The chief economist at the International Monetary Fund (IMF) has said digital currencies are not about to challenge the U.S. dollar’s pivotal role in global trade.
In an op-ed for the Financial Times on Tuesday, Gita Gopinath, who took over as the IMF’s chief economist in January 2019, wrote that although cryptocurrencies represented “intriguing possibilities,” they lack the infrastructure and global acceptance needed to supplant the dollar as the preeminent global reserve currency.
“Advances in payment technologies do not address fundamental issues of what it takes to be a global reserve currency,” Gopinath wrote. “The dollar’s status is bolstered by the institutions, rule of law and credible investor protection that the U.S. is seen as providing.”
The idea that digital currencies could directly challenge the greenback’s dominance has been advocated by some leading economic figures. The outgoing governor of the Bank of England, Mark Carney, previously suggested a central bank digital currency (CBDC) backed by a basket of reserve currencies – a “synthetic hegemonic currency” (SHC) – could benefit national economies as the process of globalization continues.
But although SHCs could better rebalance global trade, they would have to be accepted globally, according to Gopinath. With many emerging markets, which are gradually making up more and more of global GDP, switching to the greenback, that is unlikely to happen anytime soon, she said.
According to the IMF, the dollar made up more than 60 percent of global foreign exchange reserves in Q3 2019, having increased by more than $100 billion in the past year. The next largest, the euro, comprised only 20 percent of exchange reserves in the same period.
In the past year, central banks have begun publicly talking about launching their own digital currencies. The People’s Bank of China (PBOC) revealed in the summer it was “close” to launching its long-in-development digital yuan as an alternative to private initiatives like Libra, as well as raise the renminbi’s status overseas.
Federal Reserve Chairman Jay Powell said in November the U.S. central bank was exploring whether a digital dollar would even benefit the U.S. economy. The new chief of the European Central Bank, Christine Lagarde, also recently said her institution should be “ahead of the curve” when it comes to CBDCs, though it needs to be clear on the objectives of a potential digital euro.
The IMF has previously advocated research into digital currencies. When she was its head in 2016, Christine Lagarde said central bankers should “seriously” consider issuing CBDCs to encourage financial inclusion and improve the privacy of payments.
But the IMF has also advised against premature adoption. In September 2018, it asked officials from the Marshall Islands to reconsider launching a digital currency that would work alongside the U.S. dollar. Unless the country introduced strict anti-money laundering checks, an IMF report said, it could face losing crucial correspondent banking relationships with U.S. banks, losing access to the dollar and effectively cutting the nation out of the global financial system.
Facebook Libra’s exec highlights financial inclusion credentials as 2020 awaits
Facebook‘s stablecoin Libra, slated to launch sometime this year, was in the news lately after months of silence. This comes months after the stablecoin excited the community after its whitepaper, released in June 2019, formulated the intention to bank the unbanked. It also claimed that Libra’s mission is to enable a simple global currency and financial infrastructure that empowers billions of people.
Calibra‘s digital lead Ben Maurer is the latest to comment on Libra’s developments. Maurer recently gave a presentation on the topic ‘The Libra Blockchain and Move: A Technical Introduction,’ at the Stanford Blockchain Conference 2020 and spoke about Libra’s current status and its goals, once launched.
Maurer started off by stating that Libra’s mission is to solve the lack of access to financial services. He went on to note how approximately 1.7 billion adults globally are unbanked, although they had access to modern technology. With that put in perspective, several players in the industry have also speculated that Libra might have more chances of success in developing economies, like the ones in Africa and Asia.
There’s some foundation to this speculation as many of these economies, especially the ones in Africa, are in bad shape, with many citizens rapidly losing faith in the stability and value sustainability of their country’s fiat money. Owing to this, many are turning to crypto. Facebook, often viewed as a pseudonym for the Internet in Africa, is well-positioned to make a mark in the crypto-space on the continent in light of its reputation, reach and the fact that apps like Facebook Messenger are widely used.
Another point that Maurer noted was how migrants are losing around $25 billion every year due to remittance transaction fees. Talking about his recent encounter with someone who had to pay a huge amount of money at a physical store while sending money to his family, he stated,
“As a technologist, we should be uneasy that someone has to go to a store and pay a fee to send money. Libra is trying to solve this problem by building a new global payment system powered by blockchain.”
Maurer concluded his presentation by stating that Libra could be a solution to all these problems as it can offer both users and developers direct access to its platform.
“With Libra, users don’t have to rely on intermediaries to store funds. Libra offers direct access to the platform and creates a more inclusive system. Developers can also access the platform and build applications to help provide services for people not included in today’s financial system.”
Maurer wasn’t the only crypto-personality to comment on Libra, however. Galaxy Digital CEO Michael Novogratz had stated that Facebook’s Libra was a kick in the stomach for slow regulators, such as the ones in the United States. Phil Dettwiler, Head of Custody Storage and Transaction Banking at SEBA Bank AG, had also opined that Libra had instigated fear of central banks losing monetary policy control.
BAHAMIAN CENTRAL BANK TO ROLL OUT DIGITAL CURRENCY IN H2 2020
- Digital Currency to ‘Accelerate’ Recovery
- The Goal of the Bahamas Sand Dollar
- ‘Foolish’ to Be a Sheep Competing with Lions
Another tropical island country is set to get its own digital currency. The Bahamas’ Central Bank governor John Rolle yesterday confirmed that the digital Bahamian dollar will be rolled out by the second half of 2020.
