A former official from the U.S. Federal Reserve has responded to a proposal from the chief of the Bank of England that a cryptocurrency could be more beneficial in international markets than the U.S. dollar.
Bloomberg wrote on Wednesday that the governor of the British central bank had argued last month that a Libra-like “Synthetic Hegemonic Currency,” best provided by the public sector, would help end the dominance of the dollar as the global reserve currency. It would, he proposed, also be a better option than another fiat currency, such as the yuan, ultimately replacing USD.
“In the longer term, we need to change the game. … When change comes, it shouldn’t be to swap one currency hegemon for another,” Carney said in a speech at the Jackson Hole Symposium 2019. He will step down from his BoE role in January 2020.
The Libra project, led by Facebook and backed by a group of 28 major firms including Uber, PayPal and Visa, aims to launch a stablecoin representing a basket of fiat currencies and government bonds.
Responding to Carney, Simon Potter, who was until recently executive vice president and head of the Markets Group at the New York Fed, said that the case had “no argument” to support it and doesn’t take into account the benefits of the dollar’s international role.
At an event in New York yesterday, Potter stated:
“I see no argument that makes sense to have something that complicated out there when you have large, liquid capital markets in the U.S.. Not having one currency that you can basically price things and have a deep market in, that makes life much harder for the global economy.”
While it’s probably unlikely that the central banks of would work together on a shared digital currency, Potter said there’s the risk that private firms will – and that should be a “concern” to central banks.
While national monetary sovereignty is “designed to protect people and get good outcomes, companies are “much more interested in selling products,” he argued.
Simon Potter image via the New York Federal Reserve