Bank of England Governor: Libra-Like Currency Could Replace US Dollar (#GotBitcoin?)
Mark Carney, the Governor of the Bank of England, has suggested a transformation of the global financial system by replacing the United States dollar with a digital currency similar Facebook’s Libra. Bank of England Governor: Libra-Like Currency Could Replace US Dollar (#GotBitcoin?)
Delivering his speech at the U.S. Federal Reserve’s annual symposium in Jackson Hole, Wyoming, Carney said that a Libra-like digital currency could replace the U.S. dollar as the world’s reserve currency, Bloomberg reported on Aug. 23.
Carney said that replacing the dollar with a digital currency would be a better option than allowing its reserve status to be replaced by another national currency such as China’s renminbi. He added that a new “Synthetic Hegemonic Currency” could be best provided by the public sector, through a network of central bank digital currencies:
“The combination of heightened economic policy uncertainty, outright protectionism and concerns that further, negative shocks could not be adequately offset because of limited policy space is exacerbating the disinflationary bias in the global economy.”
In July, Carney argued that Libra, due to the massive scale of the project, has to be virtually perfect at the outset in order for it to be released at all, saying:
“It’s either successful or it isn’t. If it’s successful, it becomes systemic, because it would involve a very large number of users. And if you’re a systemic payment system, it’s 5-sigma. You have to be on all the time. You can’t have teething issues. You can’t have people losing money out of their wallets.”
Back in February 2018, Carney claimed that Bitcoin (BTC) cannot be considered a legitimate currency by traditional definitions — neither a means of exchange, nor a store of value.
Central Banker: CBDCs Are A Flexible Tool For Zero-Interest Rate World
Chile’s central bank governor, Mario Marcel, says central bank digital currencies (CBDC) can provide additional flexibility at a time of “unconventional monetary policies.”
Marcel made the comments in a speech titled “High-level Policy Panel Discussion on Central Bank Digital Currencies” at the OECD Global Blockchain Policy Forum held in Paris on Sept. 12.
Disruptive Fintech Addressing “Some Gaps” In Traditional Finance
Marcel’s opening remarks acknowledged that cryptocurrencies like Bitcoin are already showing disruptive potential and provide some benefits over the legacy system. He said:
“Disruptive technologies in Finance or ‘FinTech’ are transforming the financial industry landscape, challenging traditional business models. These technologies have been able to address some gaps in the traditional financial industry that can be grouped into five categories:
Access, Speed, Cost, Transparency and Security.”
However, Marcel argues that this new technology can also be adopted by the banking system itself to mitigate its disruptive potential. Moreover, distributed ledger technology (DLT) can provide some benefits that conventional money technology cannot, according to Marcel.
CBDCs Can “Improve The Central Banks’ Toolkit”
DLT and CBDC could “enhance market efficiency” based on some research, says Marcel, who also notes these digital currencies can be more flexible in an “unconventional” monetary policy environment.
Specifically, One Of The Main Benefits Would Be:
“Crisis management around the Zero Lower Bound. In a world of low real interest rates, the impact of unconventional monetary policies, such as QE, nominal GDP targeting and forward guidance, appears to be limited. […] Fixing negative nominal interest rates in a flexible way could improve the Central Banks’ toolkit.”
Marcel, however, does acknowledge some possible drawbacks and that more research is needed to fully understand the technology’s potential. Moreover, the general public could interpret negative interest rates as “a new tax” and would likely see pushback from lawmakers.
Marcel adds that CBDCs can give central banks more intervention tools and reduce the risk of bank runs. Also, balance sheets on a transparent ledger can make it easier to “unwind troublesome financial institutions and divest their assets.”
But while Marcel notes that CBDCs do not necessarily need a blockchain, he concludes:
“Monetary policy channels in a world with CBDCs may be faster and more powerful.”
As Cointelegraph reported earlier this month, China is reportedly at the forefront of central bank-issued digital currencies and could launch its own as early as Nov. 11.
In March, Bank of International Settlements chief Agustin Carstens warned that banks should not stop innovation, but should still approach cryptocurrencies with caution.
Meanwhile, Morgan Creek Digital Assets co-founder Anthony Pompliano said in July that low-interest rates and money printing by central banks provide “rocket fuel” for Bitcoin’s value.
‘No Argument’ for Replacing Dollar’s Global Role With Crypto: Ex-Fed Official
A former official from the U.S. Federal Reserve has responded to a proposal from the chief of the Bank of England that a cryptocurrency could be more beneficial in intentional markets than the U.S. dollar.
