Why does the Bank of England need a global cryptocurrency?

Presently, the dollar as a global reserve currency plays a huge role in the international economy. It often acts as a unit of account in transactions and plays a vital role in global stock markets.

However, amid President Trump's trade war with China, central bankers begin doubting whether the dollar can maintain its status. Foreign traders invest in US bonds, the influence of the dollar on the world stage is growing. However, this should not be so.

During the speaking at the Jackson Hole Economic Symposium, Mark Carney, Governor of the Bank of England, proposed replacing the US dollar as a global reserve currency with a "global alternative" to the US currency.

Carney supported the idea of creating something that resembled Facebook's Libra cryptocurrency. He also wondered if the new global currency would "be best provided by the public sector, perhaps through a network of digital currencies of the central bank."

A single global currency, which Carney called the "synthetic hegemonic currency," with the support of the world's central banks, could reduce dependence on the US dollar. Carney believes that it "will weaken the dominant influence of the US dollar on world trade." Theoretically, the hegemonic currency will be tied to a basket of government currencies.

"The widespread use of this currency in international trade and finance will mean that the currencies that make up its basket can become reliable reserve assets, encouraging emerging economies to reduce the dependence of their safe assets on the dollar. It will reduce downward pressure on interest rates and help ease a global liquidity trap," Carney added. He referred to the situation that the US dollar is currently facing high levels of savings, low-interest rates, inefficient monetary policy, the likelihood that consumer spending will slow down. As a result, a slowdown in the economy.

The idea of creating such a currency is quite revolutionary. Nevertheless, Carney's proposal is not new. This is very reminiscent of the IMF's exclusive drawing rights, a basket of major currencies used as reserve assets to provide global liquidity. The IMF has already considered the possibility of creating a digital SDR - an idea that has received support from the Fung Global Institute.

Even so, not everyone is sure that the global digital currency will be the panacea, that Carney spoke about. "The desire to get rid of the total dictate of the dollar is fine. However, the idea that there is a technological solution that can achieve this is erroneous," Adam Posen, president of the Peterson Institute for World Economy made a statement.

Offering the idea of creating such a currency, Carney drew attention to other ideas born in the world of cryptocurrencies. It is not to say that he approves currencies created based on the blockchain, which is entirely impractical for widespread use. Nevertheless, the multicurrency unit created by Facebook, the IMF, or some other organization seems to fit into the financial landscape soon. Moreover, the hegemony of the dollar will end there.

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