World needs to end risky reliance on USA dollar, says BoE's Carney

Marco Green
August 26, 2019

Speaking at the Federal Reserve's annual Jackson Hole Symposium on August 23, Carney called for a dramatic shift in global monetary policy that would see central banks taking a greater interest in digital currencies such as Facebook's forthcoming libra.

Per sources close to the matter, Mark Carney is of the opinion that a global digital currency could dethrone the dominating US dollar as the world reserve currency, a scenario that would significantly help to improve global trade and reduce the volatility of capital flows in emerging markets. The yuan, Carney maintained, had too many problems - though he couldn't name any, instead admitting that with the Belt and Road Initiative unfolding, China was ideally positioned to fill the void left by the decaying dollar - and "a multipolar global economy requires a new IMFS to realize its full potential".

But the dollar was still used for at least half of global trade invoices ― five times more than the United States' share of world goods imports ― fuelling demand for U.S. assets and exposing many countries to damaging spillovers from swings in the USA economy.

U.S. Dollar Index is down 0.6% to 97.62 after President Trump wrote a series of tweets this morning blasting the Fed and railing against China.

The Guardian reports that the Bank of England governor was addressing fellow central bankers when he said that dollar-hoarding by governments has led to a decade of ultra-low interest rates and low inflation. With the United States poised on the brink of a recession, alienating its allies with a sanctions regime that violates their economic sovereignty, and ramping up a trade war it can't conceivably win with China, it's not surprising that establishment stalwarts like Carney are finally coming to terms with the post-dollar future. What's needed now is new ideas and, namely, a virtual currency of the world not tied to any particular nation-state.

Bank of England head Mark Carney has urged his fellow central bankers to embrace tech like Facebook's Libra to build a multipolar system, warning against "swapping one currency hegemon for another" - unless it's their hegemon.

Carney argued that proactively replacing the dollar with a digital coin substitute would be preferable to allowing another national currency usurp its status-such as the Chinese renminbi.

The best solution to dislodge US currency would be a diversified multi-polar financial system, something that could be provided by technology, Carney said.

"Even a passing acquaintance with monetary history suggests that this center won't hold", Carney said. "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".

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