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A digital currency backed by a central bank could replace the dollar as a global hedging currency, said Bank of England Governor Mark Carney.
At a conference on economic policy held in Jackson Hole, Wyoming, on Friday, Carney spoke of the need for a new International Monetary and Financial System (IMFS), pointing out that the US dollar has played a dominant role in the world order over the last century. Recent developments, such as the intensification of globalization and trade disputes, may, at the present time, have greater impacts than in the past on national economies.
Carney highlighted the use of the dollar in international securities issuance, its use as the primary settlement currency for international transactions, and the fact that corporations use the dollar as an example of its dominance. However, "the evolution of the US economy, by affecting the exchange rate of the dollar, can have significant training effects on the rest of the world".
"As the global economy is reorganizing, the US dollar remains as important as when Bretton Woods collapsed," continued Carney.
Carney suggested a number of possible substitutes for the dollar, including the Chinese renminbi, including a digital currency backed by an international coalition of central banks. He said:
"The question remains open whether such a new synthetic hegemonic currency (CSS) would be better provided by the public sector, perhaps through a network of digital currencies from the central bank."
"A CHS could mitigate the dominant influence of the US dollar on global trade," said Carney.
Technology can disrupt the current network effects that protect the dollar, he explained, pointing out that an increasing number of transactions are taking place online and using electronic payments rather than cash.
Although he did not explicitly refer to cryptocurrencies, he noted, however, that "the relatively high costs of national and cross-border electronic payments encourage innovation, with new entrants using new technologies." to offer cheaper and more convenient retail payment services ".
Example of the Libra
An example is the Libra cryptography project proposed by Facebook, he noted. The social media giant has proposed Libra as a payment infrastructure and a stable base based on a basket of national currencies.
To be successful, Libra must solve regulatory problems, said Carney.
"The Bank of England and other regulators have made it clear that unlike social media, for which standards and regulations are being developed following the adoption of technologies by billions of dollars." Users, the conditions of engagement of any new systemic system of private payments must be in force well before any launch. "
Although a digital currency may not be ready to replace the dollar as a world currency, "the concept is intriguing," Carney said.
"It is worth thinking about how a CSS in the financial management system should be able to improve global results, given the scale of the challenges of the current system and the risks associated with the transition to a new currency. hegemonic reserve like the renminbi, "he said.
If this new SHC were to assume a larger share of world trade, "shocks in the United States would have less powerful repercussions," he suggested, adding:
"Similarly, global trade would become more sensitive to changing conditions in the other currencies of the SSC basket."
Image Credit: Twocoms / Shutterstock.com
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