The Fed’s Real Broad Dollar Index just hit a 40-year high. The DXY has fallen 8.4% this year.
Both measure the dollar. Both are correct. Both are measuring different realities.
This has only happened twice before: 1933 and 1985.
Both times ended with 40% devaluation.
What you are witnessing is the dollar bifurcating into two instruments:
The Network Dollar: 88% of global FX transactions. 58% of world reserves. $120 billion in stablecoin Treasury demand. The rails. The plumbing. The infrastructure of global finance.
The Trade Dollar: 20% overvalued against trading partners. Crushing American exporters. Straining $10 trillion in offshore dollar debt. The price signal that makes US goods uncompetitive.
These used to move together. They no longer do.
Fund managers hold their lowest dollar allocation in 20 years. Central banks bought 3,220 tonnes of gold in three years. The smart money is already positioned.
In 1985, the Plaza Accord devalued the dollar 46% in two years. In 1934, Roosevelt devalued 41% overnight.
Today’s constraints are different. $7.5 trillion daily FX turnover dwarfs intervention capacity. China will not coordinate. Fiscal deficits require foreign capital.
Resolution will come through Fed policy, crisis, or tariff leverage.
The mechanism is uncertain. The direction is not.
Every major dollar overvaluation in history has corrected. Every single one. The average correction exceeded 40%.
The divergence between indices is not a glitch.
It is the signal.
The dollar is splitting. The world has not noticed.
