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.<\/p>\n
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.<\/p>\n
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:<\/p>\n
Lord John Maynard Keynes proposed the idea of an international reserve currency called Bancor<\/b><\/span> during the negotiations that led to the Bretton Woods Conference<\/b><\/span> in 1944. His proposal aimed to address global trade imbalances and promote a more stable and equitable international monetary system.<\/em><\/p>\n Here are the key features of Keynes\u2019 Bancor proposal:<\/em><\/p>\n Bancor<\/b><\/span> would be a unit of account used for international trade and settlement.<\/em><\/p>\n<\/li>\n It would not be issued by any single country but by a global central clearing union<\/b><\/span>.<\/em><\/p>\n<\/li>\n Bancor would not be used domestically but only for international transactions.<\/em><\/p>\n<\/li>\n<\/ul>\n A new global institution, the International Clearing Union<\/b><\/span>, would manage Bancor issuance and settlement of international balances.<\/em><\/p>\n<\/li>\n All trade would be settled in Bancors, rather than gold or national currencies like the dollar or pound.<\/em><\/p>\n<\/li>\n<\/ul>\n Keynes wanted both surplus<\/b><\/span> and deficit<\/b><\/span> countries to bear responsibility for correcting trade imbalances.<\/em><\/p>\n<\/li>\n The ICU would impose penalties<\/b><\/span> on both:<\/em><\/p>\n Countries with persistent deficits<\/b><\/span> (who draw too much Bancor)<\/em><\/p>\n<\/li>\n Countries with persistent surpluses<\/b><\/span> (who hoard Bancor and restrict global liquidity)<\/em><\/p>\n<\/li>\n<\/ul>\n<\/li>\n This was revolutionary: surplus countries, like the U.S. at the time, would also be pressured to adjust.<\/em><\/p>\n<\/li>\n<\/ul>\n National currencies would be tied to Bancor but adjustable with permission from the ICU.<\/em><\/p>\n<\/li>\n This would allow for some flexibility, unlike the rigid gold standard.<\/em><\/p>\n<\/li>\n<\/ul>\n Countries could have overdraft limits<\/b><\/span> with the ICU, giving them temporary liquidity without immediately depleting reserves.<\/em><\/p>\n<\/li>\n This would help smooth out short-term trade deficits and avoid painful domestic adjustments.<\/em><\/p>\n<\/li>\n<\/ul>\n The U.S. opposed the Bancor idea, preferring a system based on the U.S. dollar<\/b><\/span> as the primary reserve currency.<\/em><\/p>\n<\/li>\n The Bretton Woods system<\/b><\/span> ultimately used the dollar (convertible to gold) as the anchor instead of Bancor.<\/em><\/p>\n<\/li>\n<\/ul>\n The Bancor idea has inspired later proposals, such as the IMF\u2019s Special Drawing Rights (SDRs)<\/b><\/span>.<\/em><\/p>\n<\/li>\n Some economists and policymakers revisit it when debating global financial reform, especially during crises that highlight the flaws of a dollar-centric system.<\/em><\/p>\n<\/li>\n<\/ul>\n Is that what the world now needs? I suggest it is.<\/p>\n 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.<\/p>\n Who opposed it? The US did.<\/p>\n 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.<\/p>\n This might be a theme to return to.<\/p>\n","protected":false},"excerpt":{"rendered":"
\n🔹 1. <\/b><\/em><\/h3>\n
Creation of a Supranational Currency \u2013 Bancor<\/b><\/em><\/h3>\n
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\n🔹 2. <\/b><\/em><\/h3>\n
International Clearing Union (ICU)<\/b><\/em><\/h3>\n
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\n🔹 3. <\/b><\/em><\/h3>\n
Balanced Trade Mechanism<\/b><\/em><\/h3>\n
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\n🔹 4. <\/b><\/em><\/h3>\n
Exchange Rate Stability<\/b><\/em><\/h3>\n
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\n🔹 5. <\/b><\/em><\/h3>\n
Credit Lines and Overdraft Facilities<\/b><\/em><\/h3>\n
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\n✳️ Why It Didn\u2019t Happen<\/b><\/em><\/h3>\n
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\n📌 Legacy and Relevance<\/b><\/em><\/h3>\n
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