In 1944, Lord Keynes proposed that the post-war settlement should include the creation of a new currency to be used solely for international settlement purposes.
The aim was to prevent any country from enjoying the privilege of issuing the world's reserve currency, as the UK had done and as the USA was by then doing.
This new currency he called the Bancor. Not having time to summarise the proposal this morning (I have a long day out ahead of me), I asked ChatGPT to undertake the task, and it offered this, which seems like a fair summary to me:
Lord John Maynard Keynes proposed the idea of an international reserve currency called Bancor during the negotiations that led to the Bretton Woods Conference in 1944. His proposal aimed to address global trade imbalances and promote a more stable and equitable international monetary system.
Here are the key features of Keynes' Bancor proposal:
🔹 1.
Creation of a Supranational Currency – Bancor
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Bancor would be a unit of account used for international trade and settlement.
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It would not be issued by any single country but by a global central clearing union.
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Bancor would not be used domestically but only for international transactions.
🔹 2.
International Clearing Union (ICU)
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A new global institution, the International Clearing Union, would manage Bancor issuance and settlement of international balances.
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All trade would be settled in Bancors, rather than gold or national currencies like the dollar or pound.
🔹 3.
Balanced Trade Mechanism
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Keynes wanted both surplus and deficit countries to bear responsibility for correcting trade imbalances.
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The ICU would impose penalties on both:
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Countries with persistent deficits (who draw too much Bancor)
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Countries with persistent surpluses (who hoard Bancor and restrict global liquidity)
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This was revolutionary: surplus countries, like the U.S. at the time, would also be pressured to adjust.
🔹 4.
Exchange Rate Stability
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National currencies would be tied to Bancor but adjustable with permission from the ICU.
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This would allow for some flexibility, unlike the rigid gold standard.
🔹 5.
Credit Lines and Overdraft Facilities
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Countries could have overdraft limits with the ICU, giving them temporary liquidity without immediately depleting reserves.
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This would help smooth out short-term trade deficits and avoid painful domestic adjustments.
✳️ Why It Didn't Happen
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The U.S. opposed the Bancor idea, preferring a system based on the U.S. dollar as the primary reserve currency.
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The Bretton Woods system ultimately used the dollar (convertible to gold) as the anchor instead of Bancor.
📌 Legacy and Relevance
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The Bancor idea has inspired later proposals, such as the IMF's Special Drawing Rights (SDRs).
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Some economists and policymakers revisit it when debating global financial reform, especially during crises that highlight the flaws of a dollar-centric system.
Is that what the world now needs? I suggest it is.
Would that have also, perversely, have solved the problem that Trump thinks the US now suffers from of having massive trade imbalances? Yes, it would.
Who opposed it? The US did.
How to create it? I think that might be easy: the world should swap its dollars for bancors, providing the new currency with reserve balances as a result.
This might be a theme to return to.
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[…] They might even think about establishing a new world reserve currency, as Keynes intended there should be. […]
The problem I see with the Bancor, as per the summary, is the ICU and it’s ability to control exchange rates. My questions would be, who controls the ICU? Who appoints it’s decision makers? I’d don’t see how that could be done democratically for a world system. Can people vote out those decision makers; I don’t see how.
What would happen if someone like Trump got control?
It is likely that most of mercosur, India and China would go with it. The EU could/should. Then there is the issue of where to locate? But why does it need to be located anywhere? The World Bank was located in Washington because in the 1940s telecomms were not what they are now. Thus one could have a dispersed bank (avoiding bun fights over “no I want it in MY country” etc) . The USA used WW2 & its aftermath was a power grab – they looted the UK for useful tech (jet engines etc) and Germany, they imposed a global financial regieme. Time we grew up and detached ourselves.
If the Starmer crew is unable/unwilling to do this – time to engineer recalls from MPs & get a government that is not a puppet of the USA.
