Federal Reserve chairman Jerome Powell speaks at a Senate committee hearing on Capitol Hill, July 15.

Photo: Michael Brochstein/Zuma Press

Something vaguely resembling a debate is finally breaking out in Washington over who should lead the Federal Reserve. And well it should. The Fed chairman is the world’s most important central banker, a role too vital to be filled without any discussion. Now, if only lawmakers, academics and tweeters would debate the right issues. Such as the dollar.

I know, I know. No one cares. So far the limited debate over incumbent Jerome Powell’s fate has focused on his predilections regarding banking regulation, or what sort of appointee implementing what sort of policies might best defend the Fed’s political independence

Mr. Powell is acting as if he believes there are two primary criteria for keeping his job. One, a capacity to reassure financial markets about the wisdom of Washington’s spending blowouts (arguing those trillions of dollars are necessary to boost economic growth). Two, a willingness to reassure Congress and the Biden administration that they can afford the interest on these spending blowouts by committing to normalize monetary policy as late as possible.

Yet the dollar is the global reserve currency. So managing it necessarily is the most important of the many important responsibilities a Fed chairman has. Officially, the Fed and Treasury Department claim “the market” sets the value of the dollar. Most people know better. Washington should stop pretending—especially since it might soon have to care quite a lot about the dollar.

This is due to a confluence of two factors. First, it is becoming a lot harder to predict how the dollar’s exchange rate will respond to various stimuli. Witness how difficult it is to understand its current fluctuations. The greenback has strengthened somewhat in recent months, but not to its 2019 heights and perhaps not to the extent one might expect given the roaring economic recovery under way. Mounting inflation would tend to suggest something is awry with a too-weak dollar.

Then again, others might argue the dollar has swung too high in response to word the Fed may slow its pace of bond purchases in coming months. That is not really monetary “tightening,” which won’t begin until the Fed starts selling off its portfolio. And the interest-rate rises that normally would stimulate dollar appreciation may not happen for a much longer time.

The trouble is that with central banks pushing interest rates to rock bottom and then some (not to mention dabbling in credit allocation for mortgages or corporate borrowers or green boondoggles), markets are forgetting how to price anything—including a dollar.

All of which becomes a potential crisis owing to the second factor that ought to worry Washington: It’s no longer clear what the consequences of various shifts in the dollar’s value might be.

The old heuristic, that a strong dollar would benefit U.S. consumers while allowing foreign companies to expand their global market share via price competition, was never quite right. It was probably more accurate to observe that foreign companies tended to borrow in their local currencies. Therefore a stronger dollar—which does boost Americans’ purchasing power and imports—would lift earnings denominated in weaker foreign currencies and make debt repayment manageable.

Almost nothing about this remains true and we may now live in a world where a strong dollar is as dangerous as a weak dollar. For instance, foreigners increasingly borrow dollars rather than their own currencies—dollar borrowing abroad has surged to $13 trillion in the last quarter from $4.6 trillion in 2006, leaving borrowers exposed to sudden upward swings in the greenback’s value.

Meanwhile, the dollar’s role in trade invoicing and trade finance has expanded apace, such that a Thai company selling to a Brazilian customer is increasingly likely to invoice in dollars rather than baht or reais. This introduces dollar-exchange-rate risk into transactions where it didn’t use to appear. The “financial channel” and “invoicing channel” now swamp the old export-earnings channel in terms of how foreign-exchange swings transmit to you and me and the factory worker in South Korea and the farmer in Kenya.

These esoteric financial phenomena can quickly translate into real activity—or lack thereof—on Main Street in the U.S. and around the world. Surveys of sentiment such as purchasing managers indices are more sensitive to dollar swings than they used to be, and unexpected dollar strength tends to dampen activity everywhere. Setting aside an argument about whether the world might one day benefit again from a stronger dollar, for now we’d all settle for a stable dollar.

It’s a heck of a pickle for a Fed chairman, who eventually will have to normalize policy and thereby set in motion all these forces no one understands in a world where a dollar crisis somewhere else can easily wash up on America’s shores. Treasury Secretary John Connally admonished the rest of the world in 1971 that “the dollar is our currency, but it’s your problem.” Those were the days. Now the dollar is everyone’s currency, and everyone’s problem.

Someone on Capitol Hill should ask Mr. Powell about that.

Journal Editorial Report: Rising prices are a political threat to the Biden presidency. Image: Liu Jie/Xinhua via Zuma Press The Wall Street Journal Interactive Edition