How to Calculate the True Value of the Dollar

Inside some of the world’s biggest asset managers, the quants are transforming a centuries-old theory to answer a burning question: What is the dollar’s true value?

At the heart of the theory is fair value, the level a currency should eventually drift toward, regardless of how expensive or cheap it is at any given point. Scholars from 16th-century Spain first measured it by price levels, proposing that exchange rates should adjust to the cost of goods so that a bag of sugar or a yard of fabric would cost the same in different nations when expressed in the same unit.