Ex-IMF Chief Economist Warns That Cryptocurrency Poses a Growing Challenge to U.S. Dollar Supremacy

Kenneth Rogoff, an economist from the United States, argues that the emergence of cryptocurrencies threatens the dominance of the U.S. dollar.

Rogoff has previously held positions as the chief economist at the International Monetary Fund (IMF) and served on the Federal Reserve Board. He is also a Harvard University professor and an author in the field of economics.

During a discussion with Bloomberg, Rogoff remarked that although the U.S. dollar remains the leading global currency, its supremacy is waning.

“I view the dollar’s dominance as diminishing—it’s fraying at the edges. The renminbi is gaining traction beyond the dollar, and the euro is expanding its presence—this trend has been observable for a decade.”

Rogoff attributes this decline partly to the increasing use of cryptocurrencies for tax avoidance and evading sanctions.

Cryptocurrency is eroding the U.S. Dollar’s supremacy

Rogoff noted that a significant area of demand for the U.S. dollar consists of the underground economy, often termed the gray market or shadow economy. He explained that a substantial portion of this clandestine economy comprises tax evaders, alongside transactions performed by criminals, which form a smaller segment.

Based on Rogoff’s analysis alongside a World Bank report, the underground economy accounts for around 20% of the global economy, which translates to approximately $20 to $25 trillion, contingent on the dollar’s valuation.

Historically, cash transactions in this sector predominantly utilized U.S. dollar notes; however, cryptocurrencies are increasingly taking their place as the preferred medium. In his recent publication titled *Our Dollar, Your Problem*, Rogoff asserts that cryptocurrencies are already undermining the dollar’s global prestige. He elaborated:

“…despite cryptocurrencies not yet significantly penetrating the legal economy, their utilization is rising within the global underground economy—composed primarily of tax and regulatory evasion, along with criminal activity—where cash, especially U.S. dollars, once reigned supreme.”

The dollar’s decline in favor of cryptocurrencies precipitates broader implications for the global market, contributing to escalating costs linked to rising interest rates. This trend influences everything from Treasury bill rates to mortgages, affecting loans for cars and education as well. The U.S. benefits from what is termed “exorbitant privilege” due to the dollar’s status as a key reserve currency, Rogoff explained.

Moreover, U.S. officials monitor financial transactions to identify possible national security risks, and a diminished market share for the dollar complicates these efforts.

Interestingly, last year, Senator Cynthia Lumis remarked that holding Bitcoin (BTC) in reserve could bolster the dollar’s strength.

Rogoff believes ‘crypto holds value’

Rogoff contends that those who argue that cryptocurrencies lack intrinsic value are “entirely mistaken.” He stated:

“The belief that cryptocurrency transactions do not possess a ‘fundamental value proposition’ is incorrect.”

He clarified that cryptocurrencies offer a widely accepted method of exchange, representing a tangible value proposition. Regardless of government intervention, controlling the underground economy remains a significant hurdle, he indicated.

Consequently, Rogoff asserts that “crypto has value.” The challenges authorities encounter in monitoring cryptocurrency transactions in the gray market are notable, implying that crypto is “not worthless” due to the substantial stakes involved. However, he emphasized:

“Crypto cannot supplant the dollar within the legal economy, where the government possesses considerable influence. In contrast, in the underground economy, it inherently has reduced leverage.”