I like that idea
Keynes wasn’t just proposing a currency — he was trying to rewrite the rules of economic diplomacy. The Bancor wasn’t about technocratic tidiness; it was an audacious attempt to rebalance global power by holding surplus nations as accountable as deficit ones. Eighty years later, that idea still threatens the vested interests of the global elite — and that’s precisely why we should take it seriously.
In our current monetary architecture, the U.S. dollar operates like a global tollbooth — every nation must pass through it, but only one controls the gate. This hegemonic privilege distorts trade, imposes inflation risks on others, and allows the U.S. to run deficits without the usual consequences. Keynes saw this danger in the 1940s, when Britain was on its knees and the dollar was emerging as a new form of economic empire. His Bancor was, in essence, a peace treaty for global trade — a way to prevent the next century from being dominated by the victors of the last.
The article rightly revives this vision, but we must go even further. A modern Bancor system would need to address forces Keynes never encountered: hyper-mobile capital, digital currencies, and the algorithmic automation of trade flows. More importantly, it would need to wrest legitimacy from deeply unaccountable institutions — central banks, multinational corporations, and supranational trade bodies — whose interests often run counter to democratic priorities.
Any attempt to revive the Bancor must grapple with the political reality that surplus nations — today, China and Germany more than the U.S. — will fiercely resist any mechanism that penalizes their export dominance. But this is the exact imbalance that fuels austerity, resentment, and geopolitical instability elsewhere. If the Bancor was ahead of its time in 1944, its time might finally be now — not just as a currency, but as a framework for global justice.
In an era when even the IMF warns about dollar dependence, and when BRICS countries flirt with alternative currency blocks, we are clearly in a transitional moment. The question is not whether we should reconsider Keynes’s proposal — but whether we dare to take it seriously.
Thanks and apologies for delay
Thanks and apologies for delay
Fascinating, I didn’t know that such a solution had ever been proposed – and seriously proposed if Keynes was involved.
My wife and I were talking last night about the Trump tariffs, stock market falls, and the possible fall-out. I commented that China in particular might be keen to see a dedicated currency unit take over the role of reserve currency currently occupied by the dollar.
Whether it would happen or not is difficult to tell. You can bet your life every country would try to position themselves to have special influence over the new global central bank, which political infighting could prevent it from ever getting off the ground. And it sounds to me that the idea of “swapping dollars for bancors” sounds simplistic, wouldn’t it mean the new bank is underpinned by dollars and subject to being influenced by the USA? Or the dollars are effectively written off gifting an enormous sum to the US economy?
And could it work if the US doesn’t co-operate, which it wouldn’t?
It could definitely work without the USA
I will need to give it more thought though
A few question arise for me
Point 3
Pressures and penalties? What might they be?
Would revaluation of currencies be enough to deal with surplus and deficit?
MMT polices could still operate domestically?
I need to work on this
Remember it is only a settlement mechanism
Perhaps there needs to be some agreed and defined mechanism to adjust exchange rates (this would be difficult). This could be based, somehow, on increasing/decreasing balance of payments, and could smooth changes. And, as Keynes wanted (I think), this should adjust currencies for countries both growing and shrinking a trade surplus/deficit.
What would frighten me would be to have a panel of “wise men” who allowed/disallowed exchange rate changes. Recent events lead me to doubt that objective panels of wise men can be created and maintained.
Noted
i am glad you brought it up. Thanks
We need original thinking. We can’t go back.
The question is interesting but Bancor is not the answer. Keynes might have been on to something in the 1940s but the world has changed – no gold standard (for the USD), technology etc.. Now, SDRs might offer something but they have been around for years and not taken hold in everyday transactions. Some might argue that crypto currencies might be the answer (but not me).
The problem is that the dollar and all the infrastructure built up around it makes it so very convenient. Also, ever since WW2 the rest of the world has been happy to ship valuable stuff to the US in exchange for “piles of paper” (with Benjamin Franklin printed on it). Frankly, this trade deficit is great for the US – i-phones for scrap paper! The problem comes when the holders of this paper don’t trust it. Trust that you have access to it (sanctions, arbitrary government actions) or trust that it will buy the stuff you want in the future. A look at sterling over the last 100 years (continual depreciation and reduced use in global trade) is, perhaps a foretaste of what lies ahead for the US.
