Perhaps it is this strong marriage, bound by the vow of chapel Forex, that imbues the dollar with the traditional role of gold. Even with dollar denominated products made in economies where dollar strength has ignited hyperdeflation, dollar credits continued to be hoarded, starving the Forex of liquidity and perpetuating FOFOA's vicious cycle.
The vicious circle works like this. Foreigners settle some portion of international trade in dollars, and then they hold onto those dollars as a kind of final settlement, savings or reserves. This drains dollar liquidity from the foreign exchange which causes the dollar's exchange rate to rise. As the dollar's exchange rate rises, this causes foreigners to want to hold more dollars (because dollars are gaining purchasing power for them locally, not as a reward for hard work, but as a gift of timing) which drains even more dollar liquidity from the foreign exchange which causes the dollar to rise even more and so on.Of course all FIRE SALES eventually end, and as "timing" is the key word here, we all know what will happen when all those pent-up dollars are faced with the decision by all who hold them that they need to be redeemed all at once, due to the "universally perceived right timing".
Speaking of perception ... it is merely the expectation of FED tightening that creates the perception of shrinking liquidity, and that perception (in our artificially managed paper world) is equally powerful to an actual real world liquidity drain. I wonder if that perception could change "all at once" if the physical world of deflation caused thoughts to change.
"Hurry Dollar shoppers, registers will be closing in ten minutes and our Spectacular Founders Sale will be OVER. All sales are final ... and as always ... Thank You for shopping America's Federal ReserveMart!"