Former IMF Chief Economist: Bitcoin Undermines Dollar Hegemony in $25 Trillion Shadow Economy

Kenneth Rogoff, former chief economist of the IMF, has argued that bitcoin flows are already affecting the use of the dollar in the so-called “shadow economy.” This, consequently, is causing troubles for the U.S. economy, by propping up interest rates.

Former IMF Chief Economist Claims Bitcoin Is Substituting the Dollar in the $25T Shadow Economy

Bitcoin has burst into the global economy, and now economists are measuring the effects of this development. Kenneth Rogoff, former Chief Economist of the International Monetary Fund (IMF), claims that bitcoin is already affecting the demand for the U.S. dollar in developing countries to move what he called the “shadow economy.”

In a recent interview, Rogoff explained that while the dominance of the U.S. dollar was cemented after World War II, cracks have recently appeared in this hegemony, with the Chinese yuan and the euro starting to decouple from it.

While cryptocurrencies are just beginning to be considered part of the legal economy, Rogoff states that they are convenient for the shadow economy, as the government cannot control all the flows leveraging them.

The shadow economy encompasses gray areas that can account for up to a third of the gross domestic product in developing countries, mostly composed of flows directed at tax evasion maneuvers. It is for these use cases that bitcoin is currently most useful.

On the real value of bitcoin and other cryptocurrencies, Rogoff stressed:

To say that cryptocurrencies have no “fundamental value” for use in transactions is a mistake. There are also several countries that are using crypto to evade financial sanctions imposed by the US.

This utilization means that 20% of the global gross domestic product (GDP), an estimation of the size of the shadow economy, is increasingly driven by cryptocurrency and not the dollar, lowering the demand for the currency around the world and affecting the U.S. economy directly.

“Lower demand for dollars in the underground economy is driving up interest rates in the U.S., although that is just one of several factors driving up interest rates today,” Rogoff assessed.

Finally, he highlighted that this use case will keep growing and governments will have a hard time controlling it even with the upcoming regulation.

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