The governor of the Bank of England, Mark Carney is vouching for the remodeling of the global financial system. According to him, this is achievable by creating and creating a currency that resembles Facebook’s Libra stablecoin. He made this proposal at the Economic Policy Symposium in Jackson Hole Wyoming on August 23.
In his speech, Carney unveiled that he believes the adoption of a Libra-like currency could end the US Dollar’s dominance. Also, he explained that it was crucial to introduce a new international and financial monetary system.
Although the Dollar has played a major role in the world economy over most of the past century, Carney believes it’s time to find its replacement. He noted that recent developments like trade disputes and surging globalization would have severe impacts on national economies now than in the past.
The US Dollar’s Dominance Might Cause the Collapse of Some Economies
For a long time now, the US Dollar has remained a key piece settling international trades. On top of this, the dollar serves as the reserve currency for many countries across the globe to date.
Reportedly, the US Dollar accounted for more than 61 percent of the world’s foreign currency reserves as of Q1 2019. Per the Bank of England governor, the Dollar’s widespread use helps boost the US economy. However, its mass adoption might have major spillover effects to the rest of the world.
Carney went on to assert that the US Dollar must stop being the world’s reserve currency. Otherwise, a lot of economies around the world face the risk of collapsing. He suggested two possible contenders that he believes would replace the Dollar.
The first option is the Chinese renminbi. However, Carney believes that the Chinese renminbi has a long way to go before it is ready to assume the mantle.
It is an open question whether such a new Synthetic Hegemonic Currency (SHC) would be best provided by the public sector, perhaps through a network of central bank digital currencies,
An SHC could dampen the domineering influence of the U.S. dollar on global trade. If the share of trade invoiced in SHC were to rise, shocks in the U.S. would have less potent spillovers through exchange rates, and trade would become less synchronised across countries.
Transforming the Current Money System
Carney believes that technology can disrupt the network effects that protect the US Dollar. For example, technology advancement has seen most transactions adopt electronic payments, leaving cash behind.
While there is no digital currency that fits Carney’s description at the moment, he said,
It is worth considering how an SHC in the IMFS could support better global outcomes, given the scale of the challenges of the current IMFS and the risks in transition to a new hegemonic reserve currency like the Renminbi.
Do you think Carney’s call for the adoption of a digital currency to replace the US Dollar as a reserve currency will have a positive impact on crypto markets? Let us know in the comments below.