U.S. dollar’s days as world reserve currency are numbered, abandon the sinking dollar-ship, suggests UK’s chief bankster

A Journal of People report

Mark Carney, head of Bank of England, has acknowledged that the U.S. dollar’s days as the world reserve currency are numbered.

Speaking to policy makers and academics at the U.S. Federal Reserve’s annual symposium – Jackson Hole Economic Policy Symposium – on Friday in Jackson Hole, Wyoming, Carney warned “blithe acceptance of the status quo is misguided,” and dramatic steps will ultimately be needed.

Carney spoke hours after U.S. President Donald Trump tweeted that he would respond to retaliatory tariffs on U.S. goods imposed by China.

Carney laid out a radical proposal for an overhaul of the global financial system that would eventually replace the dollar as a reserve currency with a Libra-like virtual one.

“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.

His most striking point was that the U.S. dollar’s position as the world’s reserve currency must end, and that some form of global digital currency – similar to Facebook Inc’s proposed Libra – would be a better option. That would be preferable to allowing the dollar’s reserve status to be replaced by another national currency such as China’s Yuan.

“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 raved, “Technology has the potential to disrupt the network externalities that prevent the incumbent global reserve currency from being displaced”, and to ensure that Western central banks are properly positioned to take the helm in whatever system replaces it.

Carney declared that a Libra-like currency – with a few tweaks to silence critics – can bring about a new “multipolar international monetary financial system” (IMFS).

China, the “problem”

The UK bankester’s talks signaled that China appears as a “problem” to him. He acknowledged that China has long since overtaken the U.S.’ trade volume and the Yuan is logically next in line for reserve-currency status.

Carney said the Yuan had too many problems. However, he failed to name any of the problems he indicated.

Rather, he admitted, with the Belt and Road Initiative, China was in a position to fill the void left by the decaying dollar.

He framed the embrace of a “synthetic hegemonic currency” as a natural step in breaking up with the dollar, although Libra is backed by a “basket of currencies” that includes not only the dollar but also the pound, euro, and Swiss franc.

Noting that trouble in the U.S. economy tends to spill over into emerging market economies, which have difficulty absorbing the shock, he claimed a Libra-like coin could reduce the negative impact on those countries if the dollar takes a dive, as if placing emerging markets at the mercy of U.S., UK, and European central bankers solved the problem.

“As a consequence, it is an open question whether such a new Synthetic Hegemonic Currency (SHC) would be best provided by the public sector, perhaps through a network of central bank digital currencies,” Carney said.

Such a system could dampen the “domineering influence” of the US dollar on global trade.

It’s not surprising that establishment stalwarts like Carney are finally coming to terms with the post-dollar future.

“Even a passing acquaintance with monetary history suggests that this centre won’t hold,” Carney said. “We need to recognize the short, medium and long-term challenges this system creates for the institutional frameworks and conduct of monetary policy across the world.”

Carney’s chief concern is that globalization has heightened spillovers, and financial integration means crises can spread rapidly. That results in U.S. monetary policy having a greater impact on other nations than it used to.

A multipolar system would reduce those spillovers and help minimize the volatility of capital flows to emerging markets. The “mainstream view” of monetary policy and the international financial system is “increasingly anachronistic,” the BOE chief declared.

“Even a passing acquaintance with monetary history suggests that this center won’t hold,” he said. “Let’s end the malign neglect of the international monetary and financial system and build a system worthy of the diverse, multipolar global economy that is emerging.”

Emerging economies had increased their share of global activity to 60% from around 45% before the financial crisis a decade ago, Carney said.

But the dollar was still used for at least half of international trade invoices – five times more than the U.S.’ share of world goods imports – fuelling demand for U.S. assets and exposing many countries to damaging spillovers from swings in the U.S. economy.

Carney said the problems in financial system were encouraging protectionist and populist policies.

Carney warned that very low equilibrium interest rates had in the past coincided with wars, financial crises and abrupt changes in the banking system.

As a first step to reorder the world’s financial system, countries could triple the resources of the IMF to $3 trillion as a better alternative to countries protecting themselves by racking up enormous piles of dollar-denominated debt.

Carney noted that recent developments such as increased globalization and trade disputes may have stronger impacts on national economies at the present moment than they would have in the past.

However, “developments in the U.S. economy, by affecting the dollar exchange rate, can have large spillover effects to the rest of the world.”

He said: “The Bank of England and other regulators have been clear that unlike in social media, for which standards and regulations are only now being developed after the technologies have been adopted by billions of users, the terms of engagement for any new systemic private payments system must be in force well in advance of any launch.”

