He advocated a digital coin as the replacement for the dollar as the reserve currency. His argument is that it would end a savings glut that resulted in 10 years of low inflation and ultra-low interest rates.
“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,” Carney said. “What then must be done?”
It’s not the strangest pie-in-the-sky idea to come out of the cryptosphere I’ve heard today, but the difference is that it’s coming from such a high visibility person from an institution not exactly known for its hackneyed crypto-utopianism.
Why it’s a good idea
The current system is both risky and inefficient. Global firms waste time and resources to mitigate currency risk, which benefits only the banks. It would also put an end to currency wars, and the collateral damage to the world economy.
Pricing could be more transparent (especially if we properly leverage blockchain technologies along the supply and distribution chains of products) and foreign-exchange transactions would be nonexistent, thereby easing off some of the restrictions in world trade.
Back in 2009, then Treasury Secretary Timothy Geithner let it slip that he liked the idea of one world currency controlled by the International Monetary Fund (IMF).
It’s also not new. The idea is at least as old as John Maynard Keynes and maybe older. The only problem I can see with that is that the IMF is an institution funded by the U.S. and on American soil, and therefore compromised as a locus for a world currency. It lacks the decentralization that would bring autonomy and independence.
Besides, it never got beyond the words-are-wind point, because ‘Murica.
However farfetched a global currency may sound, remember that prior to the first world war, ditching the gold standard seemed equally implausible. Once the infrastructure was in place for a decentralized global coin, developed nations could benefit because there would be no longer any currency risk in international trade, and would eliminate China’s ability to use currency exchange to make their goods cheaper on the open market.
A global world currency would be outside of the control of central banks, and therefore its value could not be manipulated by governments. That means the fed can’t do anymore quantitative easing, or jack interest rates on developing countries, thus allowing countries otherwise indebted to the IMF and World Bank an adequate shot at development.
It would mean not just the end of American economic hegemony, but an end to the concept of economic hegemony.
“In the longer term, we need to change the game,” Carney said. “When change comes, it shouldn’t be to swap one currency hegemon for another.”
Why it will never happen:
The utopian notion of a singular world currency is inextricably tied to the notion of a global village, which is roughly defined as a single technologically mediated global marketplace.
I’m not a big believer in the global village idea. It’s not that it’s not a good one or that it’s somehow not working—because there are statistics that suggest the world is becoming gradually more equal regardless of what the mainstream news may tell you—but that it’s not working fast enough and is incredibly prone to shocks.
The study shows that on a global scale, relative income inequality (as measured by the Gini coefficient) has been declining steadily, from 0.74 in 1975 to 0.63 in 2010. This reduction has been driven primarily by declining inequality between countries — which in turn has been fueled by extraordinary economic growth in fast-developing countries such as China and India.
Donald Trump and Boris Johnson and the lobotomized populism they represent are the most recent setbacks towards the construction of a global village. When their time has come and gone we’ll get back to the business of making a better world.
But the development of that world will still be fraught with barriers of the human variety. Those in power become addicted to it and are absolutely loathe to give it up to the point where it needs to be wrested from them mostly by coercion, or force. Occasionally, mostly in times of great calamity, we find unity and cohesion and can make the sweeping changes required for our own preservation, but those are few and far between. I’m thinking about the Marshall Plan at the end of the second world war where the United States funded reconstruction of Europe.
The United States will not be willing to give up control of the world’s economy without a fight, and China, with their shame-based imperialism, will be hot to pick up should the United States fail.
Also, building the international infrastructure will take levels of international coordination and cooperation unprecedented in human history. Far more than even the Marshall Plan.
Country’s under the thumb of the World Bank and IMF for restructuring debt would require debt relief, (or perhaps more debt) to build the infrastructure required for access. It would effectively construct a new digital divide, wherein the objectives of the global village would be turned on their head as countries unable to forge said infrastructure would be permanently locked out of the global economy.
Carney has a point, though:
“Even a passing acquaintance with monetary history suggests that this center won’t hold. Let’s end the malign neglect of the international monetary and financial system and build a system worthy of the diverse, multipolar global economy that is emerging.”
Regardless of how salient Carney’s point may be, we should work towards a goal that doesn’t produce two problems for every one we solve.