Mark Carney: “There will be a change” in “unsustainable” monetary system

Bank of England governor foresees monetary reform and puts forward Positive Money proposal as possible solution

In August the outgoing governor of the Bank of England, Mark Carney, gave an interesting speech on ‘The growing challenges for monetary policy in the current international monetary and financial system’, in which he set out how the dollar based global monetary order is untenable and will need replacing by a new system.

With everything going on politically, this bold statement from one of the world’s most influential policymakers went largely unnoticed outside of the pages of the financial press.

But luckily at least one MP was paying attention. Last week on the Treasury Select Committee, Steve Baker MP took the opportunity to question Carney and his senior colleagues on the sustainability of our entire monetary system.

Asked by Baker whether it is “possible to avoid a long-term fundamental change in the monetary regime?” Carney said:

“There will be a change, measured over decades. It is very hard to predict. That which is unsustainable tends to go on for longer than you think and then happen more quickly than you expect, to paraphrase Rudi Dornbusch, but these structural flaws, in the end, in the system will ultimately result in a change.”

Carney has proposed a ‘synthetic hegemonic currency’ as a possible basis for a new global monetary system. This would be comprised of a number of central bank digital currencies (CBDCs), as put forward by Positive Money. A CBDC would provide a trusted public alternative to private banks’ monopoly on electronic money, and would move us towards a system where commercial banks are not freely able to create new money as debt, as they currently do to massive negative economic, social and environmental consequences.

Carney said the introduction of such CBDCs would “be to the benefit of citizens and businesses”, and is a reform to the monetary system which “could happen.” In fact the Bank of England is currently exploring the idea.

Andy Haldane, the Bank’s chief economist, said that such an idea “is definitely towards the ambitious end of the spectrum”, but added “now is the time for ambition on these big issues.” We at Positive Money definitely agree and stand ready to match ambition with workable policy solutions.