By Cryptocurrencies, especially those like Facebook’s Libra, could soon replace the United States (US) Dollar in the foreign exchange market. According to Mark Carney, the Governor of the Bank of England (BoE), the US Dollar is slowly losing its number one place as the major exchange medium in foreign exchange. The BoE chief shared these sentiments at the recent Jackson Hole Symposium of Central Bankers held in Wyoming.
The US Dollar became the world’s major exchange currency in 1944 after the Bretton Woods Agreement. The agreement had various world currencies pegged to the US Dollar. The status quo has since remained the same with the US Dollar retaining its supremacy in international trade. The maintenance of the status quo is reportedly attributed to the political and economic prowess of the US. However, due to the changing political and economic fortunes of different nations, this logic no longer holds.
Supremacy of the US dollar being questioned
Further, according to the International Monetary Fund (IMF) reports released in the first quarter of 2019, the US Dollar forms 62% of global foreign exchange reserves, while China despite rising to be the world’s 2nd largest economy after US, and its Yuan, only makes for 2% of global foreign exchange reserve. The inconsistency of the logic has resulted in the questioning of the supremacy of the US Dollar in foreign exchange with cryptocurrencies turning out to be a favourite.
However, to water down the private nature of cryptocurrencies, the Bank of England chief proposed what he termed a “Synthetic Hegemonic currency.” The hegemonic currency alluded to a single cryptocurrency that is supported by major Central Banks across the world. The Governor equated the support of the cryptocurrency by major Central Banks to public sector support. Commenting on the same, Carney stated;
“It is an open question whether such a new (cryptocurrency) would be best provided by the public sector, perhaps through a network of central bank digital currencies.” notably, the BoE Governor’s sentiments on the threat cryptocurrencies pose to the US Dollar comes at the backdrop of a firm dismissal of Cryptocurrency by the US president. The president of the United States is reported to have dismissed Bitcoin and Libra as being ‘based on thin air’ with no standing or dependability in comparison to the US Dollar.
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