Kenneth Rogoff’s Concerns about Bitcoin and the U.S. Dollar
Kenneth Rogoff, former chief economist at the International Monetary Fund (IMF), has raised concerns over the influence of bitcoin on the U.S. dollar, particularly within the vast shadow economy. He argues that this impact is contributing to rising interest rates in the United States.
Cryptocurrency and the Global Economic Landscape
As cryptocurrencies continue to infiltrate the global economic landscape, economists like Rogoff are beginning to assess their implications on traditional financial systems. In a recent discussion, he pointed out that while the supremacy of the U.S. dollar was solidified post-World War II, emerging competitors such as the Chinese yuan and euro have begun to weaken its stronghold.
The Shadow Economy and Illicit Activities
Rogoff identified cryptocurrencies as particularly appealing in the context of illicit economic activities — often referred to as the shadow economy — where they can be used without government oversight. This sector, encompassing a variety of tax evasion practices, may represent up to 30% of the gross domestic product (GDP) in several developing nations, with bitcoin becoming a tool of choice for many engaged in these activities.
Intrinsic Value of Cryptocurrencies
Rogoff cautioned against the belief that cryptocurrencies lack “fundamental value” in transactional contexts.
He highlighted that some countries have turned to digital currencies as a means of circumventing U.S.-imposed financial sanctions, further shifting economic activity away from the dollar.
Impact on Global GDP and Interest Rates
With approximately 20% of global GDP thought to be driven by the shadow economy, the demand for the dollar in these underground transactions is diminishing. As a result, this shift is exerting upward pressure on interest rates in the U.S.—a dynamic Rogoff acknowledges is one of multiple influences on today’s increasing rates.
Future of Cryptocurrency in the Shadow Economy
Looking ahead, Rogoff emphasized the likelihood of continued growth in cryptocurrency usage within the shadow economy, noting the challenges that governments will face in trying to regulate this sector effectively.
