"In a multipolar world - a multipolar currency": why the head of the Bank of England proposed to abandon the dollar

The head of the Bank of England, Mark Carney, proposed abandoning the dollar as a reserve currency and finding a new electronic currency to replace it.

According to him, the dependence of the world on the dollar is fraught with excessive risk. Therefore, a new electronic currency is needed that can balance the system where some countries have switched to a zero or negative interest rate, while other countries, including the United States, support a positive rate.

“In a multipolar world, a multipolar currency is needed,” Carney told CNBC.

According to the financier, the new currency should be based on a global basket of goods.

“If a financial architecture is built around a new digital currency that will supplant the dollar from a dominant position in the credit markets, then its impact on the global financial situation may decrease. Reducing the US influence on the global financial cycle will help reduce the volatility of capital flows in emerging market economies, ”Carney explained his position.

At the same time, the head of the Bank of England emphasized that trade wars have a negative effect on business around the world. For example, gaps in supply chains in the automotive and steel industries, as well as in the field of high technology, negatively affect those countries that are not direct participants in trade and tariff wars.

Cryptocurrency Experiments

Carney suggested that a project like Libra, an international cryptocurrency developed by Facebook, could become such a reserve currency.

“The most noticeable of these projects now is the new payment infrastructure Libra (Facebook announced plans to create its own cryptocurrency in June 2019. - RT ), based on stablecoin, that is, an international cryptocurrency fully secured by reserve assets from various currencies, including the US dollar , euro and pound sterling. It can be exchanged by users of instant messengers, and it can also be used in retail operations, ”said Carney about his vision of electronic currency, which should replace the dollar.

• Bank of England Head Mark Carney
• Reuters
• © Chris J Ratcliffe

At the same time, the head of the Bank of England noted that such a possible replacement for the dollar as a digital currency is still far from the stage of widespread use.

“Libra must address many fundamental issues, from privacy to operational resilience. In addition, depending on its functions, it can have a significant impact on both monetary and financial stability, ”warned Carney.

However, an expert at the International Institute for Humanitarian and Political Studies, Vladimir Bruter, believes that at the moment, Carney’s proposed idea has no prospects.

“For Washington, the opportunity to use the dollar as a world currency is the main foreign economic and foreign policy lever. Having lost this lever, the Americans will lose a significant part of world hegemony, the ability to influence world processes - as they are now trying to put pressure on China, Russia, France. And if trade bypasses the dollar, then other countries will not be able to listen to Washington. But today, the dollar is a part of world foreign trade, and to refuse to calculate in dollars means not to trade at all, ”the expert said in a conversation with RT.

In addition, the digital currency requires a common position of all countries, but it will be difficult to develop it, since it will require certain steps from states that can partially limit their sovereignty, Bruter added.

In turn, US President Donald Trump previously expressed a distrust of cryptocurrencies.

“I'm not a fan of bitcoin and other cryptocurrencies that are not money, the value of which is extremely volatile and little substantiated. Unregulated crypto assets can contribute to illegal activities, including drug trafficking, ”he wrote on his Twitter in mid-July.

I am not a fan of Bitcoin and other Cryptocurrencies, which are not money, and whose value is highly volatile and based on thin air. Unregulated Crypto Assets can facilitate unlawful behavior, including drug trade and other illegal activity ....

Trump also criticized Facebook's plans to launch the Libra cryptocurrency, suggesting that it will be “unreliable."

“We have only one real currency in the USA ... And this is the American dollar,” the US president emphasized.

Carney’s proposal is interesting, but now it’s hardly possible to implement, says Vladimir Bruter.

“I think that in general, the prospect of calculating in a different basket of currencies today looks more promising. The dollar is a rather expensive currency, and buying at dollar prices is often more expensive than in national currencies. Here you need the right and high-quality maneuver, which is quite complicated and not always possible. Nevertheless, the transition to trade in national currencies is more promising, ”the expert believes.

National alternatives

It is worth noting that Russian President Vladimir Putin spoke in November 2018 about the unreliability of the dollar as a reserve currency. Then the Russian leader noted that "the instability in the calculations in dollars causes the desire of so many economies in the world to find alternative reserve currencies and create independent payment systems from the dollar."

Vladimir Putin recalled that the largest holders of dollar assets have significantly reduced their share. Russia is also working on finding alternative options for calculating and accumulating reserves, the president said then.

“For example, in our country, already with the EAEU countries, 70% of exports and 30% of imports are served in rubles,” Putin added.

Recall, after the start of the trade wars that the Trump administration unleashed with China, Europe also started talking about a possible rejection of the dollar. So, in September 2018, the former head of the European Commission, Jean-Claude Juncker, speaking to the European Parliament, announced the need to deprive the dollar of the status of the main world currency. Then he noted that 80% of energy imports in Europe are paid in American dollars, and stated the absurdity of the situation when European airlines are forced to buy planes made in Europe for dollars, not for euros.

Russia and China have already taken active de-dollarization measures: Russian Finance Minister Anton Siluanov and Chairman of the People’s Bank of China I Gang signed an agreement on June 28 to refuse to make mutual payments in dollars and decided to make them in rubles and yuan.

Deputy Minister of Finance Sergey Storchak after signing the agreement said that it would also apply to payments that were written in dollars before its conclusion.

Trade and friendship

A statement by the head of the Bank of England indicates that trade in dollars has become a political phenomenon that Washington is taking advantage of, said Vladimir Bruter.

“It is obvious that everyone who agrees with this agrees that only the United States benefits from this. The British expect that after Brexit the situation will be corrected, because Johnson and Trump are friends, and the UK is the closest economic and strategic partner of the United States. However, in this case, this does not mean anything, because everyone has their own business in which there is no concept of friendship, ”Bruter believes.

• US President Donald Trump
• Reuters
• © Ludovic Marin

In turn, the head of the Center for Political Economic Research at the New Society Institute, Vasily Koltashov, in an interview with RT, emphasized that the words of Karni and Putin about the unreliability of the dollar sound the same at first glance, but each of them has its own meaning in them.

“The Russian president says that the world does not need a certain major currency serving the interests of one state, which is the center of the world. At the same time, the head of the British central bank has in mind that the world needs a new currency in which the interests of the British financial sector will be taken into account in such a way that the problems associated with the British pound disappear, and the influence of England will be strengthened and the world will remain a unipolar Anglo-Saxon world ", The expert explained.

But Karni’s statement is just a wish, because in reality he can’t do anything, Koltashov added.

“This statement is not forward-looking, it is most likely a hint to draw the attention of Americans who have the same problems with the dollar to the situation with the pound, to jointly change these monetary mechanisms, but so as to maintain overall influence in the world ", The expert concluded.