In 2022, the U.S. dollar reached its highest value since the early 2000s, following a decade of sustained growth. As of August 2024, the dollar has shown signs of weakening, yet it remains stronger than most major currencies. This strength is attributed to several factors, including the Federal Reserve’s decision to keep interest rates elevated while other global central banks have moved in the opposite direction. The value of the dollar is a complex and multifaceted issue, with significant implications for the U.S. economy, affecting everything from employment rates to international trade.
Why the Value of the Dollar Matters
The strength of the U.S. dollar plays a crucial role in both domestic and global economic dynamics. A strong dollar increases the purchasing power of American consumers by making foreign goods and services cheaper. However, it also raises prices domestically and can lead to reduced demand for U.S. exports, as American products become more expensive for international buyers. This can have a negative impact on U.S. industries, particularly manufacturing, which is heavily involved in global trade. Historically, periods of significant dollar appreciation have been associated with declines in manufacturing employment, as seen in the early 1980s and early 2000s. Additionally, a strong dollar complicates the U.S.’s ability to project political power globally, as it creates a dichotomy where the benefits of a strong currency are not evenly distributed across the economy.
Why the Dollar Skyrocketed
The dollar’s sharp rise began in response to the first flare-ups of inflation in 2021, which intensified throughout 2022. The Federal Reserve’s intervention, primarily through raising interest rates, was aimed at controlling inflation but had the side effect of increasing the dollar’s value. Higher interest rates made dollar-denominated investments more attractive, drawing global investors and further strengthening the currency. This phenomenon is not new; whenever the Fed raises rates, the dollar tends to appreciate as it becomes a more appealing investment vehicle. The dollar’s role as the world’s dominant currency also contributes to its strength, as it is widely used in international trade and as a benchmark for other currencies, particularly by countries like China. Additionally, trade policies, including tariffs on imports, can influence the dollar’s value by affecting the balance of trade. For example, tariffs imposed during the Trump and Biden administrations aimed at protecting American industries had the unintended consequence of exacerbating trade imbalances and contributing to the dollar’s appreciation.
How the President Can Impact the Dollar
While the U.S. president does not directly control the dollar, their policies and decisions can significantly influence its value. Historically, presidents have taken actions that led to both the appreciation and depreciation of the dollar. For example, President Nixon’s decision to suspend the gold standard in 1971 and President Reagan’s coordinated efforts with global economies to depreciate the dollar in 1985 are notable instances of presidential influence on the currency’s value.
Trump’s Tariff Increases (2019):
In a 2019 decision by President Trump to raise tariffs on Chinese goods in response to what was perceived as retaliation in the ongoing trade war. This decision is significant because it illustrates how tariff policies can influence the value of the dollar. This explains that tariffs can worsen trade imbalances, leading to a stronger dollar by making U.S. goods more expensive abroad. This move by Trump aimed to protect U.S. industries but also risked making American products less competitive in the global market, which could negatively impact the U.S. economy by reducing demand for exports and potentially leading to job losses in manufacturing.

Biden’s Tariff Increases (2024):
President Biden in 2024, where he raised tariffs on $18 billion worth of Chinese imports, including electric vehicles (EVs), solar panels, and batteries. This action reflects a continuation of the protectionist trade policies seen under Trump. Such tariffs can contribute to the appreciation of the dollar, as they disrupt trade balances and make imports more expensive. While the intention is to support domestic industries, the stronger dollar that can result from such policies might backfire by making U.S. exports less competitive, thereby hurting the very industries these tariffs aim to protect.

However, the president’s ability to affect the dollar is often limited by broader economic forces, including the actions of other global economies and the policies of the Federal Reserve. As the U.S. continues to grapple with economic challenges like inflation, the president’s role in shaping the dollar’s value will remain crucial, though constrained by these broader dynamics. The dollar’s future stability and its role as the world’s reserve currency are issues that will require careful management by current and future administrations.
The U.S. Dollar as the World’s Reserve Currency
The U.S. dollar holds the status of the world’s primary reserve currency, meaning it is widely held by governments and institutions around the globe as part of their foreign exchange reserves. Several key factors contribute to the dollar’s ability to maintain this dominant role:
- Independent Central Bank (Federal Reserve):
- The Federal Reserve, which is the central bank of the United States, operates independently from the federal government. This independence is crucial as it allows the Fed to make decisions aimed at maintaining economic stability, such as controlling inflation and managing interest rates, without direct political interference. This level of independence instills confidence in the stability of the dollar, making it a preferred currency for global reserves.
- Strong Military Backing:
- The U.S. military’s global presence and strength provide a level of geopolitical security that underpins the dollar’s dominance. The implicit guarantee of military protection for U.S. interests worldwide adds an extra layer of confidence for those who hold or trade in U.S. dollars, further solidifying its status as a safe and stable currency.
- Deep and Liquid Bond Market:
- The United States has a highly developed bond market, characterized by its depth and liquidity. This means that there are large volumes of U.S. government bonds available for trading, and they can be bought or sold with relative ease without significantly affecting their price. For foreign investors and governments, this market provides a reliable place to invest large sums of money securely. The ability to easily buy and sell U.S. debt instruments adds to the dollar’s attractiveness as a reserve currency.
During times of global economic uncertainty or geopolitical tension, the U.S. dollar is often viewed as a safe haven. Historically, when instability arises, demand for the dollar increases, leading to its appreciation. This is because the dollar is seen as a stable and trustworthy store of value, backed by a robust economy, sound governance, and resilient financial markets.
The entrenched position of the U.S. dollar as the world’s reserve currency is unlikely to change without significant, even drastic, circumstances. Such circumstances might include a severe decline in the U.S. economy, a loss of confidence in the Federal Reserve’s ability to manage economic challenges, or a major geopolitical shift that diminishes U.S. global influence. Absent these extreme scenarios, the U.S. dollar is expected to maintain its status as the dominant global currency, continuing to serve as the go-to safe haven for investors during periods of global uncertainty.