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In search of a unit of stable global purchasing power

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  • Ho, Lok Sang

Abstract

This paper introduces an improved version of the "World Currency Unit" (Ho, 2000), a synthetic unit of account representing constant real purchasing power. If commodity prices and bonds are quoted in this unit while allowing settlement in any currency, real prices and real interest rates will become more transparent. We show that the real prices of commodities are sensitive to movements in the nominal exchange value of the US dollar, and that they are Granger-caused by movements in the US dollar's nominal effective exchange rate. The proposed unit has implications for efficiency and the stability of the international monetary order.

Suggested Citation

  • Ho, Lok Sang, 2018. "In search of a unit of stable global purchasing power," International Review of Economics & Finance, Elsevier, vol. 56(C), pages 99-108.
    • Handle: RePEc:eee:reveco:v:56:y:2018:i:c:p:99-108
    DOI: 10.1016/j.iref.2018.03.021
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    References listed on IDEAS

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    1. Barry Eichengreen & Ricardo Hausmann & Ugo Panizza, 2007. "Currency Mismatches, Debt Intolerance, and the Original Sin: Why They Are Not the Same and Why It Matters," NBER Chapters, in: Capital Controls and Capital Flows in Emerging Economies: Policies, Practices, and Consequences, pages 121-170, National Bureau of Economic Research, Inc.
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    7. George Hoguet & Solomon Tadesse, 2011. "The role of SDR-denominated securities in official and private portfolios," BIS Papers chapters, in: Bank for International Settlements (ed.), Portfolio and risk management for central banks and sovereign wealth funds, volume 58, pages 165-186, Bank for International Settlements.
    8. Hovanov, Nikolai V. & Kolari, James W. & Sokolov, Mikhail V., 2004. "Computing currency invariant indices with an application to minimum variance currency baskets," Journal of Economic Dynamics and Control, Elsevier, vol. 28(8), pages 1481-1504, June.
    9. Scott H. Irwin & Dwight R. Sanders, 2010. "The Impact of Index and Swap Funds on Commodity Futures Markets: Preliminary Results," OECD Food, Agriculture and Fisheries Papers 27, OECD Publishing.
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    More about this item

    Keywords

    Synthetic unit of account; Inflation indexing; Real price discovery; Efficiency; International monetary architecture;
    All these keywords.

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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