The Milkshake Theory

https://www.youtube.com/watch?v=xxzy3sLs4Bs

James Lavis, the writer behind The Informationist, explained the US dollar currency index (DXY) as the following:

"The USD is currently trading at a 20-year high, according to the DXY index.

As the USD strengthens and other currencies weaken, this puts pressure on countries who have US Dollar denominated liabilities (think payments for oil or energy that are set in USD) or issue US Dollar debt. The weakness of their own currency relative to the US Dollar negatively impacts their ability to meet the obligations or interest payments. Ultimately, it forces certain countries in emerging markets to either print more of their own currency to buy more US Dollars (which eventually leads to hyperinflation) or simply adopt the USD as their base currency.

Let’s say you have a milkshake, and you’re sitting at another table, all the way across the room. Now let’s say I have a straw. A really long straw. So, even though you’re all the way across the room, I can plunk my straw into your milkshake and drink it.

The one doing the drinking, of course, is the US Dollar itself."