This erosion of trust has been happening slowly for decades – you could argue it started with the French requesting gold instead of dollars that precipitated an end to the gold standard in 1971 but has now accelerated. Rather than try and agree some new central clearing currency we have the technology and infrastructure to just use other currencies (JPY, EUR, GBP, CHF etc) and I think this will happen. The decline of sterling has been fairly orderly over the last century mainly due to a strict observance of law and political stability. Will the dollar’s decline be so benign? I doubt it.
The whole world owns dollars – lots of them. In aggregate, we can’t all get out. So, as the old trading saying goes… “if you are going to panic then panic first”. The UK should, without announcement or fanfare, convert all its FX reserves into EUR/JPY/CHF.
I will comment later.
I am not sure I agree with- but have too much to think
Not sure I agree with myself either…… but this blog is the place to air a few ideas that might eventually become a strategy….. and eventually a policy.
This has definitely got to be on the table right now.
Another example of how history should never be forgotten – well rediscovered Richard!
Weren’t the Iraqi’s/Iranians proposing to sell their oil not for dollars but some sort of ‘basket’ of currencies – Yen, Pounds/DM etc.
Look what happened to them…………
I have been hoping for a while that a Bancor-like global reserve currency would be set up by, say, the African Union with BRICS+.
Something like that, I think, will be needed to get the majority of the global south out from under the heel of the US dollar. This Trump administration might be the final push.
You’re right in that it needs revisiting as an idea, not just lifted from the 40s, but with another 80 years of economic & modern trade history applied.
Mike Parr notes that the comms these days means that each government would need an ICU Officer of the Day and a laptop (OK, maybe not quite). That seems like a more resilient arrangement than a big building full of bodies.
Tim Kent is right to question the ICU’s role. The ICU as designed, made sense in the Breton Woods world which was already committed to fixed interest rates and capital controls. I’m less sure whether that design is suitable to an era of floating exchange rates.
But then, all we really need from an ICU-like entity is to maintain clearing/settlements. The punitive elements may not be needed at all.
If punishment/adjustment is needed for some reason, perhaps the ICU would be able to vote to use blanket tariffs, or (perhaps better) an edge-FTT so that any transaction to/from the erring country is trimmed. Trouble is, that kind of power isn’t usually given to international bodies, and rightly so. Not directly. Usually an international body will discuss, vote, and delegate. Each member country goes away an implements the decision themselves. This maintains that sovereignty we all heard so much about a decade ago. And that’s fine. It’s also, somewhat, a function of the big-building-full-of-bodies thinking.
If the comms, people, and – therefore – decision-making is distributed, each Officer would be able to talk with his government at any time during discussion and vote, possibly drafting legislation as they go. They will either vote, or hit the Big Red Debate Button.
I don’t see anything insurmountable. And I really want to see a reserve currency not used as a tool for domination unlike how the USD is used.
Thank you
I will muse on that
Apologies for delay
I have read that BRICS are proposing a mutually-supported currency in which to settle their mutual debts and credits, and many other countries have signed up tp this idea. Trump has threatened the BRICS group with “punishment” if they continue to try to replace the dollar. Is this the same sort of thing as BANCOR, or could it evolve into doing the same jobs?
It develops Bancor. Bancor needs development.
I just tried to post on this topic, but it simply disappeared, so I am trying again but reducing the length of the post.
I asked ChatGPT “If the international community agreed to using the Bancor, would the UK continue to be sovereign in its own currency, the GB Pound?”
It gave a short answer “Yes, the UK could remain sovereign in its own currency, the British Pound, even under a global Bancor system — as long as it chooses to do so. The Bancor system, as originally proposed by Keynes, was a mechanism for managing international trade imbalances, not for replacing national currencies.”
But then there was a far longer response ending with the conclusion:-
“The UK could absolutely remain monetarily sovereign in terms of issuing and controlling the Pound.
