The global economic crisis caused by the coronavirus panic is so severe that the world’s most powerful central bank, the US Federal Reserve, announced “Infinite Quantitative Expansion”. Bank of America Securities estimates that the Federal Reserve could spend up to $ 8 trillion.
While the US promised to support the actions with an infinite purchase of assets, it is believed that the US unemployment rate could reach 30% for the first time since the Great Depression. The state of dollar reserves continues to be questioned, especially when politicians expand the money supply.
The hegemony of a sovereign currency proves itself be a single point of failure for the global monetary systemThis is an urgent problem that needs to be addressed.
How should we solve this problem?
When a country’s national currency is no longer the yardstick for world trade and businessthe risk that the country’s currency mechanism will affect the global economic system is greatly reducedand thus improve crisis management. Therefore, a multinational or supranational currency could serve as the basis for a new global monetary system to solve existing problems.
This currency could overcome the risk associated with a national currency and allow regulation of global liquidity. E.The failure of the global monetary system is due to imbalances between different economies. A supranational currency could help remove the root cause of this unilateral system that results from the hegemony of one sovereign currency over the other.
In the past there have been attempts to create a supranational currency. The idea of a supranational currency, “Bancor”, was proposed by John Maynard Keynes in the 1940s. The so-called special drawing rights were circulated by the International Monetary Fund in the course of the global financial crisis in 2008, the current global political and economic landscape, It would be difficult for different countries to reach a consensus on a global supranational currency.
The next super sovereign coin could be digital
In the cryptocurrency industry, advocates highlight the benefits of the decentralized and transparent nature of cryptocurrencies and believe that the same logic can be applied to the global monetary system. Digital currencies like Bitcoin (BTC) could potentially be a national currency. In 2010, Bitcoin pioneer Hal Finney predicted that Bitcoin would become a reserve currency for banks. Bitcoin’s fixed supply prevents a central bank from increasing the supply of fiat currencies, which can lead to inflation. However The fiat currency is quite volatile and undermines its potential as a super national currency.
The most interesting thing is that apparently more countries are participating in this competition. Recently Chinese state banks began internal tests with the People’s Bank of China’s Digital Currency Electronic Payment (DCEP). The coin is a 100% government-backed reserve fund and a digitized version of Chinese yuan banknotes and coins. The PBoC will initially transfer the DCEP to banks and other financial institutions, which will then distribute the digital currency to the public.
The DCEP is designed to replace the nation’s current reserve money and facilitate the Chinese government’s monetary policy process. The circulation of this digital currency will be much more efficient than any other currency across the country and around the world.
At the same time The Federal Reserve is considering the idea of digital payments and issuing its own digital currencyand research and experimentation related to distributed general ledger technology and its potential use for digital currencies, including the potential of a digital central bank currency.
The failure of the world economy with its imbalances and inequalities led to nationalism. Now We need to consider a truly global currency that can maintain order after the crisis, be it pound, DCEP or others.
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