According to the governor of the Bank of England, Mark Carney, the strong US Dollar has a “destabilizing” dominance on international trade. To solve the problem, Carney is proposing the establishment of a global Digital currency to checkmate the dominance of the US Dollar US Dollar.
The Bank of England chief made the remarks while addressing attendees at the Jackson Hole Symposium on Friday. The focal point in his case for a global Crypto is his explanation that a global Crypto could reduce costs of transactions, and enhance the convenience of cross border payments.
Demand For A Revolutionary Payment Mode Is Here
Carney believes that the era of Cryptos is here as there is a widespread paradigm shift in the use of money as most transactions are online and payment modes are electronic. Hence, Cryptos could offer an advanced form of payment that can not only disrupt the monetary systems but dethrone dominant currencies such as the Euro, USD, and Yen.
Carney notes that the interest in Cryptocurrencies is reinforced by challenges with payment services such as high costs among others. Hence, innovation on Blockchain-based payment services is set to gather momentum in the short and medium-term.
The Private Sector Is Setting The Pace
On Coinmarketcap, there are over 2,000 listed Cryptocurrencies with Bitcoin, Ripple, Ethereum, Tether, etc. topping on the charts.
The latest major innovation in the market is Facebook Libra whose potential to disrupt global payment systems is beyond doubt. The Token is pegged on reserve assets such as Sterling Pounds, USD, and Euros is hence as stables as these currencies.
Currently, Libra is facing hurdles that can impact the rate of adoption such as Anti-Money Laundering concerns, privacy issues, etc. Nevertheless, the Token is native to an international platform with billions of users already. The users can hodl Libra and transfer to their peers on the platform as well as merchants.
Central Banks Are Mooting Cryptos
A study by the Bank for International Settlements (BIS) reveals that 70 percent of central banks are looking into the risks and opportunities of Central-Bank Cryptocurrencies (CBCs). The discussion is also ongoing among most policy-making agencies as they search for a complementary unit of account intensifies.
Carney supports an advanced form of CBCs codenamed Synthetic Hegemonic Currency (SHC). When deployed in a monetary framework, an SHC could be relatively stable than Cryptos from the private sector. This is because regulators such as the Bank of England can proffer high standards and compliant models.
The Case For A Global Crypto
Due to problems in the payment system and risks of emerging hegemonic currencies like the Renminbi, a global crypto could overhaul the international financial system in various ways.
Firstly, the “domineering influence” of the American Dollar would be reduced as the SHC Crypto would edge out the leading currency. Hence, shocks in the US such as the financial crisis o 2008/09 will not spill over through financial connections to other parts of the world. This is because the Crypto would be backed by a basket of international currencies.
Secondly, the global credit market would depart from the use of Dollars and the volatility of capital flows due to events in the USA would reduce.
Lastly, currencies backing the new Crypto will be seen as reliable stores of wealth and investors will endeavor to diversify portfolios. This would solve the “liquidity trap” and lessen the impact of US Federal Reserve rates on interest rates, Carney.