No kidding: Rogoff's "Our Dollar, Your Problem"
Kenneth Rogoff's new book argues for dollar fragmentation, not displacement.
One doesn’t write a book to be timely in short horizons. You want to be prescient but not too early. You want to get readers to think, ‘hunh’, and thereby position yourself as a go-to authority for the next cycle.
Kenneth Rogoff’s latest, Our Dollar, Your Problem, could have been that book...if it had come out a year earlier.
The Harvard economist explains why dollar dominance can no longer be taken for granted, and predicts a decade of higher interest rates, higher inflation, and an erosion of the dollar’s unique borrowing privilege for the United States.
Outside of the US, such arguments have been gaining steam since at least the 2022 Russian invasion of Ukraine. In Washington and New York, not so much. But after a year of the second Trump administration? “The era in which the dollar was utterly dominant and reliably stable may have passed its peak,” Rogoff tells us.
That warning may have still felt timely in the waning days of the Biden administration, but not in early 2026 when the Kindle version was released.
Resiliency
That said, Rogoff is himself ‘reliably stable’. He’s very good at distilling a lot of nerdy research and theory about economics, finance, and politics into clear, carefully judged arguments. He is best known for co-authoring This Time is Different, which came out in 2009, just after the global financial crisis, and which provided a deeply researched account of what happens to countries that binge on debt. This Time is Different took seven years to produce, so its timing was fortunate, providing a useful framework to understand the GFC and the policy measures in response.
Our Dollar, Your Problem should have provided a similar roadmap to manage a gradual decline of the dollar (the title is a play on an old commerce secretary’s harsh response to European complaints about America’s ending the convertibility of dollars into gold). Instead Trump has used the White House to fast-forward all of the dollar’s vulnerabilities: attacking Fed independence, ramping up borrowing instead of imposing discipline, undermining domestic rule of law, and undermining trust in US policymaking via capricious tariffs and ripped-up treaty commitments.
Rogoff’s book therefore becomes useful in a different way, to remind the world that the dollar system contains resiliences that will enable it to limp on. On paper, other currencies have the opportunity to supplant it, but in reality such an event is unlikely. Fragmentation is therefore the likelier outcome, but alternative channels will entail high costs, so the dollar will remain “your problem”, at least for the near future.
This will disappoint those who fill our LinkedIn and X feeds assuring us that gold, bitcoin, the euro, or the digital renminbi are going to become the new locus, and that American fiat-backed ‘paper-based’ financial instruments will lose most of their value.
Privilege or cost?
Before addressing those challengers, let’s address another important part of Rogoff’s work. He takes the orthodox view that the US is a net beneficiary of its “exorbitant privilege” of printing the world’s reserve currency.
The dollar’s role in trade invoicing, FX, and reserve portfolios, alongside deep and open US financial markets and creditor‑friendly laws, give America an unusually cheap and flexible external financing position. Under Bretton Woods this was explicit: other countries had to hold dollars and manage around them, while Washington enjoyed far greater freedom over interest rates and inflation subject only to a nominal gold promise that was eventually abandoned in 1971.
But it’s become even more entrenched following Nixon’s embrace of floating currencies, and it’s not just Europeans who have to work around this reality. Emerging markets that borrow in dollars and stabilize their exchange rates around the dollar are repeatedly exposed to crises when pegs break, capital flows reverse, or the Fed shifts policy. The US, meanwhile, was able to spend its way out of the GFC, wars on terrorism, Covid, and Republican tax cuts, with Covid providing only a temporary and relatively minor bump to inflation.
Rogoff ignores arguments by Michael Pettis and others that the dollar imposes a net cost on the US, not a benefit, because it structurally forces the US to abandon its manufacturing base and enter into high levels of indebtedness (a function of America’s open capital markets that absorb the excess capacity of mercantilist exporters, notably China; a situation beloved by the Wall Street firms that service this demand).
Rogoff is skeptical that exchange rates are the leading explanation of US deindustrialization, while Pettis would argue they do play a leading role because US policy favors dollar internationalization over measures to cut debt and revive manufacturing by refusing to recycle the export proceeds of mercantilist countries.
