Cryptocurrencies Erode US Dollar Dominance Says Rogoff

Kenneth Rogoff, a prominent American economist and former chief economist at the International Monetary Fund (IMF), has expressed concerns about the rising threat that cryptocurrencies pose to the dominance of the U.S. dollar. Rogoff, who also served on the Federal Reserve Board and is currently a professor at Harvard University, believes that while the U.S. dollar remains the most dominant global currency, its influence is waning.

In an interview, Rogoff highlighted that the U.S. dollar's dominance is "fraying at the edges," with currencies like the renminbi and the euro gaining more traction. One of the key factors contributing to this shift is the increasing use of cryptocurrencies for tax evasion and bypassing sanctions. Rogoff noted that a significant portion of the global underground economy, estimated to be around 20% of the world economy, is conducted using cryptocurrencies rather than traditional U.S. dollar notes.

Rogoff's latest book, "Our Dollar, Your Problem," delves into how cryptocurrencies are already chipping away at the dollar's global standing. He explained that the underground economy, which includes tax evaders and criminal transactions, has traditionally relied on U.S. dollar notes. However, the rise of cryptocurrencies has made them the new preferred mode of payment in this shadow economy. This shift poses a significant challenge to the U.S. dollar's dominance, as it reduces the government's ability to track financial flows and gather information about potential threats to national security.

Rogoff also pointed out that the dollar's declining influence has broader implications for the global market. As the U.S. enjoys "exorbitant privilege" from the dollar being the most important reserve currency, a loss in the dollar's market share could lead to rising interest rates, making everything more expensive. This includes Treasury bill rates, mortgages, car loans, and student loans. The difficulty in tracking crypto transactions in the gray market further complicates the situation, as authorities face significant challenges in controlling the underground economy where they have less leverage.

Despite the concerns, Rogoff acknowledges that cryptocurrencies have value. He refutes the notion that cryptocurrencies are just scams with no value, stating that they provide an accepted medium of exchange. Even with heavy regulation, the underground economy will continue to use cryptocurrencies, making it difficult for authorities to control. Rogoff insists that "crypto has value" and that the challenges in tracking these transactions mean that cryptocurrencies are "not worthless." However, he clarifies that while crypto cannot replace the dollar in the legal economy, it poses a significant threat in the underground economy where the government has less control.