Our Dollar, Your Problem: Ideas that have stuck with me

Or, more substance and less vibes

Two weeks ago, I wrote a book review of Kenneth Rogoff’s Our Dollar, Your Problem that was more about the overall effect of the book and its vibes than its substance. This week I want to write about some of the ideas in it that have stuck with me since I read the book about a month ago – there are quite a few! As I mentioned in the last newsletter, there was much that I found compelling, even if I disagreed with some of it, so this is a deeper dive into the substance of the text. Also, it’s clear, as I dig in, that a full dive into the key ideas is going to go way above 2000 words, so I’ll be splitting this post into two parts, and focusing on Rogoff’s discussion of dollar dominance in this newsletter.

One of the strengths of Our Dollar, Your Problem is its history of the gradual rise of the US as the dominant global economy, which I found quick and helpful; another is Rogoff’s analysis of why the dollar is likely to stay dominant, why dollar dominance is not always a good thing for the US, and why that dominance may not maintain quite the edge that it has if current trends continue.

Briefly, dollar dominance relates to the idea that the US issues the globally dominant currency. Many goods and services produced in the US and elsewhere have their prices denominated in dollars, meaning that consumers of those goods and services need US dollars in order to purchase them. Anything that drives demand for a country’s currency has the potential to raise the price of that currency relative to others in flexible exchange rate regimes (where the prices of currencies can fluctuate, rather than being pegged, or set, against other currencies or assets). Some of this is due to institutional developments in capital markets – Mira Wilkins’s “Cosmopolitan Finance in the 1920s: New York’s Emergence as an International Financial Centre” (1999) is a fascinating essay about how many international countries opted to have Wall Street investment banks issue their government bonds, and how that subsequently increased global demand for the US dollar at the turn of the 20^th century. It also relates to the Bretton Woods accord, which made the US dollar the global reserve currency; the emergence of petrodollars, or the denomination of crude oil in US dollars, during the 1970s; and the development of Eurodollars, or dollar denominated deposits held outside of the US, which are exempt from US oversight and Federal Reserve regulation¹. And though the Bretton Woods accord dissolved in the 1970s (Rogoff’s treatment of this is a good reason to read the book), the US dollar has remained a global economic force, due to global demand for US goods and services, the continued importance of Wall Street as an issuer of dollar denominated financial assets for international institutions, petrodollars, and general global confidence in the asset.

There are two key parts of this that I want to explore in this piece – first, the consequence of dollar dominance for other countries, the challenges that that creates vis-à-vis government debt, and where I may (I’m not totally sure yet) disagree with Rogoff, and second, the possible future of dollar dominance, given economic trends under the current administration (this book was published in 2025).

Dollar Dominance, Debt, and Developing Economies

Global dependence on the US dollar, due to these institutional developments, is challenging. Countries that rely on having access to US dollars to pay for goods and services, and to pay down debts to other countries or international aid agencies, are vulnerable to exchange rate fluctuations. If the US dollar appreciates, meaning that becomes more expensive relative to other countries’ currencies, then the price of covering those obligations increases. To protect against this, countries may pro-actively acquire US dollars, and stable US dollar denominated assets (typically US government bonds), potentially at the expense of other assets, goods, or services; these actions reinforce those exchange rate dynamics, and, at scale, have the potential to further appreciate the US dollar. Rising interest rates, classically, can lead to exchange rate appreciation; as US interest rates have risen in the years following the COVID-19 Pandemic, many countries around the world defaulted on their obligations, and experienced great economic difficulty as a consequence. Rogoff doesn’t love this – I’ve admired pieces of his in the recent past that have argued for greater loan forgiveness, which are of a piece with his work over the past several decades. As early as the 1980s, Rogoff (along with co-authors, in the 1983 case, Jeremy Bulow) has argued in favor of debt forgiveness, given his findings that it is not debt repayment that determines countries’ future access to credit, but rather the ability of creditors to economically sanction those countries. This fits with a long line of work finding that the consequences of defaults on government debt are typically small on their own: while a country may face higher borrowing costs in the years following a default, those rates typically fall, and governments go back to borrowing in global credit markets². Rogoff also eventually argued for debt relief in the midst of the Eurozone crisis, with caveats that government spending alone was probably insufficient to kickstart economic growth in the aftermath of the global financial crisis. In this context, Rogoff’s call for debt forgiveness in the years following the COVID-19 Pandemic should not have been as surprising as I found it at the time.

