World currency unit
This article includes a list of general references, but it lacks sufficient corresponding inline citations. (March 2014) |
This article needs additional citations for verification. (January 2018) |
There are two different types of world currency unit in use today that have different origins and usages.
History
The WCU was proposed by Lok Sang Ho of Lingnan University, Hong Kong. The WCU was first intended to be the basis for denominating global bonds, a debt instrument that is issued globally and is subscribable by people and institutions around the world. Simply put, it is a GDP-weighted basket of key currencies each of which is indexed against inflation for the relevant countries. The WCU is defined with respect to a base year, so that each unit represents the same global purchasing power as at that base year, when it is equal to US$1. If there is inflation, the WCU will be worth more than $1 after the base year, but will represent the same purchasing power. The unindexed basket, called the benchmark basket of key currencies, is the basis for the derivation of effective exchange rate indices that has been demonstrated to be both easy to compile and superior to most official effective exchange rate indices.
Rhett Morson has advocated the Standard Earth Monetary Unit (SEMU) since 1998 and continues to argue in support for it. However, it is not practicable to introduce it in one step for political reasons and so the preferred method of introduction is for countries to gradually move their currencies closer or in some cases to adopt another country's currency as a series of steps inching closer to the SEMU. Examples could include countries that have already adopted the US dollar as their currency or Australia and New Zealand joining forces or Pacific Islands adopting a larger country's currency. Ideally, the SEMU would coincide with trade barriers being removed and international laws moving into alignment.
How it works
Today, there are two distinct products which have adopted the name "world currency unit".
The WOCU
The WOCU (contraction of "world currency unit") is a standardized basket of currencies — the national currencies of the 20 largest national economies measured by
The WOCU offers a transparent, relatively stable currency quotation as a hub currency reference for cross border trade to reduce volatility and risk. It reacts to the economic growth and decline of constituent country economies, adjusting the prominence of their respective currencies. The WOCU is outputted in up to real time, in sub second updates. Input FX data is sourced from global aggregated FX data providers.
Countries within the
Review and approval of weighting adjustments is subject to a confirmation process overseen by the WOCU Oversight Committee, a body consisting of a majority of independent persons qualified and authorized to approve or reject any change to the constitution of the WOCU. In the circumstance of a reweighting where a country changes its currency, the replacement country currency FX data will form exactly the same proportion of the WOCU and the former currency will be dropped (or reduced in the case of the Euro) in the same proportion at the same time that the relevant country officially introduces its new currency, which shall be assessed and approved by the WOCU Oversight Committee.
The WOCU is used to price commodities such as
In early 2019, Unite Global AS, a Norway incorporated provider of a
The WCU
The World Currency Unit (WCU) is an indexed unit of account that stands for a unit of real global purchasing power.
Since each unit by design represents a stable unit of purchasing power, the stipulated interest rate on WCU-denominated bonds represents a real interest rate. In principle, the common denomination of bonds by issuers from different parts of the world using the WCU, as well as the greater transparency of real interest rates, will produce more
The sum of these GDPs are then scaled down to equal $100 in the base year. The scaling factor then becomes part of the definition of the WCU, as it defines the size of the GDP basket. It is envisaged that every 5 or 10 years, the WCU can be rebased, with the new series using a new base year spliced to the old series much like consumer price indices with different base years are spliced to form a continuous series.
The formula for the valuation of the World Currency Unit has been revised since 2008 so that the GDP weights are now revised every year. While still retaining the meaning of a unit of global real purchasing power, the WCU can now be interpreted as a GDP-weighted basket of currencies, each indexed against domestic inflation. The GDP-weighted basket of currencies has now formed the basis for a new formula for the effective exchange rate.
The nominal value of this unit would rise with inflation in each economy. Moreover, the nominal value of this unit would rise if other currencies represented in the basket appreciate against the US dollar. Savers purchasing such bonds would not only enjoy protection against inflation, but would benefit from the diversification of exchange risks.
The WCU could be used for the pricing of commodities such as oil, precious metals, and agricultural products, which are typically quoted in US dollars. Of course, historical prices of commodities quoted in US dollars could also be converted into prices in WCUs to provide indications on trends in the real prices of these commodities.
See also
- International dollar
- Special drawing rights
- North American monetary union
- African monetary union
- Bancor
References
- ^ Wocu website Archived 2010-04-09 at the Wayback Machine Wocu
- ^ Singapore firm to price marine fuel in Wocu Wocu
- ^ "Unite Global to launch real-time correspondent hub". January 9, 2019.
- ^ "WOCU Currency with Unite Global | News | WOCU".
- ^ "Unite Global partners with WOCU for centralised currency". February 7, 2019.
- Ho, Lok Sang (2000). "Towards a New International Monetary Order: The World Currency Unit and the Global Indexed Bond" (PDF). The World Economy. 23 (7): 939–950. . Retrieved 2007-07-03.
- Coats, Warren(1989) "In Search of a Monetary Anchor : A 'New' Monetary Standard," IMF Working Paper No. 89/82.
- Ho, Lok Sang (2018). "In search of a unit of stable global purchasing power". International Review of Economics and Finance. 56: 99–108. S2CID 158694303.
- Staff of the International Monetary Fund (2009) "World Economic Outlook, October 2009: Sustaining the Recovery", October 15, 2009
- Kang, Shi, Juanyi Xu (2008) "The Optimal Currency Basket with Input Currency and Output Currency", HKIMR Working Paper No. 17/2008
- Ho, Lok Sang (2012). "Globalization, Exports, and Effective Exchange Rate Indices". Journal of International Money and Finance. 31 (5): 996–1007. .