Bloomberg wrote on Wednesday that the governor of the British central bank had argued last month that a Libra-like “Synthetic Hegemonic Currency,” best provided by the public sector, would help end the dominance of the dollar as the global reserve currency. It would, he proposed, also be a better option than another fiat currency, such as the yuan, ultimately replacing USD.
“In the longer term, we need to change the game. … When change comes, it shouldn’t be to swap one currency hegemon for another,” Carney said in a speech at the Jackson Hole Symposium 2019. He will step down from his BoE role in January 2020.
The Libra project, led by Facebook and backed by a group of 28 major firms including Uber, PayPal and Visa, aims to launch a stablecoin representing a basket of fiat currencies and government bonds.
Responding to Carney, Simon Potter, who was until recently executive vice president and head of the Markets Group at the New York Fed, said that the case had “no argument” to support it and doesn’t take into account the benefits of the dollar’s international role.
At An Event In New York Yesterday, Potter Stated:
“I see no argument that makes sense to have something that complicated out there when you have large, liquid capital markets in the U.S.. Not having one currency that you can basically price things and have a deep market in, that makes life much harder for the global economy.”
While it’s probably unlikely that the central banks of would work together on a shared digital currency, Potter said there’s the risk that private firms will – and that should be a “concern” to central banks.
While national monetary sovereignty is “designed to protect people and get good outcomes, companies are “much more interested in selling products,” he argued.
US Senators Warn Three Facebook’s Libra Backers of Membership Risks
Three backers thought to be reconsidering their involvement in Facebook’s digital currency Libra have received warnings from the United States’ politicians over participating.
Senate Letter: Facebook’s Problems Are Your Problems
According to Bloomberg’s article published on Oct. 9, a letter to Visa, Mastercard and Stripe was sent by two U.S. senators. In it, they are reportedly pressuring the three payment giants to look closer at the regulatory implications of Libra.
The report comes a week after the rumors started to spread about the companies’ cold feet over Facebook’s digital currency. PayPal, formerly a member of Libra, then officially left, saying that it fears the kind of repercussions the letter appears to embody. The senators’ latest message reads:
“Facebook is currently struggling to tackle massive issues, such as privacy violations, disinformation, election interference, discrimination, and fraud, and it has not demonstrated an ability to bring those failures under control. […] You should be concerned that any weaknesses in Facebook’s risk management systems will become weaknesses in your systems that you may not be able to effectively mitigate.”
A Widely-Forecast Backlash
One of the letter’s authors, Sherrod Brown, is conspicuous for being the senior Democrat on the Senate Banking Committee. As Cointelegraph reported, the Committee has taken a highly skeptical view of Libra, conducting multiple hearings in which it grilled executives over their plans.
Brown now seems to suggest that a general distrust of Facebook could translate into distrust of its financial activities. His words echo the predictions of teething problems made by Ripple CEO Brad Garlinghouse earlier.
“Facebook has been in the crosshairs of a bunch of governments around the world,” he summarized, adding that he doubts Libra would appear before 2023.
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‘Anonymity Vouchers’ Could Bring Limited Privacy To CBDCs: ECB Report
The European Central Bank (ECB) is thinking through the logistics of a hypothetical central bank digital currency (CBDC).
Revealed Tuesday in an ECB report, Europe’s central bankers have developed an “anonymity voucher” to give prospective CBDC users limited privacy in their retail transactions.
The ECB’s “novel new concept” aims to bridge two clashing forces in the digitized payments landscape: Europeans’ desire for private transactions and regulators’ demand for anti-money-laundering (AML) enforcement.
“The ongoing digitalisation of the economy represents a major challenge for the payments ecosystem, requiring that a balance be struck between allowing a certain degree of privacy in electronic payments and ensuring compliance with regulations aimed at tackling money laundering and the financing of terrorism (AML/CFT regulations),” the report’s executive summary said.
The anonymity vouchers, issued to all account holders at a “regular interval” regardless of their account balances, could be redeemed on a one-to-one basis to shield their transactions, the report states.
Under the proposed system, if Alice wants to anonymously send CBDC tokens to Bob, Alice must hold the equivalent number of anonymity vouchers. The anonymized transactions would skip reviews from the ECB’s proposed AML Authority, the intermediary reviewing all transactions.
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