## The Dollar Game

## Source details

**Canonical URL:** [The Dollar Game](https://www.imf.org/en/publications/fandd/issues/2025/12/cafe-economics-the-dollar-game-bruce-edwards)

## Other formats

- [Markdown version](/en/publications/fandd/issues/2025/12/cafe-economics-the-dollar-game-bruce-edwards/index.md)
- [Structured JSON version](/en/publications/fandd/issues/2025/12/cafe-economics-the-dollar-game-bruce-edwards/index.json)
- [Bundle manifest](/en/publications/fandd/issues/2025/12/cafe-economics-the-dollar-game-bruce-edwards/bundle-manifest.json)

## 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).*

---

## Content in this bundle

- **The Dollar Game**
  - [The Dollar Game (Markdown version)](/-/media/files/publications/fandd/article/2025/12/cafe-economics.pdf.md){rel="alternate" type="text/markdown"}
  - [The Dollar Game (PDF)](/-/media/files/publications/fandd/article/2025/12/cafe-economics.pdf){rel="external" type="application/pdf"}

---

_Source: https://www.imf.org/en/publications/fandd/issues/2025/12/cafe-economics-the-dollar-game-bruce-edwards_