But participation in a Bancor-based global trade system would introduce external constraints on its trade and exchange rate policies, in the name of global balance and stability.”
….and it’s that final sentence that I really don’t like, but I cannot see a way around that dependency.
But if we try to manage the exchange rate anyway – and we do – then that constraint already exists.
Yes, we will always need to manage our exchange rate. However, at the moment, I suggest that the exchange rate is, for most people, just a figure that becomes important when considering a holiday.
My immediate concern is that it would become an unnecessary and distracting political battleground, distorting policy away from what is really important – the health and welfare of the vast majority of the population.
This does suggest to me that the UK needs to become far more self-sufficient, no matter what future we all have. I haven’t really thought beyond that.
That is what Trump is saying. I suspect you have different reasons.
I am certain my reasons won’t coincide with Trump. I suggest he is the destroyer of our planet, whilst I want to save it, call it peaceful co-existence. Our ability to trade between nations will, I suspect, decline as it becomes obvious to all that the world’s resources are actually limited.
Once a nation that has access to resources within its borders realises the folly of selling irreplaceable raw materials or other items to the rest of the world, that nation will cut-back or just turn off the tap completely. So the UK needs work out how to survive in say 10-20 years, possibly without access to ‘stuff’ it currently imports. The UK cannot force other countries to sell to us, those days are long gone. I see globalisation as a dead-end idea; Trump sees….. well, I suspect that it’s global domination by subjugation – he just want other nations to be vassals feeding his ego.
How else can what is happening in the US be interpreted? What explanations fit what is reported to be happening?
In terms of currencies, I remember years ago the Middle East (principally via Saudi Arabia) thinking of trading oil in Euros rather than US Dollars…there was a fair bit of ‘behind the scenes’ activity to curtail this idea.
Maybe, it is now time to recognise that a US Dollar reserve currency is only favourable to the US and make the necessary changes…even if it doesn’t go quite as far as Bancor?
All po ves from the dollar are good now.
Yes Americans agreed to “defend” Saudi Arabia if they sold oil in US dollars eg a protection racket.
see Richard Werner The truth about the petrodollar
https://www.youtube.com/watch?v=SvacKrzT57Q&t=464s
see John Perkins (Middle East and Oil) Iraq Saudi-Arabia – “Confessions of an economic hit man”
https://www.youtube.com/watch?v=yJexNcw5_Sc
https://www.youtube.com/watch?v=8pGnv9Xk-i0
Thanks
Thanks Mr Dalglish – the second link was… “interesting” – telling it the way it was & to some extent it is. Required watching.
Why not use the EURO?
(I’ll fetch my hat)…
I’ve given this a bit more thought while driving along the M3. These are some of the ideas which sprang to mind. Not sure if any have been raised before, but hope they might assist in you developing the idea. It needs to be on the table for discussion given the behaviour of the US.
Make it digital. Think of it like a secure, international PayPal for governments — no crypto gimmicks, just clean, fast, trackable payments between nations.
Automatically track trade imbalances. If a country hoards too much (like Germany or China) or runs endless deficits (like the US), it pays a small fee. That nudges everyone toward balance, not chaos.
Let countries swap some of their reserves (like dollars or euros) for Bancors gradually. This builds up a pool of trust and gives the new system some weight, without anyone printing funny money.
Anchor its value to a mix of real-world stuff — big currencies, key commodities, and the global cost of living. That keeps it stable and fair, so no one country can game it.
Put excess Bancors to good use. Richer countries can’t just sit on them — they get recycled into global investment, like green energy, health systems, or rebuilding after climate disasters.
Keep national currencies and sovereignty intact. This wouldn’t replace pounds or dollars — it just gives us a better, shared toolkit to make trade fair and prevent future financial meltdowns.
Hope these might be of use.
It has taken me t8me to get to this – but actually that all makes sense.
Thanks
It is already happening in energy sales for many countries
https://www.jpmorgan.com/insights/global-research/currencies/de-dollarization