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Stephen Bartholomeusz: U.S. dollar dominance increases risks of an extreme event

Section: Daily Dispatches

By Stephen Bartholomeusz
Sydney Morning Herald, Australia
Tuesday, August 27, 2019

Bank of England governor Mark Carney's promotion of the concept of a "multi-polar" digital currency to displace the U.S. dollar as the world's reserve currency captured most of the attention at the Jackson Hole symposium of central bankers over the weekend but his diagnosis of the flaws within the current global financial system was even more compelling.

The notion of a new digital reserve currency based on a basket of multiple digital currencies issued by a range of central banks -- crudely, a central bank version of Facebook's proposed Libra -- was his proffered solution to a series of deficiencies he sees within the structure of the global financial system.

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Those deficiencies, Carney said, were encouraging and have been exacerbated by protectionist and populist trade policies that reduce the rate of potential global growth, increase its downside skew and bolster the likelihood of an extreme downside event.

The core of the problem is what Carney described as a "growing asymmetry at the heart of the international monetary and financial system" -- the huge network effects that have kept the U.S. dollar the dominant global currency even as the U.S. share of global activity has diminished. ...

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