“I think it is likely that we will ultimately have reserve currencies other than the US dollar,” the UK top financial official claimed during an online question-and-answer session carried out as part of the Bank of England’s Future Forum.
According to Carney, the global financial system is currently lagging behind the evolution of the global economy, facing asymmetric concentrations of financial assets in advanced economies relative to economic activity.
“As the world re-orders, this disconnect between the real and financial is likely to reduce, and in the process other reserve currencies may emerge. In the first instance, I would expect these will be existing national currencies, such as the renminbi,” he said.
In 2016, the Chinese yuan was included in the Special Drawing Right (SDR) basket alongside the US dollar, the Japanese yen, the euro, and the British pound. The move granted the yuan the status of a reserve currency.
However, China’s national currency accounted for less than two percent of international capital flows as of last February, according to data compiled by global financial transfer system SWIFT.
The figure was far behind the dollar’s reported 40 percent. The euro, Japanese yen and British pound followed the US currency in order of popularity for international payments.
The BoE governor said the transition from the dollar to another currency that could become prevailing wouldn’t be quick. The greenback has been dominating over the last hundred years after it replaced the British sterling as the key reserve currency.
“History suggests these transitions will not happen overnight. The US economy overtook Britain’s in the second half of the 19th century, but it took until the 1920s before it became a dominant currency in international trade,” Carney said.