Kenneth Rogoff, a Harvard professor and former chief economist at the International Monetary Fund (IMF), analyzed on the 3rd (local time) that the Donald Trump second-term administration's use of "hard power" is affecting the maintenance of the dollar's hegemony. He also said the Korean won appears to be significantly undervalued recently and projected that some of that undervaluation would be corrected within a few years.
Rogoff, delivering a keynote at the American Economic Association annual meeting in Philadelphia, Pennsylvania, said, "I didn't expect to wake up this morning to the news that Venezuela had been invaded," and stated accordingly. Hard power, a concept contrasted with "soft power," means exerting influence over other countries through military or economic means.
Rogoff explained that President Trump's strengthening of hard power is working as one of the positive factors for the dollar. He said, "The way the IMF was set up, the way the World Bank system was set up, and the fact that everything goes through the United States is not a coincidence," adding, "That is not only because the United States is big."
He added, "There are countries that use the dollar because they are under (the U.S.) security umbrella, but the (influence of hard power) is much broader."
Rogoff also said that the Trump administration's policy of unleashing all restraints that could slow development of artificial intelligence (AI) technology—such as safety and social stability concerns—and pushing full-speed AI development is acting as a positive factor for the dollar.
He noted, however, that the Trump second-term administration's policies carry both positive and negative factors for the dollar, and said of their long-term effect on the dollar's status, "We may not find the answer for a long time after his term ends."
On the Trump administration's policy to foster stablecoins, he explained that it would act as a negative factor for the dollar, saying it would increase tax evasion and illegal activity not only in other countries but also in the United States.
After the keynote, Rogoff met with Korean reporters and said the won is significantly undervalued, adding that he expects it to rise going forward. Introducing that he had considered presenting the won as an example of a very undervalued currency while preparing materials for this American Economic Association presentation, he said, "From what I see, the won appears to be very undervalued. I would be surprised if it does not rise within the next few years."
He said, "Half of the undervaluation of an undervalued currency would be resolved within three years," adding, "If it is undervalued by 20%, the rule of thumb is that about 10% is resolved over three years."