Former IMF expert: Crypto threatens the dominance of the US dollar

American economist Kenneth Rogoff believes that the rise of crypto is threatening the dominance of the US dollar.

Rogoff served as the Chief Economist at the International Monetary Fund (IMF) and was a member of the Federal Reserve Board of America. He is also an author who has published books and is currently a professor of economics at Harvard University.

Kenneth Rogoff – EconomistIn an interview with Bloomberg, Rogoff stated that although the US dollar currently remains the dominant global currency, its influence is waning.

"I believe that the dominance of the dollar is gradually weakening — cracks have begun to appear at the fringes, where the renminbi is slowly separating from the dollar's dominance, while the euro is increasingly asserting a stronger position — and this trend has been quietly unfolding for the past decade."

According to Rogoff, one of the contributing factors to this decline is that cryptocurrencies are increasingly being used to evade taxes and avoid sanctions.

Crypto is gradually eroding the dominance of the US dollar

Rogoff stated that one of the main markets for the US dollar is the underground economy, also known as the gray market or shadow economy. The largest part of the underground economy — which is very difficult for the government to control — consists of individuals who evade taxes. Transactions carried out by criminals are also part of this economy, although they only account for a small portion, he said.

According to estimates by Rogoff and a survey from the World Bank, the underground economy accounts for about 20% of the global economy. This means that the value of the underground economy is around 20 to 25 trillion dollars, depending on the exchange rate of the dollar.

In the past, the preferred payment method for transactions in the underground economy was usually cash in US dollars. However, nowadays, crypto is increasingly emerging as a more popular alternative. In his latest book titled Our Dollar, Your Problem (translated: Our currency, your problem), Rogoff asserts that cryptocurrency has begun to erode the global dominance of the dollar. In the interview, he stated:

"...although crypto has not yet deeply penetrated the legitimate economy, it is increasingly being used in the global underground economy — which includes illegal activities but primarily for tax evasion and regulatory avoidance — which has traditionally been the domain of cash, especially the US dollar."

The loss of the dollar's status to cryptocurrency has been affecting the broader global market, contributing to higher borrowing costs due to rising interest rates. From Treasury bond interest rates, home loans, auto loans to tuition loans — all are impacted by the weakening influence of the dollar. The reason is that America enjoys an "exorbitant privilege" as the dollar is the world's most important reserve currency, Rogoff explains.

In addition, U.S. authorities also rely on monitoring financial flows to gather information about potential threats to national security, and as the market share of the dollar shrinks, this monitoring becomes more difficult.

Ironically, last year, Senator Cynthia Lummis suggested that incorporating Bitcoin into reserves could help the dollar "maintain its strength."

Rogoff : **“**Crypto is valuable”

According to Rogoff, critics who claim that cryptocurrencies are just a scam and have no value are "completely mistaken." He said:

"The view that crypto has no core value in being used as a means of transaction is incorrect."

Rogoff explains that crypto provides an accepted medium of exchange — that is its value. Even when governments tighten regulations on crypto, they will still face difficulties in controlling the underground economy, as their influence is limited there.

Therefore, Rogoff emphasizes that "cryptocurrency has value." He stated that the difficulties faced by authorities in tracking digital currency transactions in the gray market clearly demonstrate that crypto is "not worthless" because "there are too many benefits involved here." However, he also clarified:

"Cryptocurrency cannot replace the dollar. But that is in the legal economy, where the government has a lot of power. In the underground economy, by definition, the government has almost no influence."

Minh Anh