last week, all eyes were on Jerome Powell, chair of the Federal Reserve, America’s central bank.
But in the end, it was Bank of England governor Mark Carney who came out with the most interesting speech.
People who talk about the “demise of the dollar” have been viewed as cranks for decades now. Yet in his own technocratic way, that’s exactly what Carney was forecasting.
The end of the current global monetary regime.
The problem with the dominance of the US dollar
One thing that we’ve pointed out over and over again in Money Morning is that the US dollar is one of the most important prices in the world. When the US dollar is strong, monetary policy is tight for the rest of the world, and vice versa.
There are lots of reasons why: about a third of countries “peg” their currencies to the US dollar (they track its value); it accounts for about two-thirds of global currency reserves (the pots of currency held by central banks and governments); it is the currency used in at least half of international trade invoices – even between countries who don’t use the dollar.
In short, it’s the global reserve currency. The dollar’s share of global transactions of all sorts is far, far bigger than America’s share of global GDP, for example.