Sibos 2019
Sep 26, 2019

Will USD be replaced by a global digital asset?

Last month, in front of a gathering of central bankers in Jackson Hole, Wyoming, the Bank of England governor, Mark Carney, made a speech about the future of money. A timely topic in retrospect of #Sibos 2019 which featured the topic on its agenda.

He challenged the US dollar’s position as the world’s reserve currency and proposed an alternative: a new global digital currency. 

He believes a universally recognised “stablecoin” would end a savings glut and a decade of low inflation and even lower interest rates. 

Carney and many other financial leaders believe the US dollar is far too dominant and too powerful, and therefore a barrier to a sustainable recovery for the global economy. Any major rise and fall to the US dollar leads to a major impact on global markets. And these shocks are problematic to the future of our international financial system. 

A global digital currency, says Carney, “could dampen the domineering influence of the US dollar on global trade” and “If the share of trade invoiced in a digital currency were to rise, shocks in the US would have less potent spillovers through exchange rates, and trade would become less synchronised across countries.

He also explained how “the dollar’s influence on global financial conditions could similarly decline if a financial architecture developed around the new digital currency and it displaced the dollar’s dominance in credit markets. By reducing the influence of the US on the global financial cycle, this would help reduce the volatility of capital flows to emerging market economies.”

Conversations surrounding digital currencies have dramatically shifted with the rise of electronic payments innovation and the ease by which people can pay for goods and services with a simple tap from a card or mobile phone.  

Earlier this year, the Bank of England also ‘cautiously’ welcomed Facebook’s announcement of its Libra cryptocurrency project – citing the need for more understanding of how the initiative will be rolled out. 

But this timely announcement, along with Carney’s speech, highlights the reality about our global financial system. 

We are entering a new world of money, and the future of digital currencies is already here. The possibility of a global digital currency is real – it is the inevitable result of the digital world we live in – one that has been shaped – and will continue to be shaped- by the ubiquity and dominance of the Internet.  

However, for the world to realise the full potential of the crypto economy, more investment and support must be placed on the innovations that can safeguard the possession of digital assets. Stringent legislation and regulation are necessary to mitigate any risks before a global digital currency is adopted by billions of users.  We also need to take look at the impact that such an initiative could have on interest rates and inflation at country level.  

The idea of a global stablecoin as the world’s currency reserve is an exciting prospect, and with Carney’s backing, it moves the conversation about digital money in a more positive light.  But we must not lose sight of the challenges to realising this ambition. 

When Facebook announced its upcoming Libra currency, the Bank of England stated it would ‘keep an open mind- not an open door.’

When it comes to rolling out a global digital currency – we couldn’t agree more.


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