BOE's Carney Floats Idea of New, Virtual Reserve Currency
August 23 2019 - 3:29PM
Dow Jones News
By Jason Douglas
LONDON -- Central banks should consider joining forces to create
a virtual currency that could supplant the dollar's role in the
global economy, Bank of England Gov. Mark Carney said, offering a
novel solution to concerns about the greenback's status as the
world's foremost reserve currency.
In a speech Friday to an annual gathering of central bankers in
Jackson Hole, Wyo., Mr. Carney said the dollar's "domineering"
place in world trade and the global financial system creates
problems for policy makers outside the U.S. in managing inflation
and safeguarding financial stability.
He said the right fix isn't to elevate another currency, such as
the Chinese yuan, to a similarly powerful status, but instead to
ensure that the global economy is lubricated by multiple reserve
currencies.
"The main advantage of a multipolar international monetary and
financial system is diversification," Mr. Carney said, according to
a text of his prepared remarks published by the U.K. central
bank.
He said that while such a system might appear distant,
"technological developments provide the potential for such a world
to emerge." He floated the idea of building a virtual reserve
currency from a network of digital central-bank currencies, which
he labeled a "synthetic hegemonic currency."
This virtual currency, underpinned by digital currencies issued
by central banks, could be used to facilitate cross-border trade
and international payments, easing the global economy's reliance on
the dollar alone, Mr. Carney said.
Concerns about the dollar's outsize status aren't new. Though
the U.S. and other Western countries' share of global economic
activity has declined, the greenback remains the principal currency
for settling international trade and issuing securities and the
favored currency for government reserves.
Its dominance means that developments in the U.S. economy
quickly ripple through to small and midsize economies across the
globe, a potential headache for policy makers tasked with steering
domestic growth and inflation and protecting their economies from
tremors in the global financial system.
Knocking the dollar off its perch has long been discussed in
global policy circles but past efforts have fallen flat. The
International Monetary Fund created "special drawing rights," a
reserve asset based on a basket of currencies, in 1969, but their
use is limited.
Recent innovations in technology and finance have revived the
idea of a widely used, global currency. Facebook Inc. and a handful
of other tech giants this year announced plans to create a
virtual-payments system known as Libra, potentially providing a
novel way of paying for goods and services online.
In his speech, Mr. Carney said such a system could have
substantial implications for financial and monetary stability,
meaning it is an open question whether such a potentially important
currency should be provided by the public sector.
Write to Jason Douglas at jason.douglas@wsj.com
(END) Dow Jones Newswires
August 23, 2019 15:14 ET (19:14 GMT)
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