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The U.S dollar is arguably the most popular currency today. Controlled by the most powerful country in the world, the U.S. dollar currently holds a substantial influence over trade across the globe. But according to the Bank of England governor, cryptocurrency might take its place.
The governor of the Bank of England, Mark Carney, suggests that the dollar dominance could be replaced by a virtual currency backed by a large group of nations. Having such digital currency would be a better incentive to countries across the globe as it will not only stop the dominance of the almighty dollar but it will also “dampen the domineering influence of the US dollar on global trade” and help disrupt the volatility of capital flows to emerging market economies
To protect against swings in the U.S. economy, the U.S. government tends to hoard a substantial amount of dollars. While this is a general measure practiced in most countries, the U.S. government has recently increased the volume stored, giving rise to an increase in the cost of borrowing and a kind of synchronized trade across countries.
Carney suggested that “If the share of trade invoiced in [a digital currency] were to rise, shocks in the US would have less potent spillovers through exchange rates, and trade would become less synchronised across countries.”
Facebook’s Libra and China’s official currency, the Renminbi, were cited as good examples of digital assets that would help disrupt the dominance of the extremely strong dollar.
Although Facebook’s Libra seems like a viable option, Carney believes that both Libra and Renminbi are not in a position to take over global trade instead of the dollar. He added that new technologies could create digital currency that could challenge the dollar, but Libra and Renminbi may not be the virtual currencies for that.
This isn’t a new shift in the financial world. A century ago, the UK Sterling was commandeering the affairs of trade across the globe due to the level of dominance it had at the time. A move of this kind was made to bring the dominance to an abrupt end, making the international money markets better as we have it today.
It seems things are going the same way as it was then, and intervention is necessary to save international markets and emerging economies. The U.S. dollar has got to the height of it, and it poses a threat to sustainable recovery.
“The dollar’s influence on global financial conditions could similarly decline if a financial architecture developed around the new [digital currency] and it displaced the dollar’s dominance in credit markets,” Carney explained.