(FORTUNE Magazine) – The U.S. dollar has been flexing its muscles for nearly two years, and it's been especially strong recently, gaining nearly 10% in value against the Japanese yen and 7.4% against J.P. Morgan's index of 18 currencies just in 1997. It's also been making lots of news, ranging from portentous editorials fretting about its effect on U.S.-Japanese trade relations to headlines raising the most alarming question of all: whether a too-strong dollar could bloat America's trade deficit and usher in the next recession. In February the finance ministers and central bank heads of the seven major industrial countries (known by wonks as the G-7) proclaimed that the dollar had risen enough. Two months later, after the dollar had risen yet further, they...proclaimed that the dollar had risen enough.

The G-7 ministers, of course, get paid to worry about currency exchange rates, but should anyone else?

One group of people who should be worried are foreign currency traders. If the Treasury Department concludes that the dollar is indeed overvalued (and it's still an if), the markets are likely to find out via a sudden, unexpected intervention in the currency markets--with the U.S. selling dollars and buying yen or deutsche marks wholesale. That's just the kind of surprise the Treasury accomplished in 1995 when the dollar was weak, proving that governments' intervening can change exchange rates, at least in the short term. The duo that sprang that trap and is still running things today--Treasury Secretary Robert Rubin (former co-chairman of Goldman Sachs) and his deputy, Lawrence Summers (a Harvard professor who was considered one of the smartest young economists in the world before joining the Clinton administration)--is perhaps the best team that's ever run the Treasury.

But for most Americans, the dollar's strength is cause for celebration. Whenever the dollar's value rises relative to foreign currencies, American consumers who buy imported goods or American-manufactured goods that contain imported components--in other words, everyone--become richer. And by restraining increases in import prices, the dollar helps keep inflation low, which in turn has cleared the way for both the stock market boom and the continuing expansion of the economy.

The strong dollar is more of a mixed blessing for corporations. The main beneficiaries are manufacturers that have factories overseas or that import parts. Yet the dollar is also making U.S. exports less competitive abroad and will slow their growth, which eventually will have a depressing effect on overall U.S. growth. The loudest complainers are the Big Three U.S. automakers; not only have many of their products become more expensive abroad, but in addition Japanese automakers have been able to price their cars very attractively in the U.S., forcing their domestic counterparts to lower profit margins in order to remain competitive. The result: The market share of Japanese carmakers has increased nearly 10% this year. Despite their first-quarter profits of $4.3 billion, the Big Three are eager to tell anyone who will listen how a weaker dollar would make their lives easier.

But in the larger scheme of things, is the dollar really in the danger zone? If you look at the chart atop the opposite page you might not think so. The Big Three had it much worse in the mid-Eighties, when the dollar "was wildly overvalued, by as much as 50%," says Bill Dudley, chief U.S. economist for Goldman Sachs. By comparison, the dollar's current climb follows a period of extraordinary weakness, in Dudley's view, and it is overvalued at most by about 20%--a significant but not stratospheric amount. After the mid-Eighties the Big Three, GM and Ford especially, expanded production globally, leaving them less exposed to subsequent currency fluctuations.

There's an interesting contrast between the way the big three are reacting to the strong dollar and what the Japanese automakers did a decade ago, when the dollar's plunge put them in a far worse situation than Detroit finds itself in today. They responded by cutting costs dramatically and reengineering their factories, allowing them to compete successfully despite a strong yen. Perhaps the Big Three would be better off plowing their fat first-quarter profits into improving their businesses and products instead of running crying to Washington to lobby for a lower dollar.

Is there any reason to think the dollar is about to fall? Don't expect the recent G-7 meeting to have any real impact. Nobody understands better than Treasury's Rubin and Summers that only changes in economic fundamentals such as interest rates, fiscal policy, and competitiveness can affect the dollar in the long term, and no big policy changes seem imminent. "Intervention can only change the timing of the dollar's ultimate resting place; it can't change the fundamentals driving a currency," says Allen Sinai, chief global economist for Primark Decision Economics. Right now, perhaps the main reason for the dollar's strength is the state of the U.S. economy: strong and stable--with falling inflation, rising wages, vibrant growth, and a booming stock market--and as healthy as it's been in a generation.