BoE mulls digital currency to displace Greenback’s global reserve status
(27 August 2019 – United Kingdom) Bank of England (BoE) Governor Mark Carney has singled out the US dollar’s (USD) ‘destabilising’ role in the world economy by stating that reserve banks may need to collaborate for the creation of their own replacement reserve currency.
Speaking at the Economic Policy Symposium in Jackson Hole, Wyoming, Carney discussed the need for a new international monetary and financial system (IMFS), noting that while the USD has played a dominant role in the world order over much the past century, recent developments such as increased globalisation and trade disputes may have stronger impacts on national economies now than they would have in the past.
The ‘greenback’ US currency is still used for at least half of international trade invoices, representing five times greater than the US share of world goods imports. This reserve currency status underpins demand for US assets and exposes countries to damaging spill overs from swings in US economic growth. China’s yuan, referred to as the ‘redback’, represented the most likely candidate to become a reserve currency to match the US dollar but still has to undergo significant reform and liberalisation before that can take place. The best solution would be a diversified multi-polar financial system which could be provided by financial technology Carney said. Facebook’s newly announced ‘Libra’ is the most high-profile proposed digital currency but faces an array of mounting fundamental issues that are yet to be addressed.
“As a consequence, 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. Even a passing acquaintance with monetary history suggests that this centre won’t hold. We need to recognise the short, medium and long-term challenges this system creates for the institutional frameworks and conduct of monetary policy across the world” Carney said.
Subscribe