The Currency Cold War: Cash and Cryptography, Hash Rates and Hegemony by David Birch

Author:David Birch [Birch, David]
Language: eng
Format: epub
ISBN: 9781913019075
Google: yLjjDwAAQBAJ
Amazon: 1913019071
Published: 2020-05-27T00:00:00+00:00

US dollar

USD

41.73%

Euro

EUR

30.93%

Chinese yuan

CNY

10.92%

Japanese yen

JPY

08.33%

Pound sterling

GBP

08.09%

The SDR is therefore neither a currency nor a claim on the IMF. Rather, it is a potential claim on the freely usable currencies of IMF members, as SDRs can be exchanged for these currencies. In addition, the SDR serves as the unit of account for the IMF and a number of other international organizations (e.g. the Asian Development Bank). It is also used in some international agreements: to give an example, the Convention on Limitation of Liability for Maritime Claims sets limits in XDR.

There are other examples of ACUs, both private and public. The European Currency Unit (ECU), the precursor to the euro, could have used the new digital money technology to become a ‘hard e-Euro’ for cross-border trade. I assume that Carney was thinking of these kinds of ‘official’ ACUs when he said (Jeffery and Hinge 2019):

We think Libra and other potential new payment solutions are shining a light on deficiencies in the system. And that is to be welcomed. They are trying to solve them. So domestic payments are still too slow and not distributed in real time. And cross-border payments are much worse. They cost a lot more and take a lot longer to execute. And that is just not necessary. It is a product of the old architecture. So coming up with new architecture and trying to solve it is a good thing.

He went on to say that his central bank serves ‘the people of the United Kingdom through the financial system’ and that ‘we do not serve the banks and insurance companies per se, they are financial intermediaries that also serve the financial system’.

An obvious example of the kind of ACU-as-SHC that Carney envisages, created by an official institution for international transactions, would be an electronic version of the SDR. In fact, the World Bank’s former boss of SDRs has already put forward such a proposal, asking for the IMF to develop a procedure for issuing and using market SDRs following ‘currency board’ rules (we will come to what a currency board is shortly) and ‘backed 100% by official SDRs or by an appropriate mix of sovereign debt of the five basket currencies’ (Coats 2019).

Currency boards

As noted in the discussion about types of digital currency, a digital fiat currency that is 100% backed by a basket of other currencies is known as a ‘currency board’. These are not new; in fact, the currency board system was once quite widespread. It was used in approximately 65 countries, having seen something of a revival in the last century (Hanke and Schuler 1998).

The currency board itself is an institution that issues money (which used to be notes and coins, of course, but we are only interested in digital money) which can be converted into external ‘reserve’ assets such as other fiat currencies or some commodity on demand at a fixed exchange rate.

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