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How Keynes' Bancor International Trade Currency Would Work
Prosperity, May 2003
New book, The Age of Consent, by Guardian columnist George Monbiot, gives credit to Money Reform author Michael Rowbotham for bringing Keynes' "Bancor" currency concept to his attention.
In his book, Goodbye America! Globalisation, Debt and the Dollar Empire, Mike Rowbotham raised for consideration, Keynes', ultimately unsuccessful, proposal for an "International Clearing Union" and a "Bancor" international trade currency -- intended to foster international trade balances.
As Mike wrote in Goodbye America:
Fundamental to Keynes' thinking was the importance of fostering a balance
of trade between nations and avoiding the scenario in which some nations become
'creditors' and others 'debtors' through their trade accounts. Creditor nations
were those who had exported more than they imported and thereby ended up with
surplus revenues from an imbalance of trade. Debtor nations were those whose
imports had exceeded their exports, and so suffered a monetary loss through
trading -- a trade deficit …
Keynes proposed a new, neutral unit of international currency -- the 'Bancor' -- and a new institution -- the International Clearing or Currency Union (ICU). All international trade would be measured in Bancors. Exporting would accrue Bancors, importing would expend Bancors. Nations were expected to maintain, within a small percentage, a zero account with the ICU. This would indicate that they had an overall equivalence of imports and exports. Each nation's Bancor account would also be related to its currency through a fixed, but adjustable, exchange rate.
The key feature of Keynes proposal was that it placed an equal obligation on creditor and debtor nations to maintain a balance of trade …
Nations that imported more than they exported -- debtor nations -- would pay a small interest charge to the Clearing Union on their overdrawn account. This would encourage those nations to promote exports by a range of domestic policies as well as marginal currency devaluation. Equally, nations that ran an aggressive trade policy and exported more than they imported would also be charged by the Clearing Union for their surplus account. This would encourage those nations to find ways to spend their excess Bancors back in debtor nations -- or gradually lose that surplus.
The efforts of debtor nations to promote exports was intended to coincide with the efforts of creditor nations to expend their otherwise worthless Bancor surplus. These charges were intended not so much as a deterrent or punishment, but as a benign 'feedback' mechanism, ensuring that, over time, trade remained in balance.
From pages 37-39. Also see Prosperity, October 2001, where Michael Rowbotham explains that stabilised currency values are also essential, and represent a crucial aspect of a sustainable world economy.