Mark Carney, the Bank of England governor has made a suggestion that a digital currency in the design of Facebook’s Libra could dethrone the dollar in the foreign markets reign. Carney was making the proposal at the Jackson Hole symposium of central bankers where he vaguely proposed a synthetic hegemonic currency.
The truth is that, the dollar is losing its lustre and soon enough it will be replaced with a new digital currency. According to Carneys, a digital currency with the potential of overthrowing the dollar needs huge backing by major central banks.
The Dollar Domination
Since the Bretton woods agreement of 1944, the dollar has been the world’s reference currency. Since then, various currencies were fixed to the value of the dollar. The political and economic clout of the United States has sustained the dollar in the global supremacy status. And Head of research at Ostrum Asset Management, Philippe Waechter agrees that the world’s most dominant currency has always been that of the world’s biggest political power.
In the first quarter of 2019, the greenback has accounted of 62 percent of the global foreign exchange reserve. This is according to data from the international monetary fund. The second in the statistics is the European single currency with a distant 20.2 percent. The Chinese yuan comes in third, comprising only 2 percent. This is despite its rise to the world’s second biggest economy. Second only to the United States.
Why The Dollar Is Losing Its Appeal
The changing world economic order and globalization has resulted in the dollar losing its sparkle, although gyrations in the United States still have an impact on other economies.
According to Carney, the developments in the United States have spill overs on financial conditions and trade performance of countries limited in direct exposure to the United States. He also added that the appreciation of the dollar has been coupled by repayments of the emerging nations because the debt is denominated in dollars.
The Bank of England chief, who also steps down in January foresees the need for a game changer in the long term.
The Role Of The Central Bank
The public, in the form of central banks can offer the best support for virtual currencies. Carney also adds that it’s still an open question whether such a cryptocurrency would be best provided by the central bank virtual currencies.
Meanwhile, world leaders, including central bank governors remain anxious over the issue of unregulated virtual currencies. US president, Donald trump has come out lashing at Libra and bitcoin for having no dependability and standing like the dollar.
The dollar is by no means going down without a fight, Washington won’t allow the dollar to lose its status as easily.
What About Libra
Mark Carney also explicitly referenced to Libra, a future cryptocurrency by Facebook unveiled in June while trying to avoiding bitcoin the flagship and world’s most popular cryptocurrency.
The ideal virtual currency will be backed by a basket of crypto assets in an effort to avoid the volatility that haunts bitcoin every now and then.