Mark Carney, CBDCs and the United States Dollar - Dealing with Donald Trump

For some reason or another, Canadians believe that Mark Carney is best suited to negotiate trade issues with Donald Trump.  This is likely due to the non-stop coverage that Canada's left-biased media has deluged Canadians with since Carney entered the race for replacement Liberal leader/Prime Minister in December 2024.  If we look back at comments that Carney made at a speech in 2019 which get no coverage on Canada's mainstream media, it would appear that Carney might well have an uphill battle with President Trump.

On August 23, 2019, Mark Carney in his role as Governor of the Bank of England gave this speech to the Jackson Hole Symposium, an annual gathering of central bankers, finance ministers and other economic experts from around the world:

In this rather mind numbingly boring and very technical speech, he delves into the international monetary and financial system (IMFS), focusing on how the current system challenges monetary policy.  He notes that the world economy is being reordered (thanks to the growing impact of the BRICS nations on the global economy) with the U.S. dollar remaining as important as it was when other currencies were pegged to the U.S. dollar which was pegged to the price of gold ($35 per ounce) at the Bretton Woods meeting in 1944.  This was the case until 1971 when President Richard Nixon announced his New Economic Policy, suspending the conversion of the U.S. dollar into gold.

Carney states that there is a growing "destabilizing asymmetry" at the heart of the IMFS and, with the U.S. dollar's continuing importance to the economy, it is having a significant spillover into trade performance and financial conditions of emerging economies.  This makes it difficult for central bankers to provide the stimulus necessary to achieve their objectives and, as a result, there is a growing risk of a global economic slowdown. To summarize his comments, the near-zero interest rate policies adopted by the central bankers of the United States and other advanced economies made it nearly impossible for them to lower rates further. 

 Here is a quote:

"Today, the combination of heightened economic policy uncertainty, outright protectionism and concerns that further, negative shocks could not be adequately offset because of limited policy space is exacerbating the disinflationary bias in the global economy.

What then must be done? In the short term, central bankers must play the cards they have been dealt as best they can."

He then states that central bankers need to "change the (reserve currency) game" in the new multipolar  international monetary and financial system and that (with my bolds):

"When change comes, it shouldn’t be to swap one currency hegemon for another. Any unipolar system is unsuited to a multi-polar world. We would do well to think through every opportunity, including those presented by new technologies, to create a more balanced and effective system."

Note the use of the words "new technologies".  We will see what those are later in this posting.

Now, let's see what he has to say about the U.S. dollar (again with my bolds):

"The dollar represents the currency of choice for at least half of international trade invoices, around five times greater than the US’s share in world goods imports, and three times its share in world exports.  The resulting stickiness of import prices in dollar terms means exchange rate pass-through for changes in the dollar is high regardless of the country of export and import, while pass-through of non-dominant currencies is negligible. As a result, import prices do not adjust efficiently to reflect changes in relative demand between trading partners, in part because expenditure switching effects are curtailed, and global trade volumes are heavily influenced by the strength of the US dollar....

Huge network effects mean the dollar has remained dominant in the IMFS despite the transformation of the global economy. At the time of the Latin American debt crisis, EMEs made up a little more than one third of global GDP. Since the last Fed tightening cycle, their share of global activity had risen from around 45% to 60%. By 2030, it is projected to rise to around three quarters.

As well as being the dominant currency for the invoicing and settling of international trade, the US dollar is the currency of choice for securities issuance and holdings, and reserves of the official sector. Two-thirds of both global securities issuance and official foreign-exchange reserves are denominated in dollars. The same proportion of EME foreign currency external debt is denominated in dollars and the dollar serves as the monetary anchor in countries accounting for two thirds of global GDP.

Basically, Carney blames the U.S. dollar for the woes in the global economy.    You'll note that he stated that in "changing the game" when it comes to new reserve currencies to replace the U.S. dollar, new technologies must be considered.  What are these new technologies?  Here you go:

"The Bank of England and other regulators have been clear that unlike in social media (and its attempts to create new payment systems like Facebook and Libra/Diem), for which standards and regulations are only now being developed after the technologies have been adopted by billions of users, the terms of engagement for any new systemic private payments system must be in force well in advance of any launch.

As a consequence, it is an open question whether such a new Synthetic Hegemonic Currency (SHC) would be best provided by the public sector, perhaps through a network of central bank digital currencies.

Even if the initial variants of the idea prove wanting, the concept is intriguing. It is worth considering how an SHC in the IMFS could support better global outcomes, given the scale of the challenges of the current IMFS and the risks in transition to a new hegemonic reserve currency like the Renminbi.

An SHC could dampen the domineering influence of the US dollar on global trade."

He also notes that the most likely candidate for a replacement reserve currency is China's Renminbi but that it still has a way to go before it becomes truly a global reserve currency.  This is very noteworthy given that the Trump Administration appears to be viewing China as their "foe of choice".

So, given that Mark Carney believes that the issuance of central bank digital currencies (aka a Synthetic Hegemonic Currency) are necessary to reduce the global reliance on the U.S. dollar as the "hegemonic reserve currency" and that China's Renminbi is the heir apparent in a multi-reserve currency world, I wonder how Donald Trump will view a Prime Minister Carney, particularly given that one of his Executive Orders banned the development and use of a central bank digital currency in the United States and that his core belief is to make America the great sole superpower that it was prior to the rapidly developing multipolar reality of today.