The World Currency Unit (WCU)，or alternatively and perhaps more accurately, the “Global Purchasing Power Unit”(GPU), is an indexed unit of account that stands for a unit of real global purchasing power. Proposed by Lok Sang Ho, of Lingnan University, Hong Kong, it was first intended to be the basis for denominating global bonds, a debt instrument that is issued globally and subscribable by people and institutions around the world. Since each unit by design represents a unit of real purchasing power, using the WCU to denominate bonds improves the transparency of real interest rates, as the stipulated interest rate on WCU-denominated bonds already 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 the purchasing power of money should be stable if it is to serve as a unit of account, a trusted medium of exchange, and a reliable store of value. 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. This is the motivation behind all indexed units of account, of which Robert Shiller of Yale University is a principal proponent.
To be meaningful as a unit of standard real global purchasing power, a WCU will have to represent a basket of global output. According to the initial proposal by Ho, the WCU(0) is a basket of the gross domestic products of key market economies in the world in base year 0, namely the USA, the Eurozone and UK, Japan, Canada, and Australia. Addition of these GDPs, each in its own currency, is done by converting all GDPs into US dollar values in the base year.
When the WCU was first designed, the sum of these GDPs are scaled down to equal $100 in the base year. The scaling factor λ then becomes part of the definition of the WCU, as it defines the size of the GDP basket. Thus a WCU series must be specific with respect to an output basket for a specified year.
As of 2009, we have redefined the size of the WCU and have changed the base year from 2000 to 2005. In principle, for any extended period, sticking to a fixed output basket would be misleading, since production as well as consumption patterns will change, as will the relative importance of economies. One innovation that we have introduced is to update the GDP weights every year. It should be noted that although the GDP weights are allowed to vary from year to year, we DO NOT CHANGE THE BASE YEAR. under the new methodology. Although the weights do change, all currencies are indexed against inflation since a common base year, and we can still say that we maintain the purchasing power as defined in the base year. It has been proven that the WCU is equivalent to a standardized basket of currencies each indexed against inflation since the base year. The standardized basket of currencies, as well as the WCU2005, is defined to be worth US$1 in 2005.
We have not yet changed the time series presented in the historical graph from 1970, which was derived with "rebasing" every five years, and which generally continues to portray the general movement of the nominal value of the WCU since 1970
For more details about our new methodology please visit our Daily Quotations page. On each business day we will announce the updated valuation of the WCU2005 in each listed currency as well as how many units of the listed currencies a WCU2005 unit will buy.
Acknowledgments: We thank the Master of International Banking and Finance Programme of Lingnan University for partial support of this project. Rui Yuanqing has designed the website and has helped compute the figures. Gary Wong has assisted in various studies incidental to this project.
Ho, Lok Sang(2000) “Towards a New International Monetary Order: The World Currency Unit and the Global Indexed Bond”, The World Economy, 23:7, 939-950.
Ho, Lok Sang(2009) A Proposed International Unit of Account: Implications for Financial Markets, Commodity Markets, and Research, CPPS Working Paper Number 194, Lingnan University.
Coats, Warren(1989) "In Search of a Monetary Anchor : A 'New' Monetary Standard," IMF Working Paper No. 89/82.
Fisher, Irving(1911) The Purchasing Power of Money: Its determination and relation to credit, interest and crises.
Shiller, Robert (2003) The New Financial Order: Risk in the 21st Century, Princeton University Press.