DIGITAL CURRENCY TO ‘ACCELERATE’ RECOVERY
The Bahamas joins an ever-growing list of countries to publically announce a commitment to a state-backed digitized currency. These include the Marshall Islands, Turkey, China, Lithuania and Japan. A digital Bahamian Dollar, its Central Bank governor believes, will help to:
accelerate the provision of financial services needed to support business sector recovery.
In fact, Project ‘Sand Dollar’ is already well advanced with its first pilot underway on the island of Exuma since December 2019. Project Sand Dollar is the first test initiative that will soon be extended to the tourist hub island of Abaco.
Rolle said that Abaco was initially the first choice for the pilot as the island is still recovering from the effects of Hurricane Dorian. However, it was missing the “financial access issue,” since most of the main banks are present there.
THE GOAL OF THE BAHAMAS SAND DOLLAR
Currently, the Bahamanian Central Bank is still enrolling applicants in the Exuma pilot project. This has been hampered by the fact that it is card-based and has received four times the number of estimated applicants. Moreover, not all the necessary payment services providers have been integrated into the infrastructure.14 BTC & 30,000 Free Spins for every player, only in mBitcasino’s Crypto Love Affair! Play Now!
However, Rolle affirmed that the Central Bank would be in a position to enroll further applicants soon by removing the requirement for a card. He went on to explain that the Islands’ ‘Sand Doller’ was intended to create an infrastructure that allows for “the interoperability of payment services.”
Moreover, a digital Bahamanian dollar will be exactly that: a digital representation of its currency. Rolle stated:
It’s not a different currency; it’s the same currency. In law, it will never be different. It can’t differ in value in any way or the other so Sand Dollars can never be priced different from Bahamian dollars.
He added that the Carribean country was “a little bit ahead of some countries.” While many countries are looking into their own digital currencies, “they’re looking at it from different points of view.”
The digital Bahamian dollar should be rolled out to all islands by the second half of 2020, once issues regarding the legal framework and cybersecurity are resolved.
‘FOOLISH’ TO BE A SHEEP COMPETING WITH LIONS
The former executive director of the Inter-American Development Bank (IDB) for Caribbean countries, Jerry Butler, said it was time for the Bahamas to “catch up” with the rest of the world. He stated:
It is foolish for the sheep to declare that we should all remain vegetarians if the lion is of a different impression, and right now the lion is the rest of the world and they are moving quite quickly towards digitizing itself, introducing digital fee access currencies and also using blockchain technology to increase the focus efficiency and record-keeping of the way that we do business.
It seems that the adoption of digital currencies may happen faster in smaller countries that can be more agile in terms of regulation and adoption. And perhaps, they will also provide a ladder for under-developed countries to catch up with the developed world.
CHINA FILES 84 PATENTS FOR CENTRAL BANK DIGITAL CURRENCY
- China Serious About CBDC Issuance
- America Waking up to the Digital Currency Race
Reports of more than 80 digital payments-related patents filed by the People’s Bank of China (PBOC) is offering concrete proof of the country’s moves to launch a CBDC.
CHINA SERIOUS ABOUT CBDC ISSUANCE
According to the Financial Times, China’s central bank has filed 84 patents relating to its plans to launch a digital currency electronic payments DCEP system. The number of CBDC-related patents by the PBOC came after an investigative study by the U.S. Chamber of Digital Commerce.
These patents reportedly focus on designing protocols that will control the issuance and supply of digital renminbi, as well as frameworks for performing interbank settlements and integration of the CBDC with China’s existing retail banking infrastructure.
The reported patent filings also point to the proposed ‘tokenomics’ being considered by the DCEP working group. Some patents show plans towards programmed inflation control mechanisms.
Other patent filings point towards the creation of a middle-layer entity that will allow customers to deposit fiat and withdraw the digitized renminbi. Similar patents also mention the creation of digital wallets or chip cards for retail holders of the CBDC.10 BTC & 20,000 Free Spins for every player in mBitcasino’s Winter Cryptoland Adventure!
Commenting on the scale of China’s digital currency plan, Perianne Boring, President of the Chamber of Digital Commerce, remarked:
The theme is that China has made massive investments and are taking this very seriously. That is drastically different from the United States approach and this just highlights that.
As previously reported by Bitcoinist, Beijing’s work on its proposed digital currency is moving along smoothly but no word of any launch date announced by authorities.
AMERICA WAKING UP TO THE DIGITAL CURRENCY RACE
China’s CBDC progress is causing a wave of interest across Europe and the United States. Beijing’s work on a sovereign digital currency which could be adopted by smaller nations has increased the pressure on central bankers in major economies to consider launching their own digital currencies.
Appearing before Congress on Tuesday (February 11, 2020), Jerome Powell, the chairman of the U.S. Federal Reserve revealed that developments like Facebook’s Libra and China’s CBDC plans have brought CBDCs to the forefront.
In Japan, some lawmakers are pushing for the country’s central bank to create a digitized yen in response to China’s CBDC plans. Japan is also reportedly looking to lobby the U.S. to make sovereign digital currencies a major focus of the next G7 meeting.
A think tank of central bankers from Canada, Sweden, Switzerland, Japan, as well as the European Central Bank (ECB) is set to hold its inaugural meeting in April.