By James Wall

One of the hot topics of debate recently has been Crypto currencies and the potential impact on the financial system. The various stakeholders in the debate espouse views of Armageddon to Nirvana. So it was interesting to see the Governor of the Bank of England, Mark Carney enter the discussion this weekend at the Jackson Hole Symposium.

In his speech “The Growing Challenges for Monetary Policy in the current International Monetary and Financial System”, Mark Carney's speech, he provides a regulator’s view on the benefits and considerations around a stable coin issued by either the private (“Libra”) or public sector. Interestingly he starts by noting, “Technology has the potential to disrupt the network externalities that prevent the incumbent global reserve currency from being displaced”.

The potential to displace the global reserve currency? Now that is thought provoking! Mr Carney then goes on to pose the question, would a new “Synthetic Hegemonic Currency (SHC)” be best provided by the public sector, through a network of central bank digital currencies?

Based upon the work we have been doing in capital markets with Project Bond-i we see the potential and are developing the platform as an ecosystem to leverage such developments. However we reason that adoption of a SHC into the current market frameworks faces a number of hurdles and will in itself spawn/require a new market for derivatives and hedging instruments, if it is to gain wide spread adoption. While we do see that as a possible end game scenario we are more encouraged by the potential of Central Bank Digital Currencies (“CBDC”) that are interconnected to today’s capital pools and the way in which Issuers and Investors access and deploy capital.

In the long run, the advent of Libra, if it can overcome regulatory hurdles, a public sector SHC, or the potential offerings from groups like Fnality, are likely to tip the table on the way we look at settlement risk and ultimately how we manage International Trade and Capital Markets, but we first need to see a viable CBDC to start that journey.

image: https://www.cryptonewsz.com/wp-content/uploads/2019/06/Facebook-Libra.jpg