Bank of England governor Mark Carney has proposed the creation of a global digital currency as a way to stabilizing global financial systems being disturbed by trade and currency wars. The proposal was delivered during a speech at the US Federal Reserve sponsored Jackson Hole Symposium taking place this week.
Carney said that a “Synthetic Hegemonic Currency” (SHC) governed by the public sector and backed by a number of central bank digital currencies could replace the US dollar as the global reserve currency, and that this would be preferable to the alternatives, such as the Chinese Yuan/Renminbi becoming the global reserve.
Carney said the Renminbi (RMB), “has a long way to go before it is ready to assume the mantle,” but the building blocks are already there. But Carney also explained that using RMB is the “second best” solution to current problems and that a “multipolar system” would be better and current technology helps the world achieve this goal.
Carney said a basket of currencies, “could support better global outcomes, given the scale of the challenges of the current IMFS (international monetary and financial system) and the risks in transition to a new hegemonic reserve currency like the Renminbi.”
This would also lessen the influence of the US dollar, the world’s current reserve currency, he said.
“An SHC could dampen the domineering influence of the US dollar on global trade. If the share of trade invoiced in SHC were to rise, shocks in the US would have less potent spillovers through exchange rates, and trade would become less synchronised across countries. 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.”
The landscape is shifting, said Carney, and while dealing with current currency systems and circumstances is necessary in the short term, “blithe acceptance of the status quo is misguided,” and regulators need to respond creatively:
“The combination of heightened economic policy uncertainty, outright protectionism and concerns that further, negative shocks could not be adequately offset because of limited policy space is exacerbating the disinflationary bias in the global economy. What then must be done?”
Perhaps a world currency, suggested Carney, who ends his term in January 2020:
“In the longer term, we need to change the game. When change comes, it shouldn’t be to swap one currency hegemon for another.”
Carney concluded his speech stating by stating the following:
“(B)y leveraging the medium of exchange role of a reserve currency, an SHC might smooth the transition that the IMFS needs.”
Our Governor talks about the challenges posed by the international monetary and financial system for the conduct of monetary policy across the world. https://t.co/ZX6FmtMTj8 pic.twitter.com/5dhtuRhYMI
— Bank of England (@bankofengland) August 23, 2019