Global Currency Reform : A Proposal

The paper critically examines the proposal to create a Trade Referenced Currency (TRC) at the global level that can be potentially used as a common unit of account and internationally accepted means of payment. After reviewing earlier monetary reform proposals by Gesell and Keynes, the author finds that while the proposal has the positive features of being a stand-alone, self-financing system which gets round the tortuous process of inter-governmental negotiations, the wider problems of financial and monetary instability arguably require other solutions involving public sector intervention. However stable the TRC, it is not clear how it would compete with alternatives which are highly liquid and without charges. Even a valuation based on a commodity basket may depreciate during a recession. Further, it is not clear how the supply of liquidity within the TRC system can satisfy the needs of international financial markets. For Keynes, the answer lay in an international monetary system based on a centrally-administered international currency, which allowed governments to pursue domestic objectives, and for these objectives to be met by monetary policy focused on a low and stable interest rate and institutions designed to promote stable real investment. For him it was the duty of the central bank to ensure that domestic money, created by means of bank credit, would be sound as a result of a combination of bank regulation and bank liquidity support. Ultimately, in the long run, he foresaw interest rates falling so low as to lead to the ‘euthanasia of the rentier' (Keynes, 1930)