A Message to our Readers on the WCU Website Relaunch

Since our website was officially launched in April 2008 we have been working to improve the contents. After considerable reworking and retesting, we are finally ready to launch our new WCU website, which you are seeing today.

As before, the World Currency Unit is a unique unit of account that we recommend for use for international transactions. The WCU stands for a unit of global purchasing power. So, conceptually one WCU today represents the same real purchasing power as one WCU ten years ago, providing they share the same base year. Valuation of the Unit is based on a basket of currencies each indexed against its domestic inflation. This basket, to be called a standard or benchmark currency basket, is by design variable: it is defined as standardized currencies weighted by GDP two years ago. The standardization is done by scaling up or down a currency by dividing the entire time series of exchange rates against the US dollar with the exchange rate with the US dollar in the base year. The procedure makes sure that in the base year each standardized currency unit is worth one US dollar. Because the entire series of exchange rates share a common base year, they are comparable even though weights change from year to year. Indexing against domestic inflation is refreshed each month with the most update Consumer Price Indices.

We recommend that international transactions be quoted in the WCU for greater transparency of the real price and for fairness to both buyers and sellers. As well, we recommend that bond issuers consider issuing bonds denominated in the WCU. This again is fair to both borrowers and lenders, and it makes the real yield to purchasers of bonds more transparent.

Transactions based on prices quoted in the WCU can be settled in any currency, as the valuations of the WCU in several major currencies are updated daily on our quotation page. By promoting international transactions quoted in the WCU, we hope that the "supercurrency" status of the US dollar can be history, and with new financial assets denominated in the WCU, we hope that the world's central banks can have new reserve assets whose values are more stable. With access to WCU-denominated financial assets, we hope that savers have a ready-made diversified currency portfolio that will protect them from large swings in exchange rates of single currencies. We also hope that savers can then have an alternative to real estate as a hedge against inflation. We have learnt that rushing into real estate and financial assets could engender asset price bubbles that can be devastating to financial markets and to the real economy.

We believe that promoting the wider use of the WCU will contribute toward a more stable global financial environment.

We have, however, changed the base year from 2000 to 2005, in line with the most commonly used base year in international economic reporting today. We have also changed the size of the unit, so that in the base year, i.e., in 2005, one WCU is worth one US dollar, and not USD100, as was the case with WCU2000 as reported in the Graph page and in the Home page.

Any reference to the WCU has to be specific about the base year.For example, one WCU2005 is worth USD1 in year 2005, and one WCU2000 is worth USD1 in 2000.If one WCU2005 is worth 1.25 USD today, it means 1.25 USD is required to match the purchasing power of one USD in 2005.

Another change that we have made is that instead of reweighting every five years, we shall be reweighting every year.For any year T, we will use the GDP weights of year T-2.The yearly updating turns out to be very useful and to have improved considerably the reliability of the effective exchange rate indices that are derived from this work.

Lok Sang Ho


Tuesday October,21,2014

Currency

Spot Exchange Rate
(USD / unit of currency)

(1)
Normalized Exchange Rate (Column 1 divided by US$ price of currency in base year 2005)
(2)
WCU2005 per unit of currency
(3)
How much a unit of WCU2005 is worth in each currency
(4)

Relative Exchange Rate
(currency relative to Benchmark Basket)

(5)

U.S.dollar
(a)
1.00 1.00 0.8185
1.2217
0.9843
Euro
(b)
1.27821 1.02783 1.0463
0.9558
1.0117
Pound
Sterling
(c)
1.61362 0.88636 1.3208
0.7571
0.8724
Japanese
Yen
(d)
0.00936 1.03139 0.0077
130.5535
1.0152
Canadian $
(e)
0.88682 1.07461 0.7259
1.3776
1.0577
Australian
Dollar$
(f)
0.87841 1.15025 0.7190
1.3908
1.1322
Renminbi
(g)
0.16326 1.33777 0.1336
7.4829
1.3167
Hong
Kong Dollars
(h)
0.12890 1.00253 0.1055
9.4775
0.9868
Swiss
Franc
(i)
1.05940 1.31995 0.8672
1.1532
1.2992
Russia
Rubles
(k)
0.02438 0.68958 0.0200 50.1092 0.67874
Quotation in other currencies          
Standard Currency Basket (2011 GDP-weighted average of Column 2 from a to f)
(j)
  1.015970 0.8316 1.202477 1
Notes:

Column (2) allows us to know if a currency has appreciated or depreciated against the US$ since 2005. A figure greater than 1 means appreciation. 1.25 means 25% appreciation against the US dollar since 2005. 0.75 means 25% depreciation of the currency since 2005.

Column (3) is a measure of the real value of the official currency unit expressed in WCU2005. A figure less than 1 for US dollar means a loss in real purchasing power of the US dollar since 2005. But a figure greater than or less than 1 for other currencies does not tell us if the currency has gained or lost purchasing power, since to do that the figure in Column(3) needs to compare with its equivalent value in 2005.

Column (4) spells out how much a WCU2005 is worth in terms of the official unit of the currency today. One WCU2005 is worth one US dollar in 2005, indicating a decline in the purchasing power of the US dollar. Column (4) tells us how many units of the currency can buy the same amount of real goods as one US dollar in 2005.

Column (5) shows how the currency has moved against the standard currency basket since the 2005. Since each currency is standardized(by dividing with the exchange rate in 2005) so that the standardized unit of the currency is worth US$1 in the base year, the benchmark currency basket is also worth US$1 in 2005. Although we change the weights of the currencies in each new year using updated GDP data, 2005 remains the base year in the sense that all standardized currency units are worth US$1 each in the base year. Column 5 is derived by dividing the figures in Column 2(a to i) by the figure in box j2.

Box (j2) tells how much one standard basket of currencies is worth in terms of US dollars. In the base year 2005 it was worth US$1. A figure bigger(smaller) than 1 implies US dollar depreciation(appreciation) since the base year.

A figure of 0.90 in Column (5) implies 10% depreciation against the standard basket since 2005. A figure of 1.10 implies 10% appreciation against the standard basket since 2005.

Box (j3) tells how many WCU2005 one standard basket of currencies is worth. Box (j4) tells how many units of the standard basket of currencies one WCU2005 is worth.

   
*Price index information last updated DATE: Oct.15.2014
*Price index information next to be updated DATE: Nov.15.2014
*GDP weights information next to be updated DATE: January 1,2015