Ken Rogoff on How Crypto Is Infiltrating the Dollar's Hegemony

Mint

24-05-2025

(Bloomberg) -- From the International Monetary Fund to the Federal Reserve, Kenneth Rogoff has spent years inside the institutions that helped shape the dollar-led global economic order.
Now, he warns that the dollar's dominance can no longer be taken for granted.
In his new book, Our Dollar, Your Problem, the Harvard economist argues that the rise of China, geopolitical tensions and the growing influence of cryptocurrencies are chipping away at the greenback's global standing.
In an interview with Bloomberg News, Rogoff spoke about why digital currencies, once dismissed as a fad, are here to stay.
The conversation has been edited for brevity and clarity.
Q: Why did you include a chapter on cryptocurrencies?
A: We're thinking about the future, not just the past. So the book is a sweeping history of the rise of the dollar post-World War II, including how it managed to reach such a high level and how its competitors fell by the wayside. But it's not simply that the dollar became first, but became more dominant than any other currency has ever been. And I see it as in decline — it's fraying at the edges where, of course, the renminbi is breaking free of the dollar, the euro is going to have a larger footprint — that's been going on for a decade.
But there's also crypto, because one of the dollar's main markets is the world underground economy. And there, the government does not control things.
One of the first questions many people ask is can crypto replace dollars? Crypto can't replace the dollar. But that's in the legal economy where the government has a lot of leverage. But in the underground economy, by definition, it has much less leverage.
Q: What is the underground economy?
A: It depends on the country. The lion's share is tax evasion. Tax evasion is massive all over the world. The average in the advanced economies is between 15-20%. The United States is one of the lowest — lower than 15%. But in most advanced economies, particularly in Europe, it's much higher. And in developing economies, it's a third of GDP. There's sort of a gray area between what's illegal and what's tax evasion, sometimes they overlap. But a lot of it is what some people might call the gray market, the shadow economy. You don't pay taxes on your nanny, people sometimes pay their painter in cash, their trainer in cash. There are people who pay for apartments in cash. Of course, there's also arms dealing, human trafficking, drugs, etc. But illegal activity's very important, but it's quantitatively much smaller than tax evasion.
Q: You argue in your book that Bitcoin has already cut into the dollar's dominance.
A: Yes, although crypto has not made significant inroads into the legal economy, it is increasingly used in the global underground economy – consisting of criminal activity but mainly tax and regulatory evasion – where cash, especially US dollars, had been king. The notion that there is no 'fundamental value proposition' in transactions use is just wrong. There are also many countries using crypto to evade US financial sanctions.
Q: What are the implications of this?
A: The underground global economy is perhaps 20% of global GDP — per my own research and per a World Bank literature survey. This is a big market where the dollar has been particularly dominant.
Q: How does crypto cutting into the dollar's dominance raise interest rates for all of us?
A: A lower demand for dollars in the global underground economy raises US interest rates, though it is only one of many factors today pushing up rates. The United States' 'exorbitant privilege' — thanks to being by far the most important reserve currency – affects all our interest rates, not just the Treasury bill rate, including mortgages, car loans, student loans, etc.
Q: And the second implication is national security?
A: In general, a loss of market share of the dollar makes it more difficult for US authorities to monitor financial flows for information that helps preserve national security.
Dollar dominance also allows us to impose sanctions. To the extent there is simply a substitution of crypto for paper dollars that were already nearly impossible to trace, there is no new issue. To the extent crypto allows new ways to cloak transactions that had previously gone through normal financial channels, the national security implications of the information loss are much more significant. This challenge is all the more difficult for US regulators to reign in, given that large parts of the rest of the world resent what they see as excessive US control over the financial system, one of the main reasons that we are likely to see continuing diversification away from dollar markets toward other transactions vehicles, something Our Dollar, Your Problem discusses at length.
Q: And will crypto's dominance continue to grow?
A: Absolutely. Crypto's going to continue taking over the global underground economy on transactions.
There are people who think that crypto is going to go to the moon, but there plenty of people — Paul Krugman, Nouriel Roubini, Jamie Dimon, Warren Buffett — who said pretty recently that they think crypto is just a scam. In the crypto chapter, I explain why that's completely wrong. Because if the underground economy is 20% of global GDP that makes it — depending on the value of the dollar — a $20-to-$25 trillion economy. And if you're providing the means of exchange, that's a value proposition. Crypto has value. It's used for transactions. There's a big piece of the economy, which even if crypto's heavily regulated, the government is going to have difficulty controlling. So it's not worthless. There's a lot at stake there.
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