“It is worth considering how an SHC in the IMFS could support better global outcomes, given the scale of the challenges of the current IMFS and the risks in transition to a new hegemonic reserve currency like the Renminbi,” he said.

If this new SHC were to take on a greater share of global trade, “shocks in the U.S. would have less potent spillovers,” he suggested, adding:

“By the same token, global trade would become more sensitive to changes in conditions in the countries of the other currencies in the basket backing the SHC.”

Libra

Libra is planned to be a worldwide digital currency that could lie outside the direct control of central banks. So far it has drawn opprobrium from most policy makers – French Finance Minister Bruno Le Maire said it is “out of the question” and U.S. House Financial Services Committee Chair Maxine Waters promised an aggressive response from Congress.

Many Asian countries have expressed concern over big tech’s audacious bid to create a “stable” global digital currency that will be linked to a basket of major currencies and managed by the nebulous Libra Association, whose founding members include Visa, MasterCard, and PayPal.

China, in particular, is concerned over the potential impact the dollar-dominated composition of the Libra basket will have on cross-border payments, monetary policy and financial sovereignty.

“If [Libra] is widely used for payments, cross-border payments in particular, would it be able to function like money and accordingly have a large influence on monetary policy, financial stability and the international monetary system?” Wang Xin, director of the People’s Bank of China (PBOC)’s research bureau, said during an academic conference hosted by Peking University’s Institute of Digital Finance in July.

India has expressed skepticism over Libra’s prospects, as India seeks to limit the cryptocurrency trade.

Over 300 million Facebook users and over 400 million WhatsApp users in India will not be able to use Facebook’s Libra coin when the cryptocurrency hits the market sometime next year because of the virtual ban the government has placed on digital currency trading.

“Design of the Facebook currency has not been fully explained,” India’s Economic Affairs Secretary Subhash Garg told Bloomberg in early-July.

Researchers from South Korea’s central bank said issuing a central bank digital currency (CBDC) could have negative ramifications for the economy.

The Bank of Korea (BoK) published a study in february, which modeled how a CBDC issuance might affect on liquidity at commercial banks.

It found that if the public could access the theoretical digital currency directly, commercial banks’ demand deposits, or reserves, could be reduced – leaving them with a cash shortfall. That could eventually force them to compensate by raising interest rates on loans, the central bank explained.

“This has negative effects on financial stability, which increases the likelihood of bank panic in which commercial banks are short of cash reserves to pay out to depositors,” the report states.

As governments grudgingly accept cryptos – with New Zealand legalizing paying salaries in Bitcoin, and many governments mulling issuing their own digital currencies – central banks live in fear of being sidelined.

Trade and currency wars

Trade wars and the threat of currency wars are hurting growth and upending multilateral cooperation. In the trade war with China, the U.S. cannot conceivably win.

Earlier on Friday, U.S. President Donald Trump said he was ordering U.S. companies to look at ways to close their operations in China, the latest escalation of mounting trade tensions between Washington and Beijing.

A Bloomberg report said:

President Donald Trump signaled he may escalate the trade war with China in the coming hours after the country’s latest round of tariffs, firing off a new demand that U.S. companies seek alternatives to producing goods in China.

“I will be responding to China’s Tariffs this afternoon. This is a GREAT opportunity for the United States,” Trump tweeted Friday, after China threatened to impose additional tariffs on $75 billion in American goods, including soybeans, cars and oil.

A meeting on trade took place around midday in the Oval Office, according to people familiar with the discussions.

Moreover, the U.S. is poised on the brink of a recession. The superpower is alienating its allies with a sanctions regime that violates their economic sovereignty.

In an attempt to secure their assets amid global economic slowdown and recession signals from the U.S., investors are turning to gold exchange-traded funds (ETFs), accumulating the highest amounts of it since 2013.

Bloomberg reported:

Total known ETF holdings expanded to a six-year record, or 2,424.9 tons, on Wednesday. The amount is around 1,000 tons higher than the figures of early 2016, when the pile of ETFs was still reeling from post-financial crisis lows, standing at 1,425.1 tons.

Spot gold price almost reached $1,500 on Thursday and the metal is expected to “go ballistic”, according to the CEO of Euro Pacific Capital, Peter Schiff. Earlier this month Goldman Sachs forecasted the price for an ounce of gold will hit $1,600 in six months.

 

One thought on “U.S. dollar’s days as world reserve currency are numbered, abandon the sinking dollar-ship, suggests UK’s chief bankster

  1. I’m sure the international central banksters would like to control global currency, making governments irrelevant. However, I suspect many governments will not go for it, and there are lots of regular people who don’t subscribe to digital currency. Governments need to issue their own currencies for the common man and sideline the bankers.

    Like

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