The Dollar Becomes Your Challenge! How Cryptocurrencies Undermine the Hegemony of the Dollar?

Kenneth Rogoff: “Our Dollar, Your Problem”

Renowned American economist Kenneth Rogoff recently published Our Dollar, Your Problem, analyzing the role of the dollar in the global financial system and how cryptocurrencies are impacting the dollar’s hegemonic status. He refutes Warren Buffett’s claim that cryptocurrencies are a scam, asserting that they possess substantial value.

Kenneth Rogoff: An Overview

Kenneth Rogoff is an American economist currently serving as the Maurits C. Boas Professor of International Economics at Harvard University. He was the Chief Economist at the International Monetary Fund (IMF) from 2001 to 2003 and has held positions at the Federal Reserve and Princeton University.

Rogoff’s recent work, Our Dollar, Your Problem, analyzes the dollar’s role in the global financial system and how cryptocurrencies are affecting the dollar’s hegemonic status. He believes that while cryptocurrencies cannot fully replace the dollar, their influence in the underground economy is rising. He warns that the dominance of the dollar is no longer a given! Recently, Rogoff gave an exclusive interview to Bloomberg; here are some excerpts from that interview.

Kenneth Rogoff: The Dollar is Declining

This book provides a comprehensive account of the rise of the dollar since World War II, including how it reached such a high level and how its competitors were eliminated. The dollar has not merely become the first currency; it has become more dominant than other currencies.

However, Rogoff believes that the dollar is on a path to decline. The renminbi is breaking free from the dollar’s constraints, and the euro is set to play a larger role, a trend that has been ongoing for a decade.

Rogoff also discusses cryptocurrencies, as one of the dollar’s major markets is the global underground economy. In that realm, governments do not control everything.

Can Cryptocurrencies Replace the Dollar in the Underground Economy?

Many people ask: Can cryptocurrencies replace the dollar?

In the legitimate economy, the government wields considerable influence, where cryptocurrencies cannot replace the dollar. But in the underground economy, the government’s influence is much weaker.

The so-called underground economy can include illegal activities and tax evasion. Tax evasion is a significant issue globally, with developed economies averaging around 15-20%. The United States is among the lowest, below 15%. However, in most developed economies, particularly in Europe, this rate is much higher. In developing economies, this figure can account for one-third of GDP.

There are also numerous gray areas and shadow economies, such as people paying cash for certain expenses, arms trading, human trafficking, drugs, and more.

According to Rogoff’s research, the global underground economy could account for 20% of global GDP. This is a huge market, with the dollar holding a dominant position within it.

Bitcoin has Weakened the Dollar’s Dominance

While cryptocurrencies have yet to make significant inroads in the legitimate economy, their use in the global underground economy is growing—primarily for tax evasion and regulatory avoidance—where cash, especially the dollar, has long dominated. The notion that there is no “fundamental value proposition” in transactions using cryptocurrencies is erroneous. Many countries are also leveraging cryptocurrencies to evade U.S. financial sanctions.

To some extent, cryptocurrencies have merely replaced nearly untraceable dollar cash. Cryptographic technology provides new means to obscure transactions that were previously conducted through normal financial channels, thus the loss of information has far greater implications for national security. Given that much of the world is dissatisfied with the U.S.’s excessive control over the financial system, U.S. regulators face increasing challenges, which is one of the primary reasons we may see markets continue to shift from dollar-based transactions to other trading instruments.

Refuting Buffett: Cryptocurrencies are Not a Scam, They Have Value

Masters like Buffett consider cryptocurrencies a scam, but in the cryptocurrency chapter of this book, the author explains why this perception is entirely incorrect.

If the underground economy accounts for 20% of global GDP, it would represent a $20 trillion to $25 trillion economy. If you provide a means of exchange, that constitutes a value proposition. From this perspective, cryptocurrencies do possess value. They are used for transactions. Even if cryptocurrencies are heavily regulated, it is still challenging for governments to control a large portion of the economy. Therefore, they are not without value.

Risk Warning

Investing in cryptocurrencies carries a high level of risk, and their prices can be highly volatile, resulting in the potential loss of your entire principal. Please assess risks carefully.