The era of cash is drawing to an end and that of central bank digital currencies has begun. Money, banking, and finance are on the verge of transformation. Physical money is slated to become a relic, with digital payment systems becoming the norm around the world. Banking is going to change as other forms of financial intermediation gain prominence. Much of the world's population will gain access to at least basic financial services, improving lives and economic fortunes.
“Globalization has rendered the world increasingly interdependent, but international politics is still based on the sovereignty of states.” ~ George Soros
Decentralized finance hardly eliminates the need for government, which will retain important roles in enforcing contractual and property rights, protecting investors, and ensuring financial stability. The displacement of cash by digital payment systems will eliminate any vestige of privacy in commercial transactions. Bitcoin and other cryptocurrencies that were intended to secure pseudonymity and eliminate reliance on governments and major financial institutions in the conduct of commerce. May, instead engender changes that result in compromising privacy and further solidify the power of governments.
Serial entrepreneur, Elon Musk has suggested,
"There's a good chance that crypto is the future currency of Earth."
A single global currency has been proposed before. At the Bretton Woods conference in 1944, economist John Maynard Keynes proposed the bancor plan. The bancor, from the French for "bank gold," was to be an international bank reserve to be issued by an International Clearing Union for settling international balances for trade. As conceived, the bancor would operate in parallel with domestic currencies and central banks. In 1984 Harvard economist Richard Cooper evolved the plan to include a single currency for the major economies of the time that would replace their national currencies.
Having one global currency accepted for transactions globally would have salutary effects. It would eliminate exchange rate volatility, and manipulation. There would be no incentive for competitive currency devaluations to promote a country's exports. The zero-sum game of currency wars could no longer be weaponized to stimulate economic recoveries, nor would there be a need to hedge foreign exchange risk. More importantly the United States and its central bank would have a more homogenous impact on global financial markets.
A single global currency would be an extreme outcome however requiring all countries to cede their monetary autonomy to a single global body charged with managing that currency. A more realistic alternative would involve adding a globally recognized tender to the existing set of international currencies. Such a currency could also serve as a safe haven, with central banks accumulating reserve assets denominated in this currency rather than that of any particular country.
But what country or institution would be in charge of issuing such a global currency that would add to its attraction and adoption? The International Monetary Fund (IMF) seems to be the favored candidate. The IMF was founded along side its sister organization , The World Bank in 1944 to help countries manage their external finances. This multilateral institution now counts nearly all countries in the world as its members. The IMF created an international type of monetary reserve currency called SDRs, a digital international reserve asset, in 1969 to supplement the official reserves held by its member countries. Reserves can be thought of as rainy-day funds held by national central banks designed to meet international obligations-to pay foreign creditors.
"110 countries are at 'some stage' of exploring a central bank digital currency. This is a little over half of all the central banks in the world. This transition is moving quite rapidly. ~ Kristalina Georgieva, Managing Director, IMF
Comments