. jttmab