Mark Carney made a radical proposal to change the global financial system, which would eventually replace the US dollar as a reserve currency with Libra-like virtual money.

Just a few months before retiring as Governor of the Central Bank of England (BoE), Carney revealed his opinion on the international economy at a time of sweeping change. Trade wars and the threat of a currency war are hurting growth and international cooperation, and central banks are trapped in a world of low interest rates amid efforts to revive inflation.

“The combination of increased economic policy uncertainty, overt protectionism and concern that new, negative turmoil may not be adequately counteracted by the limited scope for political manoeuvring is exacerbating the disinflationary bias in the global economy. What should be done in this case?”, asked Carney at the Central Bank Economic Forum in Jackson Hole, Wyoming. He said that in the short term, central bankers have to deal with the situation. But he also warned that “neglecting the status quo is wrong” and ultimately dramatic steps will be needed.

His most surprising thesis was that the dollar’s position as a reserve currency should be discontinued and that some form of global digital currency similar to Facebook’s proposed Libra would be a better option.

This would be preferable to the possibility of replacing the US dollar’s status as a reserve currency with another national currency, such as the Chinese yuan, according to the BoE governor.

Mark Carney spoke just hours after US President Donald Trump shook the financial markets, once again criticizing the Fed’s monetary policy and said he would respond to countervailing duties on US goods imposed by China.

“We have to change the game in the long run. When change comes, it should not be about replacing one currency hegemon with another”, pointed out Mark Carney. He believes that the best option would be to create a new “synthetic, hegemonic currency” secured by the public sector through a network of central bank digital currencies. “While there is much to be desired from the original variants of the idea, the concept is intriguing. A synthetic, hegemonic currency would undermine the dominant influence of the US dollar in world trade”, said Mark Carney.

His main concern is that globalization has strong consequences worldwide and financial integration means that crises can spread rapidly. Therefore, US monetary policy has a greater impact on other countries than in the past.

A multipolar system will limit these effects and help to minimize the volatility of capital flows to emerging markets. The “traditional views” on monetary policy and the international financial system “are increasingly anachronistic”.

“Even a cursory review of monetary policy historically shows that this center will not endure. Let us put an end to the devastating neglect of the international monetary and financial system and build a system that is worthy of the emerging, diverse, multipolar world economy”, said Mark Carney.