The Governor of the Bank of England has said cryptocurrency could replace the US dollar as the global reserve currency, as he urged continued development of central bank digital assets.
Mark Carney spoke at the Economic Policy Symposium in Wyoming last week. He said there was a need for a new international monetary and financial system in response to the changes arising from trade disputes and globalization.
Carney questioned whether cryptocurrencies in the future could ultimately replace the US dollar as the currency of global reserve. He noted disruption in the US economy tends to have more of a larger spillover effect on national economies today than in previous years.
“…Developments in the U.S. economy, by affecting the dollar exchange rate, can have large spillover effects to the rest of the world,” Carney said via Coindesk. “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.”
Mark Carney said if a new SHC was to take a bigger share of international trade, the global economy would be less exposed to risks from the US economy while sharing those risks across a basket of central bank-issued cryptocurrencies.
“Shocks in the U.S. would have less potent spillovers…” Carney said via Coindesk. “By the same token, global trade would become more sensitive to changes in conditions in the countries of the other currencies in the basket backing the SHC.”
Central bank digital currencies
Central bank digital currencies are a cryptocurrency which operates in the same way as Bitcoin, with transactions recorded on a blockchain.
However, rather than speculative cryptocurrencies like Bitcoin, these tokens serve as a proxy for fiat. They are designed to hold parity with central bank fiat currencies, giving users the ability to send and receive fiat money on the blockchain.
In his remarks, the Governor of the Bank of England noted that China was already outpacing the United States in the development of central bank digital currency, and the transition to a new global reserve currency may shift towards the Renminbi as a result.
The message from the Governor could not be clearer. The US needs to pick up the pace in developing its central bank-issued digital currency. Especially, if it is to hold ground against the Renminbi, or other emerging crypto assets in the future.