BOE's Mark Carney: is USD dominance drawing to a close?

Could the days of USD dominance be drawing to a close?

If Mark Carney – Governor of the Bank of England – is correct, the answer to that question might be a yes.

Indeed, it was during the US Federal Reserve’s annual economic symposium, held in Jackson Hole, Wyoming; that Governor Carney suggested that a digital, global currency could indeed threaten USD dominance in the future.

What is Governor Carney proposing?

Though no specifics were mentioned, Mr Carney has suggested that the USD could see its dominance curtailed with the creation of a new digital currency

Concerned over the disproportionate dominance of the US dollar, Mr Carney has pointed out that:

‘By reducing the influence of the US on the global financial cycle, [a new digital currency] would help reduce the volatility of capital flows to emerging market economies.’

Though a rather radical suggestion, Carney thinks that if history is any guide, the emergence of such a currency may be an inevitability. Here the Governor noted:

‘The deficiencies of the international monetary and financial system have become increasingly potent. Even a passing acquaintance with monetary history suggests that this centre won’t hold.’

Libra: a model currency for the future?

Libra – the Facebook-backed, blockchain-based digital currency seems to be significant point of inspiration for Carney’s theoretical global currency.

Here, the Bank of England Governor noted that it is one of the most high profile examples of a digital currency to date. Moreover, although Libra has no official release date, Carney points out that it nonetheless represents:

‘A new payments infrastructure based on an international stablecoin fully backed by reserve assets in a basket of currencies including the US dollar, the euro, and sterling.’

Though potentially of great technological significance, Libra has faced heavy scrutiny since it was announced, with many governments and central banks worried about the regulatory and privacy issues arising from an unregulated digital currency.

Of course, such pitfalls have not eluded Mr Carney, who points to the operational and privacy concerns that Libra and by extension something like Libra – would create.

If nothing else, the idea of a new, global digital currency is an interesting thought experience.