More Assessment of Central Bank Digital Currency Replacing the Dollar—Mark Carney’s Orders

Nov. 8, 2020 (EIRNS)—A secondary, but important impact to be expected from the more or less imminent introduction of central bank digital currency (CBDC) by half a dozen or more central banks under coordination by the Bank for International Settlements (BIS) is described by the portfolio manager of DoubleLine Capital, a large hedge fund, in a report entitled “Bilateral Digital Currency Payments and the Twilight of the Dollar.” The author is William Campbell.

“If launched, central bank digital currencies ... will put at risk the independence of monetary policy and what little is left of fiscal discipline within their borders of circulation. Central banks are not stopping at the replacement of money as we have known it. In conjunction with their developmental work on digital currencies proper, monetary authorities are devising a new structure for electronic payments to sweep aside the decades-long framework for payment settlements, both domestic and international. The world’s central banks and the Bank of International Settlements envision a network of multiple cross-border payment systems featuring direct bilateral exchanges in the world’s different currencies. Such a regime would discard the decades-long mediation through the world’s reserve currency, the U.S. dollar.”

Campbell concludes on the end of the dollar as world reserve currency. “Outside the U.S., however, central banks and governments appear to foresee a future untethered from the dollar. The technology for such a delinking is here or soon will be. Central banks will possess the infrastructure to match their FX [foreign exchange] reserves to the currency mix and weightings of their balance of payments—and one day displace the dollar without the need to crown a new reserve currency.

“Policymakers continue to steer intently into the uncharted waters of central bank digital currencies and decentralized global payment systems.... Global coordination among central banks will speed up their development and potential implementation. Armed with these currency and payment technologies, the world could rescind the exorbitant privilege the U.S. has enjoyed as printer of the world’s reserve currency and place structural pressure on the dollar to depreciate.”

On Oct. 2, Campbell, DoubleLine Capital published another report,

“The Pandora’s Box of Central Bank Digital Currencies,” dealing with another aspect of CBDCs. It said “Such a mechanism could open veritable floodgates of liquidity into the consumer economy and accelerate the rate of inflation. While central banks have been trying without success to increase inflation for the past decade, the temptation to put CBDCs into effect might be very strong among policymakers. However, CBDCs would not only inject liquidity into the economy but also could accelerate the velocity of money. That one-two punch could bring about far more inflation than central bankers bargain for.”