Is the dominance of the greenback under threat as digital currencies look to transform global financial system? A fundamental transformation of the global financial system may be underway as the adoption of digital currencies gains traction among governments and central banks across the world, Dave Michaels and Paul Vigna write in the Wall Street Journal. Although central banks already issue a form of digital money to commercial banks, the radical idea of digitizing national currencies is an entirely different ball game. Central banks in Sweden, Canada, Switzerland, the Eastern Caribbean, and at the lead, China, are among those exploring how digital currencies could fit into their own financial systems. How the system would be implemented is still a mystery, but the implications could be profound, affecting commerce, interest rates, banking, trade, and individual privacy.

This spells trouble for the USD status quo. The growth of national digital currencies — faster and cheaper than conventional money — threatens to undermine the USD’s reserve currency status. Michaels and Vigna suggest that this could trigger a new type of currency war, pitting digital currencies against USD supremacy. While the USD dominance in international trade once made sense when the US accounted for over a quarter of global trade, the status quo no longer fits in a world where the US only produces 8.8% of the world’s exports. Central bankers are slowly beginning to acknowledge this reality, with Bank of Governor Mark Carney calling for a paradigm shift at last month’s Federal Reserve Symposium in Jackson Hole.

Is Facebook’s Libra the spark? It may have been Facebook’s unveiling of its Libra cryptocurrency that spurred policymakers into considering state-backed digital currencies, according to the Financial Times. Regulators have pushed back hard against the idea that a privately-issued means of transaction could perhaps supersede state-controlled currencies, and G7 countries are now rapidly working to produce a response. Central banks, meanwhile, have been researching the idea for years, with some more circumspect than others. Sweden’s Riksbank has been one of the leaders in the field, and is about to test an “e-krona” in response to falling use of cash. There is more concern in the Eurozone about how a digital currency would impact its banking sector, given its reliance on banks to transfer finance between savers and borrowers.