By Carl Tannenbaum

To maximize my spending power when I travel internationally, I arrange to have the U.S. dollar increase in value against the currencies of the countries I will be visiting.  Don’t ask me how I do it: you don’t want to know.

I was overseas for two weeks last month, and the dollar was pretty strong during that interval.  But its standing wasn’t attributable to any manipulation on my part.  During the fortnight in the United Kingdom and Ireland, I got a lot of questions about the dollar’s status; here are a few of the most frequently-asked, along with the responses I provided.

1.      How has the conflict in the Middle East affected the dollar?

The dollar has gained strength in the last five weeks.  A significant driver has been its role in global energy markets. The correlation of the dollar and oil prices is variable, but it has been very strong since the end of February.

The dollar remains the primary currency used to trade crude oil, accounting for about 80% of transactions worldwide.  In recent years, sanctioned countries such as Russia and Iran have been selling oil in non-dollar currencies, with the Chinese yuan most prominent.  China would certainly like to increase the share of global sales that are denominated in yuan, but that currency isn’t as fluidly traded as the dollar is.

2.      Some countries are reducing their dollar reserves.  Does that reflect a loss of confidence in the United States?

Russia and China, once significant holders of U.S. dollar reserves, have reduced those positions over the past decade.  The primary motivation has been to limit their vulnerability to sanctions that would restrict access to those resources.  Fortunately for the United States, other countries have picked up the slack by increasing their holdings of U.S. debt.

There have been recent reports of dollar selling by countries seeking to bolster their local currencies.  India has been in the forefront here.  These efforts reflect a desire to preserve purchasing power, not to reduce exposure to the dollar.

Overall, the dollar’s share of global central bank reserves has been stable, and it is double the share of its closest competitor.

3.      Have recent global frictions caused international investors to reconsider their holdings of dollar-based assets?

My previous trip to Europe coincided with the “Liberation Day” tariffs.  Across countries, I was challenged to explain exactly what was so liberating about them.  And I was also challenged with questions about the wisdom of allocations to dollar-based assets.

Fortunately, the trajectory of tariffs moderated during the balance of 2025.  The performance of U.S. markets remained strong.  With very limited exceptions, global investors have maintained their holdings of U.S. assets.  There has, however, been more interest in hedging the currency risk of the dollar, which has weighed on its value.

4.      Longer-term, is the dollar at risk of losing its status as the reserve currency?

The U.S. national debt is large, and policy makers may allow higher inflation to devalue it.  This would debase the currency.  The volatility of American policy setting has also been a source of concern for domestic and international audiences.  To some, the bedrock underneath U.S. markets is cracking.

These points are not to be dismissed.  But the question remains: what currency stands ready to assume the mantle of leadership?  None stand out.  And as a result, measures of the dollar’s role in world markets do not reflect any warning signs.

Of course, I am kidding about my power to manipulate exchange rates.  If I had that ability, we would publish my travel schedule for clients to use in trading currencies.