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 The effective exchange rate is an index that describes the strength of a currency relative to a basket of other currencies. Suppose a country has N trading partners and denote Trade_i and E_i as the trade and exchange rate with country i respe ...

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 In international finance, a world currency, supranational currency, or global currency is a currency that would be transacted internationally, with no set borders. History First European Banknotes (17th century) The first European banknotes we ...

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

GDP Gross domestic product (GDP) is a monetary measure of the market value of all the final goods and services produced and sold (not resold) in a specific time period by countries. Due to its complex and subjective nature this measure is ofte ...

, established in 2008. The basket is reweighed semi-annually according to the relative growth of the economies, whereby constituent currencies are replaced by other currencies should the size of the GDP be overtaken by that of another national economy. Conceived as an apolitical and global alternative to the ECU, it is used as a reference currency for global investors and companies seeking to mitigate bilateral exchange rate volatility.

The WCU

The World Currency Unit (WCU) is an indexed

unit of account In economics, unit of account is one of the money functions. A unit of account is a standard numerical monetary unit of measurement of the market value of goods, services, and other transactions. Also known as a "measure" or "standard" of rela ...

that stands for a unit of real global

purchasing power Purchasing power is the amount of goods and services that can be purchased with a unit of currency. For example, if one had taken one unit of currency to a store in the 1950s, it would have been possible to buy a greater number of items than would ...

. 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 efficient capital markets, as savers and borrowers around the world converge in their understanding of what each basis point of interest means and are protected against two key sources of uncertainty, namely inflation and exchange loss risks.

References

* * Coats, Warren(1989) "In Search of a Monetary Anchor : A 'New' Monetary Standard," IMF Working Paper No. 89/82. * {{cite journal , last = Ho , first = Lok Sang , title = In search of a unit of stable global purchasing power , journal = International Review of Economics and Finance , year = 2018 , volume = 56 , pages = 99–108 , doi = 10.1016/j.iref.2018.03.021 , s2cid = 158694303

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