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.

The sum of these GDPs are then 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. It should be noted, therefore, that a WCU series must be specific with respect to an output basket for a specified year. For an extended period, however, sticking to a fixed output basket throughout decades would not be acceptable, since production as well as consumption patterns will change, as will the relative importance of economies. So for an extended period, rebasing is needed. This is permissible as long as different series are consistently spliced together.

The time series presented in the historical graph from 1970 has been derived with “rebasing” every five years. Thus, there is actually a series from 1970 to 1975 with 1970 as the base year, and another one from 1975 through 1980 with 1975 as the base year, and so on. The different series of indices are then spliced together through a transformation process to convert into a single and common base year, much like consumer price indices with different base years are spliced to form a continuous series. The 1970 to 2007 historical series has been obtained by splicing 7 series.

On each business day we will announce the updated valuation of the WCU2000 in each listed currency as well as how many units of the listed currencies a WCU2000 unit will buy.

Acknowledgments: We thank the Master of International Banking and Finance Programme of Lingnan University for partial support of this project. Yuanqing Rui has designed the website and has helped compute the figures. Gary Wong has assisted in various studies incidental to this project.

References:

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.