The Governor of the Bank of England has recently made the statement that the World Economy should shift from the US Dollar to a Cryptocurrency as a reserve. In a radical proposal, the Governor suggested that the global financial system be based on a Libra-like virtual currency rather than the US dollar.
In a report by Bloomberg, the Governor of the Bank of England Mike Carney proposed a radical approach to dealing with the problems of the global economy. The world economy looks to be headed to another recession. The reasons given for this is the trade war between China and the US and also currency wars where countries manipulate their value. He believes that the over reliance on the US dollar will always be a weak point in the global financial system. Rather than be based on the US dollar, Carney suggests the use of a Libra-like cryptocurrency.
“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?”
Mike Carney addressed fellow policy makers and academics at the U.S. Federal Reserve’s annual symposium in Jackson Hole, Wyoming. He outlined the problems faced by central banks to keep inflation up and rates down. While suggesting that banks should take independent short term steps to solve these issues, he also warned against the broken global system. By moving to cryptocurrencies from the fiat system, the world economy would be able to handle shocks like these much more efficiently. Over-reliance on the US dollar has been a recurring problem in the world economy. He strongly spoke against doing nothing and waiting for the problem to blow over. New, drastic steps were needed to stop this from happening, he said.
The most controversial statement was the mention of the Libra. Libra is a virtual currency from Facebook that will be tied to the US dollar. The US government has strongly spoken against it accusing Facebook of being a bank without regulation. There are multiple privacy and financial implications of the Libra virtual currency. Law-makers and CEOs are currently in talks to resolve any issues and move forward.
In his speech, Carney said that the US dollar backed global financial system should be replaced with a cryptocurrency. A Libra-like cryptocurrency means a stablecoin. A stable coin, however, is still tied to a fiat currency and therefore an economy.
However, his claim was that the dollar’s position as the world’s reserve currency should end. In its place, we should have a cryptocurrency similar to Libra. He said that would be preferable to replacing the US dollar with another fiat currency.
US Trade War
The global financial market has seen many shocks related to the recent trade war between US and China. Trump’s twitter presidency has not helped the confidence of the global market. The back and forth between the two nations and their tariffs has hampered growth in the recent months.
Carney believes that by removing the US dollar as the reserve, we can achieve greater independence from the US economy. He also warned against moving from US dollar to another fiat currency.
“In the longer term, we need to change the game,” Carney said. “When change comes, it shouldn’t be to swap one currency hegemon for another.”
He proposed a Libra-like virtual currency that is controlled by central banks. The crypto community does not like this suggestion as crypto was introduced to specifically bypass greedy banking systems.