The global economic crisis caused by the coronavirus panic is so severe that the world’s most powerful central bank, the United States Federal Reserve, announced “QE infinity.” Bank of America Securities is estimating that the Fed could spend up to $8 trillion.

While the U.S. pledged to help support stocks with infinite asset purchases, it is believed that the U.S. unemployment rate could nonetheless hit 30% for  the first time since the Great Depression. The dollar’s reserve status continues to be questioned, especially as policymakers expand the money supply.

The hegemony of one sovereign currency is proving to be a single point of failure to the global monetary system, which is a pressing issue that must be addressed.

How should we solve this problem?

When a certain country’s sovereign currency is no longer the benchmark of global trading and business, it will significantly reduce the risk of the country’s monetary mechanism affecting the world economic system, thus enhancing crisis management. Therefore, a multinational, or super-sovereign currency could work as the basis of a new global monetary system to resolve existing issues.

Such a currency could overcome the inherent risk of a sovereign currency and make it possible to regulate global liquidity. The failure of the global monetary system is caused by imbalances across different economies. A super-sovereign currency could help to eliminate the root cause of this imbalanced system that arose from the hegemony of one sovereign currency over others.

There have been attempts to create a super-sovereign currency in the past. John Maynard Keynes proposed the idea of a supranational currency, “Bancor,” in the 1940s. The International Monetary Fund floated the so-called Special Drawing Rights in the wake of the 2008 global financial crisis. However, considering the current global political and economic landscape, it would be difficult for different countries to reach a consensus about a global super-sovereign currency.

The next super-sovereign currency could be digital

In the cryptocurrency industry, proponents highlight the benefits of cryptocurrency’s decentralized and transparent nature, and reckon the same logic can be applied to the global monetary system. Digital currency such as Bitcoin (BTC) could potentially be a super-sovereign currency. In 2010, Bitcoin pioneer Hal Finney predicted that Bitcoin will become a reserve currency of banks. Bitcoin’s fixed supply precludes a central bank from increasing the supply of a fiat currency, which can result in inflation. The token, however, is quite volatile, which undermines its potential as a super-sovereign currency.

More interestingly, it seems that more countries are also entering this competition. Recently, state-owned Chinese banks began conducting internal tests with the People’s Bank of China’s central bank digital currency, DCEP. The currency is a 100% state-backed reserve fund and a digitized version of Chinese yuan banknotes and coins. The PBoC will first transfer DCEP to banks and other financial institutions, which will then distribute the digital currency to the public.

DCEP is designed to replace the nation’s current reserve money, facilitating the monetary policy process of the Chinese government. The circulation of this digital currency will be much more efficient across the country and the globe than any fiat.

At the same time, the Federal Reserve is considering the idea of digital payments and issuing its own digital currency, as well as conducting research and experimentation related to distributed ledger technology and their potential use case for digital currencies, including the potential for a central bank digital currency.

The failure of the global economy, with its imbalances and inequality, gave rise to nationalism. Now, we must consider one truly global currency that can maintain the post-crisis order, be it Libra, DCEP or another.

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