Rogoff also ignores arguments by the likes of investor Russell Napier that point to China’s exchange-rate policies, particularly its 1994 peg, which set the stage for enormous capital surpluses that cascaded through the US financial system. He acknowledges the surplus, but notes that US regulators did not apply the kind of prudential tightening to housing and subprime lending that American wonks (through institutions such as the IMF) would have imposed on emerging markets.
This is another way of illuminating exorbitant privilege, which Pettis would argue has been self-destructive. Rogoff simply ignores this line of questioning; a lost opportunity to think about what really matters about a reserve currency and who benefits the most. The MAGA movement, despite its incoherence, does claim to serve blue-collar workers. It doesn’t in reality, but Rogoff could have brought some useful perspectives to what should be an important debate about Wall Street versus Main Street.
Where Rogoff and Pettis will agree is that the “debt is a free lunch” philosophy has taken root in US politics, especially after Vice President Dick Cheney declared debts don’t matter, and that attitude has engendered gross negligence towards financial stewardship. This reflects political choices, not a law of nature, and US dollar privileges are powerful but conditional, and we are going to learn what this means over the coming years in the form of inflation and real interest rates, which will lead investors to demand greater compensation for holding US liabilities. (In other words, this time won’t be different.)
So given that, will dollar primacy crack? Rogoff runs through most but not all of the usual suspects, and finds them wanting.
The euro
The euro illustrates the strengths and limits of a regional challenger. Rogoff emphasizes that the euro is by far the second‑most‑important reserve currency, accounting for roughly 20 percent of central‑bank reserves versus about 58 percent for the dollar. The euro dominates trade and finance within Europe and between the EU and the UK. Yet he also argues that the euro remains largely regional because of structural flaws: no unified fiscal authority with serious taxing and spending powers, fragmented sovereign‑debt markets, no euro‑wide deposit insurance, and divergent bankruptcy regimes.
These constraints matter for how far European actors can use the euro as an anchor against dollar risk. The ECB’s independence is structurally better protected than the Fed’s, and Maastricht’s debt and deficit rules provide some check on fiscal indiscipline, but the system still depends heavily on political bargains and lacks the integrated bond market that underpins US Treasuries as the global safe asset.
These arrangements could change. Europe has faced an avalanche of challenges that demand a more Europeanized response, from fiscal policy to capital-markets integration: Russian military revanchism, Chinese dumping, Trump’s undermining of NATO. Canada’s Mark Carney has just delivered an eloquent if curt speech at Davos calling for liberal middle powers to come together. There are many good reasons for Europe to make hard changes that would boost the euro’s status, but there are even more vested interests and petty-state squabbles that so far have impeded progress.
China’s digital renminbi
China is interesting in its bid to foster the international use of the renminbi without giving ground on capital controls or meaningful market reforms of its financial sector. Beijing’s strategy is more about creating payments and lending corridors that can evade the power of US sanctions. Yet there is only so far that a non-challenging alternative to the dollar can go in a world where debts and commodities are priced in dollars. The “petroyuan” has a long way to go.
Beijing’s use of digital currency to generate a flywheel of uses for the renminbi overseas, notably for its purchasing of commodities, is worth exploring. China has found initial success using mBridge as a way of exchanging CBDCs, mostly e-RMB, with other central banks.
Rogoff’s approach is to liken it to other central-bank-level alternatives to the dollar, such as IMF special drawing rights or Carney’s proposal for a synthetic global reserve digital currency, a sort of Bancor for the twenty-first century. (Bancor was Keynes’s proposed global currency at the Bretton Woods negotiations; it was cute.)
All of these notions of a global currency, Rogoff argues, would require fiscal and political union far beyond what even the eurozone has managed. He sees CBDCs as tools to reinforce state monetary sovereignty, including tightening control over capital flows and taxation, and enhancing surveillance. These factors must be weighed against the technical improvements to facilitating payments when investors consider what currency to deploy.
Bitcoin
CBDCs may be digital, but they are grounded in the fiat world. Rogoff is blunt in his assessment of private crypto, including bitcoin: it will never supplant the dollar in legal, tax‑compliant transactions, except in a near‑apocalyptic scenario.
He grants that Bitcoin’s “killer app” is the global underground economy, a domain he estimates at roughly 20 percent of global GDP. This is where evading capital controls, sanctions, and taxes (as well as helping people in some countries overcome locally deficient financial regimes) gives genuine transactional demand to crypto assets.
