On the sidelines of the spring meetings of the International Monetary Fund and World Bank this week, Treasury Secretary Scott Bessent tried to convey an important message about the United States dollar.

Speaking to a crowd of global policymakers, regulators and investors, Mr. Bessent sought to allay fears that had ballooned in recent weeks about the dollar’s global standing and the country’s role as the safest haven during times of stress. He reiterated that the administration would continue to have a “strong-dollar policy” and affirmed that it would remain the currency that the rest of the world wanted to hold, even though it had weakened against most major currencies.

For participants at the event, Mr. Bessent’s comments were a needed salve after a bruising couple of weeks in financial markets as a result of President Trump’s trade war. Violent swings in stocks, coinciding with the weakening of the dollar as investors fled U.S. government bonds, had incited panic.

The fact that Mr. Bessent found it necessary to emphasize that message in front of such a big crowd underscored how precarious the situation had become since Mr. Trump returned to the White House less than 100 days ago. What now looms large are uncomfortable questions about what happens if the international community starts to lose faith in the dollar and other U.S. assets, something that economists warn would be costly for Americans.

“People are playing through scenarios that previously had been judged unthinkable, and they’re playing them through in a very serious kind of way in the spirit of contingency planning,” said Nathan Sheets, the chief economist at Citigroup and a Treasury official in the Obama administration.

“If the United States is going to pursue aggressive economic policies, it’s natural for the rest of the world to step back and say, ‘Well, do we want to buy U.S. assets as we have in the past?’”

‘New World Order’

At a similar gathering hosted by the I.M.F. and World Bank six months ago, attendees were preparing for an entirely different economic backdrop. Convening less than two weeks before the presidential election, they still had in their sights a rare soft landing in which the major central banks finished their fight against high inflation while managing to avoid a recession.

The tariffs Mr. Trump had been talking about on the campaign trail were top of mind, but for the most part, they were viewed as a negotiating tactic. Any turn toward protectionism was widely expected to push up the value of the dollar compared with other currencies. The rationale was that tariffs would lower demand for imported goods, since they would make them more expensive for American consumers, and over time result in fewer dollars being exchanged for foreign currencies.

But since Inauguration Day, the opposite has occurred. An index that tracks the dollar against a basket of major trading partners has fallen nearly 10 percent in the last three months. It now hovers near a three-year low. The sharpest slide came after Mr. Trump announced large tariffs on nearly all imports in April. While he temporarily reversed course, the dollar has yet to recoup its losses.

There are reasons not to read too much into its recent weakening. The U.S. economic outlook has fundamentally changed. Businesses are “frozen” by tariffs, Christopher J. Waller, a governor at the Federal Reserve, said this week as he warned about layoffs stemming from the uncertainty.

Economists have sharply scaled back their estimates for growth while raising their estimates for inflation, a combination that carries a whiff of stagflation. In that environment, it is not surprising that the dollar and other U.S. assets appear less appealing.

Dollar depreciation — even if extreme — also does not necessarily translate to a loss of stature in the global financial system. There have been previous big drops in the value of the dollar that have not incited a wholesale shift away from the currency’s primacy, said Jonas Goltermann, the deputy chief markets economist at Capital Economics.

But at this year’s spring meetings, there was a palpable sense that something more ominous could be taking place. Joyce Chang, JPMorgan’s chair of global research, noted a disconnect between domestic and international participants at the conference that the Wall Street bank hosted during the week of the meetings.

U.S.-based investors appeared less concerned about a structural shift away from the country’s assets and more focused on the ways in which Mr. Trump could course-correct on his economic policies. International investors were consumed by the prospects of a “regime change” in the financial system and a “new world order,” Ms. Chang said.

Mr. Trump had recently escalated his attacks on Jerome H. Powell, the Fed chair, fanning fears about how much the administration would encroach on the central bank’s independence. That longstanding separation from the White House is broadly seen as essential to the smooth functioning of the financial system.

“The dollar’s role in the system was not ordained from above,” said Mark Sobel, a former Treasury official who is the U.S. chairman of the Official Monetary and Financial Institutions Forum. “It’s a reflection of the properties of the United States.”

Those include a large economy that transacts with the world; the financial system’s deepest, most liquid capital markets; a credible central bank; and the rule of law.

“I do believe that Trump is doing permanent damage,” Mr. Sobel said.

Few Alternatives

It is hard to overstate the dominance of the dollar globally, meaning there are real limitations to how significantly private and public investors can diversify away from it, even if they want to.

Most trade is invoiced in dollars. It is the leading currency for international borrowing. Central banks also prefer to hold dollar assets more than anything else, and by a wide margin.

“Anybody who’s looking for diversification has to be realistic,” said Isabelle Mateos y Lago, the chief economist at BNP Paribas. “Reserve assets, by definition, have to be liquid.”

