At one of the largest gatherings of bankers and holders of PhDs in the world, Mark Carney – Governor of the Bank of England – slated the US Dollar and said that it will eventually get wiped out by new-fangled digital currencies. While Carney didn’t name any specific digital currency that will kill off the US Dollar, he did point to Facebook’s Libra as an innovation that will challenge the way central banks work in the future.
Could Libra Type Currencies End the USD’s Dominance?
Carney went on to briefly mention Libra and how it could potentially allow billions of people around the world to use a new form of currency, but it was the technology that Libra is using that took center stage. Synthetic Hegemonic Currency (SHC) is a type of currency that would be backed by a basket of currencies and assets, and it’s these types of digital currencies that Carney can see taking over the world and replacing the US Dollar as the world’s go-to currency. As SHCs become more commonplace, shockwaves in the US – such as poor economic data – won’t have widespread impact on the world as these SHCs are held together by a basket of currencies, not just the US Dollar.
Carney sees a future where central banks collaborate to create SHC’s that are centrally controlled, yet operate completely digitally using blockchain and distributed ledger technology. This will likely appeal to millennials that prefer digital money over cash, and will continue to power e-commerce development around the globe, without exposing people to the risks of certain currencies.
Protecting People from Hyperinflation
The mess with Venezuela’s economy could be totally avoided in the future if countries all use SHCs. If one currency from the SHC’s basket falls into the realms of inflation, the strength of the other currencies could help to keep the basket stable, with the central governance altering the weighting from the faltering currency. This would therefore keep the SHC’s value stable and protect consumers in countries from the effects of hyperinflation.
While Libra looks like it has created the idea of an SHC, it looks as if regulators will take a stance against corporations like Facebook from controlling these types of currencies. Instead, we will see groups of central banks come together to create their own SHCs. While this isn’t quite good news for digital currency enthusiasts, it’s certainly a lot better and safer than if Facebook issued the SHC.