Earlier this week, Mark Carney, the governor of the Bank of England, brought up the idea of a central bank operated digital currency akin to Libra to bring an end to the dominance of the U.S. dollar as the global standard for trade and international hedges. Bloomberg extensively covered the views of various bureaucrats and economists, most of whom believe Carney’s vision would be help global market detach their growth from the United States, August 25, 2019.
Ending the Dollar Regime
This seems like an issue that has only come to the public view in the last few months, but the dollar’s hegemony over global trade has long been an obstacle for emerging countries. Adam Posen, a former policymaker for the English central bank, argues that the dollar still reigns supreme due to its ability to thwart efforts from the likes of the Yuan and Euro.
Central banks have tried to create synthetic baskets of foreign currency reserves instead of relying on the dollar, but this has not been successful due to many operational constraints.
Trump’s tariffs on other countries have given the dollar newfound strength, while simultaneously leading emerging market currencies into prolonged bear markets. The result of this is an inability for smaller countries to bank on changes in their own currency price to even out the damage caused by transacting in a currency that is appreciating against the nation’s currency and assets.
India and Russia have found mutual ground to try and shift to a new standard by opening discussions for a Rupee-Rouble trade agreement.
Drawing Inspiration From Libra
Carney believes that the global economy runs the risk of falling into a liquidity trap that even quantitative easing will find difficult to overcome. To counter this, he brought up the proposal of a global currency – something that Libra intends to do.
Although not explicitly stated, Carney’s idea draws inspiration from Libra, as a global currency that aims to value itself as a basket of currencies opposed to the prevailing system of pure dollars.
This idea is quite honestly refreshing, as it shows that central bankers and governments are growing a spine in response to the President Trump’s constant pursuit of growth at the expense of emerging economies.