Monetize Me! A Modest Proposal for a New World Reserve Currency.

Brother, can you lend me a Bancor? As the U.S. government continues to sell large amounts of Treasury securities talk has turned – as it often does – to concerns over the long term viability of the dollar as the world’s reserve currency. “The largest debtor [the U.S.] is very unlikely to dominate any currency arrangement today,” said Ousmene Mandeng, head of Ashmore Investment Management Ltd.’s public sector investment advisory. We’ve heard this before and nothing has ever come of it. But this time is different, which, of course is also something we’ve heard before with no resulting repercussions.

The world’s finance ministers, though, are talking rather publicly about an alternative reserve currency. The Chinese yuan has been suggested; the International Monetary Fund has broached the idea that, theoretically, its special drawing rights (SDRs) could replace the dollar; and Russia – yes, Russia – has lately speculated that the ruble might serve as a regional reserve currency – yes, the ruble. Some have looked backwards, to the end of the Second World War, when Keynes and others discussed using a basket of commodities as a reserve currency to be named the Bancor.

Well, I’m no expert, but I believe that the primary underpinning of any world reserve currency is trust. Economists echo this. Trust is particularly important, of course, when the world’s reserve currency, like today, is based upon a so-called fiat currency – currency backed exclusively by trust in that government’s financial probity rather than something tangible like gold or silver or potatoes or iPods. Today, folks and governments everywhere have less trust that the Unites States dollar will hold its value since the nation is issuing debt and creating dollars at an Indy 500 pace.

Me: “I devoutly trust that I can trust nothing.” I’ve got a solution, though for those who insist on trust. Reduce expectations of trust. And I’m the guy who can do that. Think about it. We need a world reserve currency backed by an entity that’s up front about its currency and its expectation that it will regularly vary markedly in value, yearly, monthly, hourly.

This would encourage other important values: citizen participation and economic growth. All holders of this new “untrusty” reserve currency will need to keep their eyes and ear open throughout the day, and long into the night, regularly eschewing sleep. And the currency will never stop moving! And that’s good for . . .? Money “velocity”! The stuff will fly around like quails trying to avoid Dick Cheney. Stuff will be bought and sold like crazy, even groceries. As soon as you buy a banana, for example, you’ll want to sell it on the way out the store if you hear that other bananas in the store are moving for more than you just paid a moment ago. That new buyer of your banana will then resell it a few moments later, unless she learns that her banana is fetching less than it did a few moments later. She’ll rationally decide to “go long” with her banana. And so on, all day long, all night long, eschewing sleep, as I mentioned before. Imagine the economic activity this will encourage . . . no, the activity it will require.

So, below is my entry into the world reserve currency sweepstakes. See how honest it is? This is a reserve currency people can trust precisely because they’d be nuts to trust it. Let me know how you feel. Soon you’ll hear, “Buddy, do you have approximate change for a oneish?”

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