It looks like the end of an era for the U.S. dollar.
In his new book “Our Dollar, Your Problem: An Insider’s View of Seven Turbulent Decades of Global Finance, and the Road Ahead,” Kenneth Rogoff looks back on the currency’s dominant run in global trade and central bank reserves for a host of other countries. Today, he argues, that lofty status is on the wane.
“My thesis is that the U.S. dollar is about to get knocked down a couple pegs,” said Rogoff, a professor of economics and the Maurits C. Boas Chair of International Economics. “It will still be first in global finance, because nothing is poised to fully replace it. The dollar just won’t be as unique as it once was.”
Written entirely before the 2024 election, the book weaves first-person reflections with a history of the U.S. economy and its currency topping a succession of challengers. As a teen chess pro in the late 1960s and early ’70s, Rogoff traveled to tournaments in the Eastern Bloc provided him with rare insight on America’s Communist rivals. As a visiting scholar at the Bank of Japan in 1991, he glimpsed a booming economy on the precipice of disaster. He went on to serve as chief economist at the International Monetary Fund in the early ’00s, the nascent days of Europe’s common currency.
“The book is not a memoir,” Rogoff said. “But I do link in anecdotes from my experiences with world leaders, policymakers, former students, and chess players.”
The Gazette met up with Rogoff in his office for a preview of the book’s personal tales and macroeconomic prophesy. The interview was edited for length and clarity.
Professor of Economics Kenneth Rogoff.
Photo by Martha Stewart
This release feels extraordinarily well-timed, given the recent sell-off of U.S. Treasuries and the dollar’s decline following President Trump’s April 2 tariff announcement. What events compelled you to revisit the dollar’s incredible rise and offer predictions for its future?
It wasn’t a single event. Based on my research, I thought the dollar peaked in its global footprint in 2015 and was in gentle decline. But I also thought this trend might accelerate. I was particularly concerned with our fiscal deficit and rising interest rates. I recently published a paper showing that if you look at the long history of interest rates, they tend to revert to trend.
I was also very concerned about the Federal Reserve losing independence. I actually wrote the first paper on the importance of central bank independence almost 45 years ago; it’s maybe my most famous paper. But in recent years, I started noticing rhetoric on both the left and the right about reining that in. Federal Reserve Chairman Jerome Powell wouldn’t get pushed aside out of the blue. It would take another crisis. During wartime, for example, central banks are commonly made subservient to the government.
That covers some of the internal pressures on dollar dominance. What about external factors?
We’ve been able to use economic sanctions in place of military intervention. It saves us lives; it saves us money. But dollar dominance also gives us access to financial data that no other country has. If you were to go to the CIA today, you would see somebody on a laptop instead of somebody like James Bond.
So there’s quite an appetite, particularly in Asia, to reduce the dollar’s grip. China couldn’t help but notice when the U.S. placed economic sanctions on Russia following its full-scale invasion of Ukraine. China, of course, has designs on Taiwan.
For most of us in the U.S., our currency’s almighty position isn’t exactly top of mind. Can you illustrate how dollar dominance impacts daily life for everyday Americans?
For one thing, we’re all paying lower interest rates. It’s not a huge amount. You don’t like paying 6 percent on your mortgage, but you’d dislike it even more if you were paying 7 percent. And for the national government, which owes $36 trillion, every additional 1 percent is $360 billion.
Another thing is that, in times of crisis like the pandemic or the global financial crisis of 2008, the U.S. has been able to borrow promiscuously. Interest rates do rise as our debt rises, but the effect is very gentle compared with the U.K. or France. If this privilege is lost, we will notice it.
Tell me about the book’s title.
The U.S. dollar used to be as good as gold. If you were a foreign country holding the equivalent to what is today hundreds of billions of dollars, as many Asian central banks do now, you could just take them to the U.S., and we would give you gold. But then President Richard Nixon decided, in 1971, that we weren’t going to do that anymore.
Leaders from around the world were in a state of shock. As a global financial incident, it was just as dramatic as the introduction of President Trump’s tariffs earlier this year. Nixon sent Treasury Secretary John Connally to meet with these leaders in Rome. They asked, “What do we do? Now that you’re not on gold, you can just inflate this stuff, and we’re stuck with it.” And Connally replied, “Well, it’s our dollar, but it’s your problem.”
What do Connally’s words call to mind for you today?
Connally’s remark captures the arrogance of American leaders that foreign leaders so often feel. I feel our role in the world comes with responsibility, and we should recognize that.
The book’s title is also ironic. After we went off gold, we lost a kind of price anchor. Nixon started beating up on Federal Reserve Chairman Arthur Burns as brutally as Trump beats up on Powell today. It just wasn’t in public; he was doing it in the Oval Office. We only know about it now because of the Watergate tapes. Burns got pressured into printing a lot of money. The result was the worst inflation the U.S. had seen since in a long while. So although Connally was saying “It’s your problem,” the resulting inflation proved a disaster for the U.S., too.
Other economies have emerged as challengers to U.S. power over the years. But you open the book with a surprising example, at least for those who came of age after the Cold War. You start with the post-World War II rise of the Soviet Union. Can you talk about that choice?
By the ’80s, it was becoming clear that the Russian ruble would not outpace the dollar. But in the ’60s and ’70s, we had no idea. I write about the different professors I met as an undergraduate at Yale, as well as textbooks by leading economists such as Paul Samuelson. Samuelson was convinced the Soviet economy would catch up to the U.S. The greatest economic historian of that era was Angus Maddison. He didn’t think the Soviet Union would catch up, but he thought it would do pretty well. These economists were not Marxists!
Later on, we didn’t know Japan would falter. We didn’t know Europe would fizzle. We never imagined the heights the U.S. dollar ultimately reached. My book hits these themes again and again.
How did your experiences as a globe-hopping teen chess master shape your views on the subject?
My professors at Yale talked about how great the Soviet Union was doing. But I had lived on my own abroad, primarily in the former Yugoslavia. I had visited some of my chess-player friends in their homes. Chess was a very big deal in the Communist bloc, so these players had privileged lives and nicer dwellings than the typical resident. But these nice dwellings consisted of little cement blocks in these humorless buildings. They barely had modern plumbing by U.S. standards. It made me very skeptical about Samuelson’s claim.
You write in this book that era of dollar dominance is in “late middle-age, but still in good health.” Is that still true in light of Trump’s second-term trade war?
Well, the dollar is starting to experience more serious health issues under Trump. When you’re an academic, the goal is never to write a book that’s true tomorrow. After coming to Harvard in 1999, I went for a walk across campus with former Faculty of Arts and Sciences Dean Jeremy Knowles. I’ll never forget what he told me. He said, “The perfect paper is one that everybody thinks is wrong, but in five or 10 years it’s proven right.”
You’ve achieved that in the past.
Carmen Reinhart and I were ridiculed in early 2009 when we presented a paper showing that recoveries from financial crises tend to be much slower and weaker than conventional recoveries. Of course that is exactly what happened. I had a similar experience in 2020 when my work suggested a deep problem in Chinese real estate.
My new book also contains some out-of-consensus forecasts that I believe will ultimately prove correct — on interest rates, inflation, and the role of the dollar. I don’t argue that dollar dominance will fall sharply tomorrow. But Trump has been an accelerant. He has been a catalyst. Parts of the world were already moving away from the dollar. Now they’re moving much faster.
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