Thank you, Mr. Chair. I will continue:
A [synthetic hegemonic currency] in the [international monetary financial system] could support better global outcomes, given the scale of the challenges of the current IMFS and the risks in the transition to a new hegemonic reserve currency like the Renmimbi.
That is the Chinese currency right now. I'll continue:
An SHC could dampen the domineering influence of the US dollar on global trade. If the share of the trade invoiced in SHC were to rise, shocks in the US would have less potent spillovers through exchange rates, and trade would become less synchronised across countries. By the same token, global trade would become more sensitive to changes in conditions in the countries of the other currencies in the basket backing the SHC.
The dollar's influence on global financial conditions could similarly decline if a financial architecture developed around the new SHC and it displaced the dollar's dominance in credit markets. By reducing the influence of the US on the global financial cycle, this would help reduce the volatility of capital flows to [emerging market economies].
Widespread use of SHC in international trade and finance would imply that the currencies that compose its basket could gradually be seen as reliable reserve assets, encouraging EMEs to diversify their holdings of safe assets away from the dollar. This would lessen the downward pressure on equilibrium interest rates and help alleviate the global liquidity trap.
However, for all the positive aspects outlined by the governor, there remain a lot of questions about this evolving technology. We know, as has been reported, that China has been looking at this idea since 2014, and their early experience shows that there's actually quite a bit of risk to privacy. An article in The Economist in April of this year says, “China began exploring the concept in 2014 because of technical upheaval in its current financial system.”
It says:
But the bigger prize for China is the new powers that would come with a [central bank digital currency]. China's version will be a centralised currency, rather like the anti-bitcoin. Officials will be able to track all digital cash in circulation, making it much harder to launder money or evade taxes. The central bank could also use coding to control how the money is used. For example, if it issues [the central bank digital currency] to a commercial bank for lending on to small businesses, it could ensure that the money is activated only once transferred to a small firm. And China might find it easier to make nominal interest rates negative: cash would no longer be an alternative to bank deposits because negative interest rates could apply to digital cash itself.
These powers are still some way off—