Ending US Dollar Dominance for Crypto Makes No Sense

Ex-United States Federal Reserve official Simon Potter has said that proposals to end the U.S. dollar’s dominance by replacing it with a digital currency make no sense.

Central banks unlikely to coordinate

Last month, Governor of the Bank of England Mark Carney suggested ending the U.S. dollar’s dominance by replacing it with a digital currency, such as Facebook’s planned stablecoin, Libra.

Carney said that he considered this to be a better option than allowing it to be replaced by another national currency such as China’s renminbi.

On Sept. 25, Potter, a former senior Federal Reserve official who ran the New York Fed’s trading desk, told BNNBloomberg that Carney’s suggestion “ignores the benefits of having the greenback as a reserve currency.” He added:

“I see no argument that makes sense to have something that complicated out there when you have large, liquid capital markets in the U.S. Not having one currency that you can basically price things and have a deep market in, that makes life much harder for the global economy.”

Although Potter believes that it is unlikely for central banks to “ever coordinate around a virtual currency,” private companies might. Potter added:

“Central banks should be very concerned about the private sector doing this. […] A nation’s control of its currency is designed to protect people and get good outcomes. The private sector is much more interested in selling products.”

Libra as a solution to financial problems

In July, Carney argued that people need to come to terms with the issues that Facebook is attempting to solve with its stablecoin, regardless of the project’s potential downsides.

He also pointed out that Libra, due to the massive scale of the project, has to be perfect right out of the gates, adding: 

“It’s either successful or it isn’t. If it’s successful, it becomes systemic, because it would involve a very large number of users. And if you’re a systemic payment system, it’s 5-sigma. You have to be on all the time. You can’t have teething issues. You can’t have people losing money out of their wallets.”