Bank of England governor Mark Carney says digital currency could replace dollars as global reserve

Mark Carney, the Bank of England governor, has challenged the position of the dollar as the reserve currency of the world, saying it could be replaced by a central bank-supported digital currency.

In a speech at the Economic Policy Symposium in Jackson Hole, Wyoming, Carney emphasized the need of a new international monetary and financial system (IMFS), protecting emerging economies from disparaging capital dollar outflows and eliminating the need to hoard the U.S. dollar.

“In the longer term, we need to change the game,” he said, noting that “while the world economy is being reordered, the U.S. dollar remains as important as when Bretton Woods collapsed.”

Carney outlined the use of the dollar in international securities issuances, as primary settlement for international trades, and its widespread use in companies as proof of its dominance. However, he noted that although the U.S. dollar has maintained its dominant position, recent developments like increased globalization and trade disputes may have stronger effects on national economies at present.

In the short term, he said that what countries are left to do is “play the cards they have been dealt as best as they can,” adding that “Developments in the U.S. economy, by affecting the dollar exchange rate, can have large spillover effects to the rest of the world.”

He proposed potential replacements to the dollar, including Chinese renminbi, but most notably, a digital currency that is backed by an international alliance of central banks, saying a global electronic currency that could act as “synthetic hegemonic currency… provided… perhaps through a network of central bank digital currencies” should be highly considered.

“It is an open question whether such a new Synthetic Hegemonic Currency (SHC) would be best provided by the public sector, perhaps through a network of central bank digital currencies,” he said, adding that an SHC could “dampen the domineering influence of the U.S. dollar on global trade.”

He said that a new digital currency backed by a global basket of goods would provide balance to a system where some nations have moved from zero to negative interest rates, while others like the U.S. remained positive.

However, “The question is how do you get there… You don’t just jump to something new overnight,” he told CNBC.

Carney also said that technology can interrupt the current network effects that protect the dollar. Although he did not specifically mention cryptocurrencies, he said that the “relatively high costs of domestic and cross border electronic payments are encouraging innovation, with new entrants applying new technologies to offer lower cost, more convenient retail payment services.”

Meanwhile, the People’s Bank of China is reportedly close to releasing its own government-supported digital currency, which may have been inspired by Facebook’s cryptocurrency Libra.

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