Cryptocurrency could be the next reserve currency to rival the dollar

In a recent article in Bloomberg, Mark Carney, Bank of England Governor laid out a radical proposal for an overhaul of the global financial system that would eventually replace the dollar as a reserve currency with a Libra-like virtual one. 

Just a few months before he steps down as Bank of Englandgovernor, Carney offered his vision for the international economy at a time of sweeping change. Trade wars and the threat of currency wars are hurting growth and upending multilateral cooperation, while central banks are trapped in a low interest-rate world as they struggle to revive inflation.  

“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,” Carney said. “What then must be done?” 

Speaking to fellow policy makers and academics at the U.S. Federal Reserve’s annual symposium in Jackson Hole, Wyoming, he said that in the short term central bankers must deal with the situation as it is. But he also warned that “blithe acceptance of the status quo is misguided,” and dramatic steps will ultimately be needed.  

His most striking point was that the dollar’s position as the world’s reserve currency must end, and that some form of global digital currency -- similar to Facebook Inc’s proposed Libra -- would be a better option. That would be preferable to allowing the dollar’s reserve status to be replaced by another national currency such as China’s renminbi. Carney states, " 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 though in his speech  said it may be that a new “Synthetic Hegemonic Currency” would be best provided by the public sector, through a network of central bank digital currencies. “Even if the initial variants of the idea prove wanting, the concept is intriguing,” he said. “An SHC could dampen the domineering influence of the U.S. dollar on global trade.”