Governor of the Bank of England Mark Carney put forward the idea of replacing the U.S. dollar with a central bank-issued cryptocurrency like Facebook’s Libra.
Carney Proposes The Synthetic Hegemonic Currency
On August 23, 2019, while addressing the Federal Reserve Symposium in Jackson Hole, Wyoming, Carney described how Brexit uncertainties, persistent world trade tensions, and overall weaker business activity are deteriorating the global economy.
Carney also underlined that, because of globalization and the widespread dominance of the U.S. dollar, U.S. developments have significant worldwide implications in terms of trade and financial conditions, including in countries with relatively little direct exposure to the U.S. economy. The BOE Governor explains,
“In particular, growing dominant currency pricing (DCP) is reducing the shock-absorbing properties of flexible exchange rates and altering the inflation-output volatility trade-off facing monetary policymakers. And most fundamentally, a destabilizing asymmetry at the heart of the IMFS is growing. While the world economy is being reordered, the US dollar remains as important as when Bretton Woods collapsed.”
He also warned that these dynamics had increased the risks of a “global liquidity trap.”
The International and Monetary System Requires Improvement
Thus, given the new economic environment, Carney called for radically improving the structure of the current IMFS (international monetary and financial system). And to create a better IMFS, he advised countries to consider every opportunity, including those presented by new technologies.
As reported earlier by Bitcoinist, the bank governor had already expressed his openness to the idea of a central bank-issued cryptocurrency.
Now, in his speech at the Federal Reserve Symposium, Carney was more specific. He put forward the idea of a Synthetic Hegemonic Currency (SHC) provided by the public sector, “perhaps through a network of digital currencies.” He stated,
“An SHC could dampen the domineering influence of the US dollar on global trade. If the share of trade invoiced in SHC were to rise, shocks in the US would have less potent spillovers through exchange rates, and trade would become less synchronized across countries.”
To strengthen his case, the CBE chief highlighted that retail transactions increasingly occur online through digital payments. And the high costs of both domestic and cross-border electronic payments are boosting innovation. For example, Carney mentioned Facebook’s Libra. And he pointed out,
“Technology has the potential to disrupt the network externalities that prevent the incumbent global reserve currency from being displaced.”
Do you think a central-bank-issued Synthetic Hegemonic Digital Currency will overthrow the U.S.Dollar? Let us know in the comments below.
Images courtesy of Shutterstock, Bank of England, Bank of America Merrill Lynch Global Fund Manager
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