Alternatives do exist, but they are hobbled by their own weaknesses. China lacks open, deep and liquid capital markets, and its currency does not float freely, tarnishing its appeal globally. Top European leaders — including Christine Lagarde, the president of the European Central Bank — have talked more readily about bolstering the prominence of the euro, something that is considered more plausible now that countries like Germany are stepping up their spending. But the amount of available euro-denominated safe assets pales in comparison with that of U.S. capital markets.

Still, in the recent period of volatility, investors have found a number of places to take cover. The euro, Swiss franc and Japanese yen have been clear beneficiaries. Gold has rallied sharply, too.

“You don’t need to have the role of the dollar as a reserve asset go to zero,” said Ms. Mateos y Lago. “A multipolar system can totally work.”

Burden or Privilege?

When asked at Wednesday’s event, which was hosted by the Institute for International Finance, whether the dollar’s reserve currency status was a burden or a privilege, Mr. Bessent said: “I actually am not sure that anyone else wants it.”

But economists warn that Americans would be losing clear benefits if the government was too cavalier about the dollar’s shedding its special status.

The country’s exporters would reap rewards, as a weaker dollar would make their products more competitive. However, that advantage could come at the expense of reduced spending power for Americans abroad and higher borrowing costs at a time when the government has huge financing needs.

Despite the pain that Americans may have to bear, the global financial system would be far more “resilient” if other currencies shared the dollar’s global role over time, said Barry Eichengreen, an economist at the University of California, Berkeley. During times of stress, that would mean multiple sources of liquidity.

However, three months into Mr. Trump’s second term, Mr. Eichengreen warned that a “dire scenario is now on the table” — a sharp sell-off of dollar-denominated assets into cash.

“A chaotic rush out of the dollar would be a crisis,” he said. “All of a sudden, the world would not have the international liquidity that 21st-century globalization depends on.”

In late 2023, Israel was aiming to assassinate Ibrahim Biari, a top Hamas commander in the northern Gaza Strip who had helped plan the Oct. 7 massacres. But Israeli intelligence could not find Mr. Biari, who they believed was hidden in the network of tunnels underneath Gaza.

So Israeli officers turned to a new military technology infused with artificial intelligence, three Israeli and American officials briefed on the events said. The technology was developed a decade earlier but had not been used in battle. Finding Mr. Biari provided new incentive to improve the tool, so engineers in Israel’s Unit 8200, the country’s equivalent of the National Security Agency, soon integrated A.I. into it, the people said.

Shortly thereafter, Israel listened to Mr. Biari’s calls and tested the A.I. audio tool, which gave an approximate location for where he was making his calls. Using that information, Israel ordered airstrikes to target the area on Oct. 31, 2023, killing Mr. Biari. More than 125 civilians also died in the attack, according to Airwars, a London-based conflict monitor.

The audio tool was just one example of how Israel has used the war in Gaza to rapidly test and deploy A.I.-backed military technologies to a degree that had not been seen before, according to interviews with nine American and Israeli defense officials, who spoke on the condition of anonymity because the work is confidential.

In the past 18 months, Israel has also combined A.I. with facial recognition software to match partly obscured or injured faces to real identities, turned to A.I. to compile potential airstrike targets, and created an Arabic-language A.I. model to power a chatbot that could scan and analyze text messages, social media posts and other Arabic-language data, two people with knowledge of the programs said.

Many of these efforts were a partnership between enlisted soldiers in Unit 8200 and reserve soldiers who work at tech companies such as Google, Microsoft and Meta, three people with knowledge of the technologies said. Unit 8200 set up what became known as “The Studio,” an innovation hub and place to match experts with A.I. projects, the people said.

Yet even as Israel raced to develop the A.I. arsenal, deployment of the technologies sometimes led to mistaken identifications and arrests, as well as civilian deaths, the Israeli and American officials said. Some officials have struggled with the ethical implications of the A.I. tools, which could result in increased surveillance and other civilian killings.

No other nation has been as active as Israel in experimenting with A.I. tools in real-time battles, European and American defense officials said, giving a preview of how such technologies may be used in future wars — and how they might also go awry.

“The urgent need to cope with the crisis accelerated innovation, much of it A.I.-powered,” said Hadas Lorber, the head of the Institute for Applied Research in Responsible A.I. at Israel’s Holon Institute of Technology and a former senior director at the Israeli National Security Council. “It led to game-changing technologies on the battlefield and advantages that proved critical in combat.”

But the technologies “also raise serious ethical questions,” Ms. Lorber said. She warned that A.I. needs checks and balances, adding that humans should make the final decisions.

A spokeswoman for Israel’s military said she could not comment on specific technologies because of their “confidential nature.” Israel “is committed to the lawful and responsible use of data technology tools,” she said, adding that the military was investigating the strike on Mr. Biari and was “unable to provide any further information until the investigation is complete.”

