Today's Quotation

Since our website was officially launched in April 2008 at Lingnan University we have been working to improve the contents.  The latest round of revamp was completed in July 2018.  The first major change is that following the inclusion of the RMB into the SDR by the IMF, we have also expanded the benchmark currency basket to include the RMB, in addition to the USD, Euro, Yen, Pound Sterling, C$, and A$.

The second major change is that the new series that includes the RMB takes 2015 as the base year.  Please note that the currency basket in this series does not include the RMB until the last quarter of 2016.

Please note that Column 5 provides the effective exchange rate since the base year.  Any value greater than 1 implies appreciation against the standard currency basket since the base year.  Any value smaller than 1 implies depreciation.  Ho(2012) has shown that this new way of compiling effective exchange rate indices is not only easy, but also has attractive properties compared to trade-weighted effective exchange rate indices.

We have accordingly provided downloads of the new series in our new website.

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 apologize to visitors to our website for our extended period of the quotation page being “out of service.” The successful relaunch is made possible by the help of Frasertec Ltd. and support by the IDS grant UGC/IDS13/16.

Lok Sang Ho

Lingnan University
April 22, 2020