After the decrease in value of the pound and US Dollar, Mark Carney, who is governor in Bank of England says the next reserve could be digital.
August 28, 2019 | AtoZ Markets - At an event of central bankers in Wyoming which was held last week, Mark Carney informed that the outsized role of the US Dollar in global trade is coming to an end. The time has come for a new international financial system based on a global electronic currency or digital currency.
The insufficiencies of the international monetary and financial system have become increasingly strong, Carney mentioned. The drawbacks of relying on the US Dollar for international trade and government reserves in an age of trade wars, negative interest rates, and disruptive economic policies that might lead out from the US to create destruction in smaller economies for the world.
Digital assets might reduce the influence of USD in the future
A global electronic currency might reduce the dominant influence of the US dollar on global trade. The next phase of monetary evolution should aim for stability by mitigating the impact of the American economy on smaller nations.
The idea is however not new. In 1969, the International Monetary Fund (IMF) already created special drawing rights which explain that an international reserve asset supported by five major currencies of the world. But this currency instrument found only limited use in the global financial system.
Mark Carney's suggestions boom those of IMF chairman Christine Lagarde, who drifted the idea of turning special drawing rights into a global digital currency in late 2017.
It is worth to mention that, Facebook's Libra coin which also relies on a basket of world currencies has since renewed the reserve currency conversation. He also proposed that this scheme could theoretically take advantage of recent developments in blockchain technology to reduce global trust on the US Dollar.
One of the main important idea pointed by Mark Carey was the advantages of a multipolar international monetary and financial system is diversification. The new technology has the potential to create such changes in the world.
These implementations delivered through a network of central banks, or from the private sector, stays to be seen in the future.
Many crypto fans make the argument that Bitcoin will eventually become the world's default reserve currency.
Major economies welcoming digital payment system
Governments across Europe and Asia wanted to assume the currency by finding new ways to make international payments without SWIFT, which is already 45 years old service that handles more than half of all cross-border interbank payments. It effectively allows the US to strengthen the dollar by clamping down on trade activity in authorized countries.
But this global power of USD is gradually dissolving. Germany already started working on an independent payment system that would increase EUs autonomy and sovereignty in trade. And will allow trade with countries like Iran that have been sanctioned by the US.
On the other hand, Japan is also setting up an international network for cryptocurrency payments to defeat SWIFT payment in the future. China too is developing ahead with its digital yuan, and Russia has been in talks with China, India, Iran, and Turkey about a SWIFT alternative explicitly to cut the risk of Western sanctions.
Combined with the global economic crisis of negative interest rates and the war on cash. These schemes could be key to deposing the US Dollar.
Moreover, as Carney suggests, now could be the perfect time to welcome in a new financial system.