Meta and Microsoft declined to comment. Google said it has “employees who do reserve duty in various countries around the world. The work those employees do as reservists is not connected to Google.”

Israel previously used conflicts in Gaza and Lebanon to experiment with and advance tech tools for its military, such as drones, phone hacking tools and the Iron Dome defense system, which can help intercept short-range ballistic missiles.

After Hamas launched cross-border attacks into Israel on Oct. 7, 2023, killing more than 1,200 people and taking 250 hostages, A.I. technologies were quickly cleared for deployment, four Israeli officials said. That led to the cooperation between Unit 8200 and reserve soldiers in “The Studio” to swiftly develop new A.I. capabilities, they said.

Avi Hasson, the chief executive of Startup Nation Central, an Israeli nonprofit that connects investors with companies, said reservists from Meta, Google and Microsoft had become crucial in driving innovation in drones and data integration.

“Reservists brought know-how and access to key technologies that weren’t available in the military,” he said.

Israel’s military soon used A.I. to enhance its drone fleet. Aviv Shapira, founder and chief executive of XTEND, a software and drone company that works with the Israeli military, said A.I.-powered algorithms were used to build drones to lock on and track targets from a distance.

“In the past, homing capabilities relied on zeroing in on to an image of the target,” he said. “Now A.I. can recognize and track the object itself — may it be a moving car, or a person — with deadly precision.”

Mr. Shapira said his main clients, the Israeli military and the U.S. Department of Defense, were aware of A.I.’s ethical implications in warfare and discussed responsible use of the technology.

One tool developed by “The Studio” was an Arabic-language A.I. model known as a large language model, three Israeli officers familiar with the program said. (The large language model was earlier reported by Plus 972, an Israeli-Palestinian news site.)

Developers previously struggled to create such a model because of a dearth of Arabic-language data to train the technology. When such data was available, it was mostly in standard written Arabic, which is more formal than the dozens of dialects used in spoken Arabic.

The Israeli military did not have that problem, the three officers said. The country had decades of intercepted text messages, transcribed phone calls and posts scraped from social media in spoken Arabic dialects. So Israeli officers created the large language model in the first few months of the war and built a chatbot to run queries in Arabic. They merged the tool with multimedia databases, allowing analysts to run complex searches across images and videos, four Israeli officials said.

When Israel assassinated the Hezbollah leader Hassan Nasrallah in September, the chatbot analyzed the responses across the Arabic-speaking world, three Israeli officers said. The technology differentiated among different dialects in Lebanon to gauge public reaction, helping Israel to assess if there was public pressure for a counterstrike.

At times, the chatbot could not identify some modern slang terms and words that were transliterated from English to Arabic, two officers said. That required Israeli intelligence officers with expertise in different dialects to review and correct its work, one of the officers said.

The chatbot also sometimes provided wrong answers — for instance, returning photos of pipes instead of guns — two Israeli intelligence officers said. Even so, the A.I. tool significantly accelerated research and analysis, they said.

At temporary checkpoints set up between the northern and southern Gaza Strip, Israel also began equipping cameras after the Oct. 7 attacks with the ability to scan and send high-resolution images of Palestinians to an A.I.-backed facial recognition program.

This system, too, sometimes had trouble identifying people whose faces were obscured. That led to arrests and interrogations of Palestinians who were mistakenly flagged by the facial recognition system, two Israeli intelligence officers said.

Israel also used A.I. to sift through data amassed by intelligence officials on Hamas members. Before the war, Israel built a machine-learning algorithm — code-named “Lavender” — that could quickly sort data to hunt for low-level militants. It was trained on a database of confirmed Hamas members and meant to predict who else might be part of the group. Though the system’s predictions were imperfect, Israel used it at the start of the war in Gaza to help choose attack targets.

Few goals loomed larger than finding and eliminating Hamas’s senior leadership. Near the top of the list was Mr. Biari, the Hamas commander who Israeli officials believed played a central role in planning the Oct. 7 attacks.

Israel’s military intelligence quickly intercepted Mr. Biari’s calls with other Hamas members but could not pinpoint his location. So they turned to the A.I.-backed audio tool, which analyzed different sounds, such as sonic bombs and airstrikes.

After deducing an approximate location for where Mr. Biari was placing his calls, Israeli military officials were warned that the area, which included several apartment complexes, was densely populated, two intelligence officers said. An airstrike would need to target several buildings to ensure Mr. Biari was assassinated, they said. The operation was greenlit.

Since then, Israeli intelligence has also used the audio tool alongside maps and photos of Gaza’s underground tunnel maze to locate hostages. Over time, the tool was refined to more precisely find individuals, two Israeli officers said.