Could cryptocurrency dethrone the dollar?
Bank of England governor Mark Carney has suggested that a virtual currency, modelled on Facebook’s Libra, could one day replace the dollar as king of the foreign exchange market.
The BoE chief aired vague proposals for a so-called “Synthetic Hegemonic Currency” at the recent Jackson Hole Symposium of central bankers.
Here is a brief assessment of why the greenback is losing its lustre and the outlook for Carney’s proposed new digital currency, which would be supported by major central banks around the world.
– Why dollar dominance? –
The dollar has been the world’s reference currency since the Bretton Woods agreement in 1944, when various key units were fixed to the value of the greenback. It has retained its global supremacy ever since, thanks to the economic and political clout of the United States.
“The dominant currency is always that of the world’s biggest political power,” noted Philippe Waechter, head of research at Ostrum Asset Management.
The dollar accounted for almost 62 percent of global foreign exchange reserves in the first quarter of 2019, according to the International Monetary Fund.
The European single currency was second with 20.2 percent, while China’s yuan comprised only two percent despite the country’s rise to the rank of the world’s second biggest economy behind the US.
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