Bank of England head Mark Carney has urged his fellow central bankers to embrace tech like Facebook’s Libra to build a multipolar system, warning against “swapping one currency hegemon for another” – unless it’s their hegemon.
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) during a speech at the Fed-sponsored Jackson Hole Economic Policy Symposium on Friday. Acknowledging that the dollar’s days as the world reserve currency are numbered, he gushed that “technology has the potential to disrupt the network externalities that prevent the incumbent global reserve currency from being displaced” – and to ensure that central banks are properly positioned to take the helm in whatever system replaces it.
“Blithe acceptance of the status quo is misguided,” the Bank of England bigwig warned a who’s-who of status quo representatives, shocking many with his suggestion of radical change.
When change comes, it shouldn’t be to swap one currency hegemon for another. Any unipolar system is unsuited to a multipolar world.
But it soon became clear his objection was to one particular country winning the unipolar sweepstakes, as he acknowledged that China has long since overtaken the US’ trade volume and the yuan is logically next in line for reserve-currency status. The yuan, Carney maintained, had too many problems – though he couldn’t name any, instead admitting that with the Belt and Road Initiative unfolding, China was ideally positioned to fill the void left by the decaying dollar – and “a multipolar global economy requires a new IMFS to realize its full potential.” How to get there without the economic carnage that usually surrounds such a massive paradigm shift? That’s where (pseudo?) decentralized cryptocurrency comes in, he suggested.
“We would do well to think through every opportunity, including those presented by new technologies, to create a more balanced and effective system,” Carney continued, with a nod to his Silicon Valley ally. Facebook CEO Mark Zuckerberg met with Carney while Libra was still in the planning process, and while neither have been forthcoming about what they discussed, Carney is one of the few non-corporate leaders to express unqualified support for the not-quite-cryptocurrency, which he calls “the most high profile” of electronic payment systems even though it hasn’t actually been rolled out yet and is facing major regulatory scrutiny from governments wary of Facebook’s dismal privacy track record.
Carney framed the embrace of a “synthetic hegemonic currency” as a natural step in breaking up with the dollar, though 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 US 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 US, UK, and European central bankers solved the problem. Far from breaking up with the dollar – adopting any central-bank-backed “crypto” as a reserve currency would just make the unhealthy relationship polygamous.
With the US poised on the brink of a recession, alienating its allies with a sanctions regime that violates their economic sovereignty, and ramping up a trade war it can’t conceivably win with China, it’s not surprising that establishment stalwarts like Carney are finally coming to terms with the post-dollar future. But a central bank governor, even one a few months away from retirement, proposing such a huge paradigm shift doesn’t happen if the central bank doesn’t benefit from that shift.
For a talk touting the virtues of a “synthetic hegemonic currency,” Carney’s omission of actual cryptos – bitcoin being the obvious name, but any of the less well-known currencies actually in use by real people would have made more sense than Libra, which still exists only in theory – is proof his embrace of the Facebook coin is merely a means to an end. As governments grudgingly embrace 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. Libra – and other corporate “cryptos” that are anything but – represents a chance to keep their hooks in the global economy, even when the current system falls apart. If you can’t beat them, (pretend to) join them.
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