Last month, the governor of the Bank of England, Mark Carney, asserted that the U.S. dollar could be displaced as the global reserve currency and that some form of cryptocurrency could be the new reserve standard. It almost sounded like Carney was in favor of forcing the dollar out, and some people took exception to his statements. One of these was a former official with the U.S. Federal Reserve, Simon Potter, who has now given Carney a tongue-lashing over his remarks.
While speaking yesterday at an event at the Peterson Institute for International Economics, 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.”
Carney believes that perhaps even Facebook’s Libra could make a better choice as a reserve currency. The former Fed chief is certain that no digital currency can ever be stronger than the dollar in backing global economies.
Peterson argues that the dollar has too important a role in the current financial system, adding that it is used by other countries to cover their debts and also is heavily relied upon by central banks for their foreign-exchange reserves.
However, those two points are intrinsically connected and their combined weight is less than if they were separated. In other words, losing one would result in the loss of the other, but something else would be used in their places.
This has already happened in the past. The pound was used as the basis for international money markets until about 100 years ago when the dollar started to take over. If an international reserve currency has transitioned from one money to another before without the world imploding, it can happen again. Since we’re now living in a digital age, there’s no reason to assume that a digital currency couldn’t be a viable alternative.
Everyone would expect someone who worked in fiat finance for the better part of their life to continue to show support for fiat – a Coca-Cola fan doesn’t suddenly jump to Pepsi from one day to the next. Instead of continuing to fight progress, energy would be better spent truly learning about the benefits of digital currency and trying to help the space mature so that it can be accepted and regulated. Anything short of that is nothing more than an exercise in futility.
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