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The World Currency Unit is an indexed unit of account that stands for a unit of stable global purchasing power. Proposed by Ho Lok Sang, it was first intended to be the basis for denominating global bonds, a debt instrument that is issued globally and subscribable by people around the world. 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 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.

Irving Fisher in his 1911 book The Purchasing Power of Money had advised that, to serve as a unit of account, a trusted medium of exchange, and a reliable store of value the purchasing power of money should be stable. Unfortunately, substances that exist by the bounty of nature, such as gold or silver, cannot have such property since their values fluctuate with changing supply and demand.

To be meaningful in terms of stable global purchasing power, a WCU will have to represent a basket of global output. By definition, according to the initial proposal by Ho, the WCU represents the sum of the gross domestic products of key market economies in the world, namely the US, the Euro zone and UK, Japan, Canada, and Australia. Addition of these GDPs, each in a separate currency, is done by converting all GDPs into US dollar values in the base year.

The sum of these GDPs are then scaled down to equal $100 in the base year. The scaling factor then becomes part of the definition of the WCU, as it defines the size of the GDP basket. It is envisaged that every 5 or 10 years, the WCU can be rebased, with the new series using a new base year spliced to the old series using the old base year much like consumer price indices with different base years are spliced to form a continuous series.

The nominal value of this unit will rise with inflation in each economy. Moreover, the nominal value of this unit will rise if the base currency appreciates against the US dollar. Savers who purchase such bonds not only enjoy protection against inflation, but the benefit of diversification of exchange risks.

References

• Ho, Lok Sang (2000). "Towards a New International Monetary Order: The World Currency Unit and the Global Indexed Bond" (PDF). The World Economy. 23 (7): 939–950. Retrieved 2007-07-03.

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