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In Chartbook 481, Adam Tooze argues that the dollar’s support increasingly comes from foreign investment in U.S. financial assets, especially equities, rather than the traditional accumulation of Treasury reserves. He asks whether this “profit dollar” could prove more vulnerable if the AI trade falters, since a retreat from U.S. assets could coincide with dollar weakness. The report describes this as a risk, not a confirmed market outcome.
In Chartbook 481, economic historian Adam Tooze questions how stable the dollar will be as its support increasingly comes from foreign investment in U.S. financial assets, particularly equities, rather than the accumulation of U.S. Treasury reserves. The analysis argues that this shift may make the dollar more dependent on investor appetite for U.S. returns, including the AI trade, and raises the possibility that a reversal could weaken both U.S. asset prices and the currency.
Tooze describes the change as a move from a reserve-currency model toward what he calls the “profit dollar”: the dollar’s position is tied more closely to capital seeking gains in U.S. markets. The earlier model centered on foreign holders recycling surpluses into Treasury bonds. According to the report, foreign holdings of U.S. assets are now increasingly dominated in value by equities, while states, state banks, pension funds and other quasi-sovereign investors continue to hold claims on the United States.
The analysis draws on Treasury International Capital data discussed by MUFG strategist Lee Hardman. In figures cited in the report, net foreign purchases of U.S. equities reached $244 billion in April and May, while purchases over the preceding 12 months totaled $904 billion. Private investors accounted for $781 billion of that 12-month total and official investors for $123 billion. These figures are presented as evidence of substantial foreign demand; they do not establish that the inflows will continue.
Tooze also points to market concerns after a recent loss of confidence in AI stocks, citing a Reuters report by Karen Brettell. Wells Fargo FX strategist Erik Nelson compared return-seeking allocations to “hot money” flows in emerging markets. CIBC Capital Markets strategist Noah Buffam said the AI trade had pushed U.S. rates higher and helped the dollar rally. Their comments describe market interpretations of the dollar’s movements, rather than proving that AI investment alone caused them.
A Dollar More Exposed to Equity Flows
The distinction matters because a currency supported by investors seeking returns may respond differently to a shock than one supported by demand for safe reserves. In Tooze’s account, foreign investors increasingly hold U.S. equities and other assets for their growth potential. If confidence in those returns weakens, selling pressure could affect both portfolios and the dollar, rather than prompting investors automatically to seek U.S. assets as a refuge.
That possibility does not mean the dollar has lost its central role or that a sell-off is imminent. It highlights a potential vulnerability in the changing sources of support for U.S. markets. A sharp reversal could, in principle, compound losses: falling equity prices may encourage investors to reduce exposure, while a weaker dollar reduces the value of their holdings in their home currencies. The report frames this as a risk to watch, not an observed, self-sustaining spiral.
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From Treasury Reserves to U.S. Returns
The earlier reserve-currency pattern took shape in the 2000s and relied heavily on foreign accumulation of U.S. government debt alongside persistent U.S. budget and current-account deficits. Tooze argues that those deficits remain, but the form of foreign claims on the United States has changed. Citing Brad Setser’s work, he calls the shift “de-reservification,” not de-dollarization: the dollar remains central, while the way overseas investors hold U.S. assets evolves.
Two forces cited in the report help explain the change: reduced willingness to accumulate U.S. government debt and the long-running outperformance of U.S. equity markets. Rising equity valuations can also increase the value of foreign portfolios already invested in U.S. shares, adding to the shift in the composition of holdings. Enthusiasm for AI-related firms has added momentum, according to the analysis and the market commentary it cites.
Tooze uses the April 2025 “Liberation Day” episode as a warning about how shocks can interact. The report says markets were unsettled by U.S. policy uncertainty and by concerns over U.S. AI companies after DeepSeek’s modeling breakthrough. It also notes a decline in the dollar. A BIS report discussed by Tooze said foreign investors’ currency hedging contributed to pressure: some investors kept U.S. equity positions while increasing protection against dollar risk. The episode is offered as a case of simultaneous stresses, not proof that every future sell-off will follow the same course.
““Hot money” flows”
— Erik Nelson, global head of FX strategy at Wells Fargo, as quoted by Reuters
How Investors Might React to Reversal
The analysis does not establish how much foreign demand is specifically driven by AI, how persistent the reported inflows will be, or what would trigger a large-scale reversal. The cited purchase totals cover defined periods and show recorded flows; they do not forecast future investment behavior. It is also unclear whether investors would respond to a shock by selling U.S. assets, hedging currency exposure while retaining them, or shifting into other markets.
Nor does the report resolve whether the dollar would reliably lose its safe-haven appeal during a future crisis. It points to episodes in which investors sought safety outside the dollar and to the April 2025 combination of asset-market and currency pressure. The scale and duration of any comparable move remain unknown.
Watch Capital Flows and Currency Hedging
The next evidence will come from subsequent Treasury International Capital data and market behavior during periods of stress. Investors and analysts will be watching whether overseas purchases of U.S. equities continue, how much of that demand is concentrated in AI-linked companies, and whether foreign holders increase currency hedges while maintaining their U.S. positions.
Further market shocks could test the report’s central question: whether the dollar’s role as a destination for profit-seeking capital can coexist with its traditional safe-haven function. Chartbook 481 presents no definitive answer. For now, the shift toward equities is documented in the cited figures, while the consequences of a sustained reversal remain a scenario rather than a confirmed development.
Key Questions
What does Tooze mean by the “profit dollar”?
Tooze uses “profit dollar” for a dollar increasingly supported by investors seeking returns from U.S. financial assets, especially equities, rather than primarily by foreign accumulation of Treasury reserves.
Does Chartbook 481 say the dollar is no longer the world’s central currency?
No. The report says the dollar remains central, while arguing that the economic and financial mechanisms supporting its role are changing.
How large were the foreign equity purchases cited?
The report cites $244 billion in net foreign purchases of U.S. equities in April and May, and $904 billion over the 12 months discussed. These are historical flow figures, not a forecast.
What could happen if the AI trade reverses?
Tooze raises the possibility that investors could sell U.S. assets or hedge dollar exposure, putting pressure on both asset prices and the currency. The report does not say such a reversal is certain or establish its likely scale.
What does “de-reservification” mean?
As used in the report, de-reservification describes a change in how foreign investors hold claims on the United States, with equities gaining weight relative to Treasury bonds. It is distinct from saying the dollar has been abandoned.
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