Monday, March 5, 2018

The Case for a Commodity Reserve Currency

Readers here know that we are always on the lookout for ideas on monetary system reform. I have been fortunate to listen in from time to time on some email discussions between economists who discuss various ideas and proposals for reform.

Dr. Leanne Ussher was very kind to forward me this link to a 2009 paper that looks at the idea of a "Commodity Reserve Currency". Below is the abstract that provides a summary of the proposal. Dr. Ussher advises me that she is working on some concepts for a future potential global reserve currency that expand on the main idea presented in this paper. 

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Global Imbalances and the Key Currency Regime: The Case for a Commodity Reserve Currency


This paper considers Kaldor's 1964 proposal for a commodity reserve currency (CRC) as a serious alternative to the current system, which has the US dollar as the world reserve currency. It argues that the reserve-currency status of the US dollar helped to create global imbalances and financial fragility pre-empting the current crisis. The primary goal of the CRC was to resolve the 1960 Triffin dilemma, which remains a problem today. Following a brief history of alternative monetary reform proposals, the CRC is outlined. Backed by a basket of 30 or so commodities, the CRC would fix their price index in terms of the international reserve and reduce the disorderly swings in individual commodity prices. Sovereign governments would be free to fix or float their national currencies to the CRC. With growing fears over global warming and national resource security, particularly in the world's poorest countries, the introduction of a CRC could reduce supply constraints, stabilize costs of production, promote global effective demand from the periphery and balance growth between periphery and core countries.
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My added comments: By now readers here should understand that there are a variety of ideas and proposals out there that are seriously discussed by economists as ways to reform the current monetary system. I have attempted to feature a variety of those here so that readers may be aware of them and also explore them further if they wish. I will add this article to the page on this blog where I have listed some of these various ideas and proposals. When Dr. Ussher is able to provide some added information based on her work on this idea, we will feature that in a followup article in the future.

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