"U.S. Fiscal Deficit and Protectionism Shake Dollar Hegemony"

Harvard Professor Rogoff: "Dollar Hegemony Shaken... Multipolarity in Global Finance"
Diversification of Foreign Reserves and Rise of Digital Currencies Expected

Analysts have noted that the expansion of the U.S. fiscal deficit and the strengthening of protectionist policies are weakening the dollar-centric monetary order, prompting a shift toward a more multipolar global financial system.

The Federation of Korean Industries (FKI), in collaboration with the Peterson Institute for International Economics (PIIE) and the Organisation for Economic Co-operation and Development (OECD), held the '2025 FKI-PIIE-OECD International Conference' at FKI Tower in Yeouido, Seoul, on October 27.

Before the main session, Harvard University Professor Kenneth Rogoff, a world-renowned scholar in international finance, delivered a keynote speech on the theme 'Our Dollar, Your Problem,' which is also the title of his recent book.

Professor Rogoff stated that "the dollar still wields overwhelming influence as the world's key currency," but warned that the growing scale of the U.S. fiscal deficit is threatening the dollar's hegemony. He added that, combined with the tariff policies of the Trump administration, "the global monetary system is set to become even more multipolar."

In a subsequent discussion with Maurice Obstfeld, Senior Fellow at PIIE, Professor Rogoff addressed a range of risk factors that recent Trump administration policies-such as dollar stablecoins, digital currency initiatives, and AI-driven economic growth strategies-could pose to financial markets and macroeconomic stability.

Professor Rogoff's remarks highlight how the expansion of the U.S. fiscal deficit and the strengthening of protectionist measures are undermining confidence in the dollar, leading to a shift in the balance of the global financial order.

This trend is driving countries to diversify their foreign exchange reserves and is fueling the rise of alternative payment methods such as the euro, the yuan, and digital currencies. The explanation is that the system centered on a single key currency is gradually moving toward a more decentralized structure.

The conference focused on key issues in the restructuring of the global economic order, including global trade dynamics, artificial intelligence (AI) competition, and responses to financial risks.

Jeffrey Schott, Senior Fellow at the Peterson Institute for International Economics, analyzed the trend toward stronger protectionism under the Trump administration's policies of 'reciprocity' and 'reshoring,' and pointed out that Korea should pursue trade diversification through agreements such as the Regional Comprehensive Economic Partnership (RCEP). Park Inwon, Professor Emeritus at Korea University, empirically presented the impact of digitalization and geopolitical uncertainty on Asia's trade structure, emphasizing that supply chain risk management and the reduction of trade costs are core challenges for the Korean economy.

There was also an assessment that artificial intelligence is emerging as a key variable in the strategic competition between the United States and China. Martin Chorzempa, Senior Fellow at PIIE, suggested that Korea should expand opportunities in AI applications based on its semiconductor industry, while maintaining strategic balance between the two countries. John Drummond, Director of Trade Policy at the OECD, and Javier Lopez Gonzalez, Senior Analyst, analyzed that AI is changing not only the objects of trade but also the methods, and that the free flow of trusted data is essential for promoting trade.

Concerns were also raised about the spread of financial fragmentation weakening international cooperation. Maurice Obstfeld, Senior Fellow at PIIE, diagnosed that the increasing emphasis on security and sovereignty is restricting capital flows, warning that this trend could lead to instability in the dollar-centric system. Kim Jinil, Professor at Korea University, stressed the need to strengthen resilience to respond to price and exchange rate fluctuations and to establish systemic risk management frameworks to prevent financial instability from spreading to the real economy.

This content was produced with the assistance of AI translation services.