But Rogoff insists that this niche does not overturn the structural advantages of state money. Modern governments can pay employees and suppliers in their own currency, demand taxes in it, require it as the unit of account in official records, and regulate away the liquidity of competitors. He notes that most users deal with crypto not via self‑custody but through exchanges that are, in economic terms, banks without a lender of last resort, as the FTX collapse showed in textbook fashion. Because exchanges are centralized, they are easier to regulate and to ring‑fence, which allows states to preserve the primacy of their own fiat even as they tolerate crypto, either in the shadows or in the form of regulated stablecoins.
Gold
There is one other alternative to the dollar, one that Rogoff does not address, so we have to extrapolate from his book. That is gold and hard commodities in general. Asian central banks and institutions have been buying gold and silver, in a belief (one assumes) that fiat-based contracts and holdings in New York and London will lose their value; that control of oil, wheat, minerals, and so on, are what will constitute resilient hard power. Some commentators (including Russell Napier) think this will usher in a return to either a gold standard or at least the use of gold as money.
Rogoff frames the post‑1971 order as one in which the US no longer guaranteed gold convertibility but promised instead to maintain low inflation and thus the dollar’s purchasing power. This is what European finance ministers cared about at the time. The Achilles’ Heel of this arrangement is the possibility of inflation. Modern governments can debase their currency by printing money or engaging in financial repression (forcing their local institutions to buy government bonds).
Asian accumulation of gold and other commodities is therefore a rational hedge against US policy risk, but it’s not a blueprint for a new gold standard. Foreign investors understand that in a world of higher real interest rates and elevated debt, Washington will be tempted to erode its liabilities via inflation or sanctions. Gold etc are assets beyond the reach of US legal and financial power, an inflation hedge, and good optics.
But they are not replacing fiat regimes. They are not foundations for a new reserve currency. That requires economic and military weight, deep and open financial markets, low and stable inflation, and reliable legal institutions. Just owning a lot of gold does not replace that kind of credibility.
Fragmentation
The US, of course, cannot assume the dollar will remain credible if it abandons these features. Rogoff’s research shows however that currency leadership rarely changes hands, and usually does so over long periods – centuries – with periods of co-dominance. These transitions correlate with wars and crises, so it is troubling to believe we are in the middle of such a period – troubling, but not surprising given the constant litany of US political dysfunction, rising debt, and weaponization of its financial system. It’s remarkable that the dollar emerged more dominant than ever following the 2008 GFC, but it’s unlikely to repeat that performance were another crisis to strike.
Rogoff anticipates a world of “peak dollar dominance” in which the dollar remains first among currencies but faces stronger regional rivals and more diversified reserves and invoicing practices. In this environment, Trump‑era tendencies to prioritize unilateral advantage, question alliances and multilateral institutions, and tolerate higher inflation or fiscal expansion, are exactly the kind of behavior that make the implicit US promise of price stability and steady stewardship less credible.
It’s no surprise that other countries are keen to invoice trade in euros or renminbi, build regional currency arrangements and local-currency bond markets, accumulate gold, and explore CBDCs or other payment systems to reduce their dollar dependence.
It’s no secret that the world’s economies and currency regimes are fragmenting, even if the role of the dollar in trade settlement and reserves hasn’t declined yet. European buying of Treasuries has dried up, Chinese buying continues (via its state-owned commercial banks, if not directly); what was looking to be a gradual, even marginal change in portfolios could accelerate these coming years into waning demand and higher US interest rates (regardless of whether it’s China or Tether doing the buying).
Without a proper full-blown challenger, the dollar will remain the leading currency by default, but one placed atop a rickety architecture; fragmentation without displacement, and the buildup of local or regional currencies in tandem. Which is to say: higher costs and greater frictions in international lending, payments, and investments. This could be a boon to banks and fintechs that intermediate these growing fractures, but a threat to US money center banks that are used to serving endlessly voracious investors.
But we knew this already. Rogoff, a grand master in chess, likes to talk about the ability to look several moves in advance. Our Dollar, Your Problem may still seem prescient to his domestic (parochial) audience, but is probably just confirming many decisions already being taken by JDB Report’s readers.
Rogoff, Kenneth, “Our Dollar, Your Problem: An Insider’s View of Seven Turbulent Decades of Global Finance, and the Road Ahead”, Yale University Press: New Haven and London, 2025.