USD vs. The World: Hidden Wars and the 2025 Paradox

In analyzing the dynamics of the US Dollar (USD) against major global currencies, focusing on the highly coordinated currency battles often hidden beneath the surface of nominal exchange rates. The 2025 Paradox presents a critical starting point: Why did the USD initially weaken this year despite the implementation of new tariffs on China, an action that typically strengthens the dollar (as seen in 2018)? This early weakness was driven by market expectations of imminent and rapid Federal Reserve rate cuts, combined with the US Treasury's robust issuance of bills rather than longer-term bonds, which temporarily eased dollar liquidity concerns. However, this trend decisively reversed in September when the Federal Reserve delivered a "hawkish cut," signaling that future monetary easing would be slower and more cautious than anticipated, pushing the USD index back toward strength. This shift highlights the dominance of domestic US monetary policy over trade policy in setting the dollar's immediate trajectory, an often counterintuitive insight for casual observers.

China's Covert Campaign to Keep the Yuan Weak Against the USD

When examining the Chinese Yuan (CNY) against the USD, it might appear to be a relatively stable currency, hovering around 7 CNY per USD, which initially suggests market-driven stability. However, the economic fundamentals tell a staggering story of intervention: China’s official trade surplus exceeds $1 trillion, and by some estimates, the actual surplus might be closer to $1.4 trillion. A trade surplus of this magnitude should, by all textbook economic rules, lead to a massive appreciation of the local currency against the USD, yet the Yuan remains stubbornly weak against its equilibrium value.

This massive deviation is maintained by Hidden Intervention Mechanics: China is engaged in large-scale, non-transparent intervention in the foreign exchange market to prevent the Yuan from strengthening, thereby keeping their massive export engine running . They aren't primarily using their official foreign reserves, which show minimal movement. Instead, they operate through massive state-owned commercial banks and complex structures, effectively employing offshore "nominee" funds and shell accounts to continuously purchase US Treasury bonds. These banks and their associated funds, often domiciled in places like Luxembourg or the Cayman Islands, purchase US assets without directly showing the Chinese government as the end buyer, obfuscating the true scale of the intervention designed to suppress the CNY.

Taiwan's Proxy War: The Role of Insurance Giants

While China’s methods are enormous, the most intense currency suppression efforts, relative to economic size, are arguably found in Taiwan . Taiwan’s current account surplus relative to its GDP is an absolutely wild 25% . Despite this staggering figure—a surplus that demands a massive appreciation of the Taiwanese Dollar (TWD) against the USD—the TWD has maintained a weak stance, especially in the second half of the year . The sheer scale of that surplus means the country is actively and aggressively making its currency weaker than its economic fundamentals dictate, a classic case of competitive devaluation.

This deliberate TWD weakness is also not primarily executed by the central bank's official reserves; like China, Taiwan employs sophisticated proxies . The main drivers here are Taiwanese life insurance companies, which are massive financial entities . These insurers engage in enormous overseas investments and, critically, often fail to hedge their currency risks . They are encouraged to do this through subtle regulatory levers—a slight tweak in risk weighting for foreign assets, for instance, sends a flood of capital offshore, increasing USD demand and keeping the TWD artificially weak without direct central bank intervention showing up on the official books . This systemic, regulation-driven movement is a strategic choice designed to ensure Taiwan maintains its competitive export edge.

Global Impact: Manufacturing Shifts and Deflation

The systematic competitive devaluation employed by Asia's major exporters against the USD (and subsequently against other currencies like the Euro) has severe Global Impacts. This entire operation is a systematic strategy to maintain an artificially weak Yuan and TWD, ensuring their overcapacity in manufacturing can be dumped globally . This constant pressure from China's export machine is not only affecting competitors like Korea but is actively dismantling European and ASEAN manufacturing bases.

This scenario creates strong deflationary pressures globally, often termed "hedonic" deflation, where prices fall due to the sheer volume of cheap, high-quality goods flooding the market . For the US, this influx keeps consumer prices low but creates deep structural problems for domestic industries forced to compete against artificially cheap imports.

Is Weak Currency of The Korean Won (KRW) a Real Problem?

Given the aggressive currency suppression strategies employed by China, Taiwan, and Japan (via the Bank of Japan's yield curve control, which pressures the Yen), how should we view the Korean Won’s (KRW) weakness against the USD?

If Korea were to allow the Won to strengthen while its rivals were suppressing theirs, Korean exports would become instantly uncompetitive, leading to a massive economic downturn. The recent weakness of the Won, even up to the 1,400 KRW/USD mark, was largely a necessary reflection of these relative competitive pressures.

While China and Taiwan engage in massive, non-transparent manipulation of their currencies against the USD to suppress their exchange rate, the KRW's recent weakness is primarily a market correction required to keep pace with these aggressive competitors . Furthermore, the significant private overseas investment by everyday Korean citizens, often referred to as "Western Ants" (Seohak Gaemi), who invest heavily in US assets, effectively drains Won liquidity and naturally increases demand for dollars, achieving a currency-weakening effect that complements or substitutes for official government intervention, thereby maintaining Korea's export competitiveness without the controversial, large-scale direct manipulation that its neighbors undertake.