Where Rogoff and I may diverge is in the precursors to that debt. Our Dollar, Your Problem is pessimistic about the effects of government spending, or at least, debt-financed government spending. While Rogoff supports debt forgiveness, his broader body of work on government debt is skeptical about allowing its buildup in the first place. Despite his considerable work on the nuances of debt, forgiveness, and crises, Rogoff’s treatment of government debt in Our Dollar, Your Problem is (or at least, seems) pessimistic with regard to its ability to do anything beyond courting inflation. There isn’t much discussion about the problems of limited private sector demand, or the potential downsides of large fiscal surpluses, even if Rogoff might support spending on decrepit infrastructure. There isn’t any discussion about the benefits of that massive fiscal intervention in the US and elsewhere during the Pandemic, how it staved off a longer recession comparable to what followed the 2008 Global Financial Crisis, and how supply factors contributed to the inflation that accompanied the recovery during the Pandemic. Putting my ideological cards on the table, I’ve long appreciated Ha-Joon Chang’s work on institurions and development, and also Mariana Mazzucato’s work on developmental state spending³, and I’m thinking a lot about how to place those concerns for stability, security, and sustainability against the potential (but not guaranteed) benefits of wholesale structural reform. I expect to write more on this in the future; like I said, the book has been thought-provoking for me!

Dollar Dominance for the US – Question Mark???

The other major discussion in Our Dollar, Your Problem has to do with both the benefits and costs of dollar dominance to the US, and the potential for that status to persist into the future. Dollar dominance insulates citizens or residents of the economy from global economic shifts; the US is less vulnerable to a currency shock because so many countries around the world have such a large demand for US dollars. Dollar dominance decreases the relative price of goods from around the world, enabling more US consumption of those goods and services. Dollar dominance also vests a lot of economic power in those who control access to US dollars; blocking access to payment systems is a brutally effective tool in shutting out international foes of the US, and allowing the US to coerce its allies into likewise cutting out economic activity with those nations. However, these benefits are not guaranteed, and some may come with their own downsides.

As mentioned before, if a strong exchange rate enables buying stuff from other countries at lower prices, that benefits US consumers and businesses that can capitalize on those gains from trade. But it’s not so great for competitors producing those goods inside the country with the stronger currency, or workers that are displaced as the terms of trade change. This has been a central feature of Stephen Miran’s economic agenda in the so-called Mar-A-Lago Accord. The strategy of minimizing US imports of other countries’ goods and services and ‘leveling the playing field,’ by countering other countries’ trade restrictions on the US, has been an effort to remove economic distortions that have left the US at a structural disadvantage in trade. In the Hudson Bay Capital memo linked above, Miran notes that the US dollar’s reserve currency status has contributed to that structural disadvantage; he also notes that Trump (contrarily) has praised the dollar’s reserve status, and threatened to punish other countries that stop using the US dollar as a reserve currency. This is a tricky set of policy aims! While Miran takes care to explain that the Hudson Bay Capital memo is not a set of policy prescriptions, his point that targeted and slow application of tariffs can undo some of the structural trade disadvantage that has emerged for the US economy tells a bit about his thoughts on what to do.

Our Dollar, Your Problem was published in 2025, and Rogoff is clear in the book about his disagreements with many on both sides of the political aisle; you may not be surprised to hear that Rogoff doesn’t have a lot of time or love for trade restrictions, whether they are implemented by the Biden or the Trump White Houses. And this is where Rogoff’s wry tone about the future of dollar dominance is most interesting. While Rogoff believes that there are many institutional factors that support dollar dominance, chief among them no clear international competitor for the status of global reserve currency, he also believes that the US dollar’s edge over other currencies is being reduced for more than a few reasons. These include those volatile trade policies – tariffs have been back in the news, haven’t they? –which are generally bad for demand for the US dollar as countries retaliate officially and unofficially, and may be sending more production back to China, but also has to do with broader changes to the global financial and monetary landscape. The Biden administration’s use of economic sanctions against Russia encouraged other governments with tenuous connections to the US to reduce their exposure to the US Dollar, whether through denominating commodities in prices other than US dollars, increased purchases of other economies’ currencies, growing gold holdings, or other methods. I’m planning to talk more about Rogoff on cryptocurrency in a future newsletter, but the feasibility of evading payment systems and regulations with cryptocurrency (facilitated by an administration that is generally bullish on the technology) certainly helps minimize traditional avenues for accessing dollars, and minimizes the power of economic sanctions.

There is a lot to think about, and I haven’t even talked about Rogoff’s views on AI! More to come on Our Dollar, Your Problem soon.

1. These topics have inspired books, so my apologies for glossing over them!

2. Note that access to future lending doesn’t mean that a debt crisis and heightened borrowing costs are painless; Kentikelenis and others have written amply about social costs of defaults, restructuring commitments, and other spillover effects of rising interest costs and debt problems.

3. I’m linking to a copy with my favorite cover, because it’s got a cat on it.