The Dollar Game

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Bibliographic details

• Authors: BRUCE EDWARDS
• Published: November 18, 2025

Overview

• Interview with Kenneth Rogoff, chess grandmaster-turned-economist, on the rise and potential decline of the US dollar as the dominant reserve currency.
• Rogoff’s book: Our Dollar, Your Problem, examines the rise of the US dollar and what might cause it to fall.
• Interview edited for length and clarity; full interview available as podcast.

Historical drivers of dollar dominance

• World War I and World War II:
  • World War I crippled Britain’s economy; sterling was codominant with the dollar.
  • After World War II, the US, with perhaps 40 percent of global GDP, became the primary economic power and the only “game in town.”
• Postwar monetary arrangements:
  • Currencies were pegged to the dollar; the US had to trade dollars for gold whenever official creditors asked.
  • 1971: President Richard Nixon ended dollar convertibility to gold.
  • 1971 anecdote: US Treasury Secretary John B. Connally reportedly said, “Well, it’s our dollar. That’s your problem.”

Why the dollar remains strong—and vulnerabilities

• Institutional setting:
  • Central bank independence has been a major policy innovation of the past 70 years; Rogoff argues it’s under pressure and critical to financial stability.
  • Rogoff worries central bank independence is “under assault everywhere,” with unique pressures in the US.
• Competitors and market dynamics:
  • Competitors at the margin include the euro, crypto, and the renminbi.
  • China’s long-running peg of the renminbi to the dollar enlarged the dollar’s footprint in Asia.
  • Today, “Asia is half the dollar bloc.” Rogoff suggests it might have been “more like a quarter or a third” if China had not pegged to the dollar for so long.
• Market-share vs. ranking:
  • The dollar could “keep its number one position but lose market share.”
  • If investors find the dollar less desirable and to absorb supply demand higher interest rates.

Debt, interest rates, and risks to dollar status

• Rising interest-rate environment:
  • Rogoff believes long-term interest rates are going to stay high “for a very long time, at least on average.”
  • Historical reference: the period of near-zero interest rates led many economists to believe advanced economies no longer needed to worry about debt.
• Fiscal consequences:
  • US interest payments have “nearly tripled relative to GDP in a short period.”
  • US interest payments are “bigger than defense expenditure.”
  • Personal finance illustration: “it’s brutal if your 2 percent mortgage suddenly jumps to 7 percent.”
• Policy complacency and political constraints:
  • Rogoff sees “very little political will” to adjust fiscal policy despite the increase in debt service.
  • He warns that persuading Congress and the American people to rein in deficits may be difficult “until the economy reaches a cliff edge.”
• Scenario risks cited:
  • If interest rates remain high, debt service burdens will rise.
  • If long-term rates fall again or AI delivers politically sustainable growth, pressures could ease.
  • Conversely, sustained high rates or sudden needs (e.g., “a war” or military buildup) could produce trouble for dollar demand.

Past episodes of challenge to dollar dominance

• The yen and Japan:
  • There was a period when Japan’s economy appeared to be overtaking the US, with stock market and real estate values very high, but subsequent policy and financial crises undercut that challenge.
• China:
  • Early 2000s IMF advice: China should not peg exchange rates and should deploy independent monetary policy to avoid distortions (e.g., rapid house-price inflation).
  • Had China not maintained a fixed exchange rate for a long time, the dollar’s footprint would likely be smaller.

Policy implications and recommendations (implicit in interview)

• Preserve central bank independence to maintain credible monetary policy and control inflation.
• Address rising debt and deficits to avoid forcing investors to demand higher interest rates to absorb supply.
• Reassess the political and fiscal response to higher long-term interest rates to prevent debt service from crowding out other priorities.
• Consider the international implications of domestic monetary and fiscal choices, given the dollar’s central role.

Key statistics and exact figures from the interview

• 1969: Rogoff’s first exposure to non-dollar-dominated world (Yugoslavia trip).
• 1971: Nixon ended dollar convertibility to gold.
• 2001–03: Kenneth Rogoff served as IMF chief economist.
• 1982: Rogoff’s first visit to the IMF and wrote on central bank independence.
• early 2000s: Period when IMF advised China to abandon the peg.
• “perhaps 40 percent of global GDP”: US share after World War II (as described by Rogoff).
• “Asia is half the dollar bloc”: current composition of the dollar bloc (Rogoff’s statement).
• “more like a quarter or a third”: hypothetical size of Asia’s share of the dollar bloc absent China’s peg.
• “2 percent mortgage suddenly jumps to 7 percent”: example of borrower pain from rising rates.
• Interest payments have “nearly tripled relative to GDP in a short period.”
• Interest payments are “bigger than defense expenditure.”

Source: The Dollar Game — Interview with Kenneth Rogoff, F&D Magazine (IMF).

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