The world needs a new currency

A financial system can only work properly in the context of a strong monetary order. That must go far beyond the usual calls for “enhanced international cooperation” or “coordinated regulation”. It must replicate the classical gold standard in its insistence that governments as well as private agents should obey common rules. For a global economy, those rules also have to be global.

We must also end forever the damaging divorce between money and the real world of jobs that has been the defining feature of the crisis. In my new book, “The Money Trap,” I propose that the global monetary unit – which I call the ikon - be expressed as a fraction of the global portfolio of all productive assets. The closest proxy for this is a diversified basket of global common stock (equity shares). Banks would compete with each other to produce money defined to these standards.

The dollar and other national currencies would continue to circulate, but they would be linked by a silken thread, as they would have a common reference or benchmark. Gradually, this would become the new ‘gold standard’ – the modern, respectable, monetary standard for the 21st century.

If money were linked to global productive capacity, the real value of money would gradually rise. Everybody holding money would, over time, become wealthier. Critics say that a currency defined in this way would be unstable. But the market would provide solutions to that – a means of insuring against such fluctuations in purchasing power. As the underlying value of the unit can be expected to increase in the longer term, market institutions would be able to afford to provide people with deposits guaranteed to be stable against a particular index of purchasing power – if that was what they wanted.

This should be a voluntary standard. But I believe that over the years, it would gradually acquire acceptance, as the most modern currency not only for the US and Europe but for the world as a whole. Then it would indeed become a worthy replacement to the gold standard.

Critics say that adherence to such a standard would involve loss of monetary autonomy. There are two answers to that. Much of the autonomy that countries like the United States and United Kingdom have at present is illusory – often providing an excuse for failing to address real structural and budgetary issues. Tricking the public by such monetary maneuvers was part of the bad old system that landed us all into trouble. Secondly, adherence to a common standard would provide incentives for us all to tackle the real problems and enjoy the real opportunities opened up by the new world economy.

When consumers and businesses – in the US and around the world – gain confidence that governments have correctly diagnosed the problems and are putting in place an adequate response, they will be willing to seize those opportunities and put the world’s economies on a sustainable path of growth.

– Robert Pringle is author of “The Money Trap: Escaping the Grip of Global Finance” and chairman of Central Banking Publications, a financial publisher in London.

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