Policy Push vs. Market Pull: Dollar Under Pressure As 'Reserve Currency May Be Called Into Question' Amid Tariff Turmoil

As the U.S. dollar remains under pressure, its status as the “reserve currency” has come into question. Experts are highlighting the current administration’s intentions to reshape global economic linkages, along with a market reaction that suggests a potential erosion in its status.

What Happened: The U.S. dollar index has declined 8.21% on a year-to-date basis as of the publication of this article. This decline was accelerated by the surprising market response to the administration’s announced reciprocal tariffs in early April 2025.

A recent study titled ‘Dollar Upheaval: This Time is Different,’ by five experts, including Zhengyang Jiang, Arvind Krishnamurthy, Hanno Lustig, Robert Richmond, and Chenzi Xu, highlights that “Between April 4 and April 14, the U.S. dollar depreciated by 3.6%.”

“Normally, in times of global volatility… the dollar appreciates as dollar-denominated assets benefit from a flight to safety. Not this time around,” the note stated.

This unexpected depreciation suggests a disconnect between traditional market dynamics and the dollar’s current performance. “If U.S. Treasuries are no longer viewed as the world's preferred safe asset, then the status of the dollar as the world's reserve currency may be called into question.”

Adding a crucial layer to this analysis is commentary from Chatham House expert David Lubin, who points to a “view of some within the Trump administration that the reserve currency status of the dollar is more of a burden to the U.S. economy than a blessing.”

This “policy push” aims to weaken the dollar permanently against other currencies, hoping to reduce the trade deficit and attract manufacturers to the U.S.

However, Lubin strongly cautions against this approach, arguing that “if the international monetary system cannot rely on the dollar's full convertibility, or its availability in a crisis, it is entering unknown territory. Undermining the dollar's global status would not only transmit huge amounts of additional uncertainty to the global economy, but would be a needless act of self-harm for the U.S.”

See Also: Scott Bessent Says China Won’t ‘Weaponize’ US Treasuries, Citing Risk To RMB And Exports: ‘We Do Buybacks’

Why It Matters: Despite the administration’s potential motivations and the market’s reaction, as detailed in the ‘Dollar Upheaval’ note suggests a market pull away from the dollar’s traditional “safe asset” status.

Their analysis of the Treasury basis further indicates that investors “(i) question the safety of the dollar, not just Treasuries, and (ii) that they perceive these changes to be long-lasting.”

Lubin notes a growing argument in the government, citing Vice President JD Vance‘s “resource curse” analogy and Steve Miran‘s claim that the dollar’s reserve role is causing “persistent currency distortions” leading to trade deficits.

The confluence of a deliberate policy push to weaken the dollar and a market response indicating a declining appetite for dollar-denominated assets paints a concerning picture, according to these experts.

Price Action: The U.S. Dollar Index Spot was 0.33% up at the 99.706 level as of the publication of this article. It was close to its 52-week low of 99.0140 and 9.5% lower than its 52-week high of 110.1760.

The SPDR S&P 500 ETF Trust (NYSE:SPY) and Invesco QQQ Trust ETF (NASDAQ:QQQ), which track the S&P 500 index and Nasdaq 100 index, respectively, fell on Wednesday. The SPY was down 2.22% to $525.66, while the QQQ declined 3.02% to $444.18, according to Benzinga Pro data.

On Thursday, the Dow Jones futures were up 0.78%, whereas the S&P 500 index rose 0.90% and the Nasdaq 100 advanced 1.09%.

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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

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