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.