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Who Will Win The Trade War? Dollar Vs. Yuan

Aug. 06, 2018 12:43 PM ETFXY11 Comments
Kyla Scanlon profile picture
Kyla Scanlon


  • A weaker yuan puts pressure on the global economy.
  • The USD is climbing higher because of trade protectionism and a stronger economy.
  • The trade war has evolved into a currency war.

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The US Dollar. The Greenback. The Buck. The Paper. The Benjamins. No matter what you call it, the value is determined by several different variables (expectations, term premiums, interest rates, fiscal balances, national savings, and demographics, to name a few). It’s also a fiat currency, meaning that it actually derives its value from the “full faith and credit in the government”.

Us Dollar

Source: C. Economics

The DXY (an index that measures the dollar) has gone up 6% since the beginning of the year due to several macroeconomic variables. It is third in value only to Switzerland and Sweden, according to the most recent Big Mac Index (which is unprecedented). Because the USD isn’t tied to anything tangible (like gold), there are opportunities to manipulate the value of the currency. The gold standard served as baseline for the dollar’s value, and when we were taken off of that, the excessive use of the printing press became a way for us to manipulate the value of our currency. And other countries can do the same. Historically, China has been really effective at manipulating their currency through the purchase and sale of American bonds.

China has the ability to do this because they have a large influx of U.S. dollars through America’s purchase of Chinese goods. For example, say that you buy a t-shirt that's made in China from your favorite store for $15. That $15 is divided amongst the various retailers and distributors, and approximately $2 makes it back to China.

Once those dollars make

This article was written by

Kyla Scanlon profile picture
Finance professional. Focus on the fundamentals; special interests in macroeconomic analysis and equity valuation.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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