At last week’s spring meetings of the International Monetary Fund and World Bank, U.S. Treasury Secretary Scott Bessent faced a daunting task: restoring global confidence in the dollar. Speaking before an audience of policymakers, investors, and regulators, Bessent reaffirmed the administration’s commitment to a strong-dollar policy, amid rising fears that America’s financial standing is no longer guaranteed.
Recent market turmoil, fueled by aggressive new tariffs and escalating trade tensions under President Trump’s second term, has rattled global investors. In the three months since Inauguration Day, the dollar has fallen nearly 10 percent against a basket of major currencies, reaching its lowest level in three years. The sharp decline has sparked concern that the U.S. is risking one of its greatest financial advantages: the dollar’s role as the world’s primary reserve currency.
Just six months ago, economic leaders had expected a far different landscape. With inflation easing and hopes of a soft landing intact, few predicted the magnitude of the policy shifts now unfolding. While Trump’s campaign rhetoric hinted at protectionism, few anticipated sweeping tariffs that would depress business activity and ignite stagflation fears. As growth projections are slashed and inflation expectations rise, confidence in U.S. assets has been shaken.
Despite these concerns, few viable alternatives to the dollar exist. Europe’s efforts to strengthen the euro’s global role have gained traction, especially as fiscal policy loosens in countries like Germany. However, the sheer scale and liquidity of U.S. financial markets remain unmatched. Meanwhile, China’s capital controls and lack of a freely floating currency limit the renminbi’s appeal.
Recent volatility has prompted investors to seek shelter in traditional safe havens like the Swiss franc, Japanese yen, and gold. Yet a full retreat from the dollar would mark a seismic shift in global finance, with profound implications for liquidity, borrowing costs, and trade. Even a partial diversification could raise costs for U.S. consumers and businesses at a time when government financing needs are soaring.
While the Trump administration maintains that the dollar’s preeminence remains intact, some economists warn that the damage could be lasting. Confidence in America’s independent institutions, particularly the Federal Reserve, has come under strain. A chaotic unwinding of dollar holdings remains a distant but dangerous possibility—one that could test the resilience of globalization itself.
For now, the dollar remains at the center of the system. But the discussions in Washington this week made clear that, for the first time in a generation, its position is no longer taken for granted.