What the World Currency Unit is Lingnan Universty香港岭南大学是世界货币单位.docVIP

The World Currency Unit: A Primer Lok Sang Ho, Lingnan University, Tuen Mun, Hong Kong Lsho@L.hk 1. What the World Currency Unit is It is an indexed unit of account that represents real purchasing power against a basket of global output. It can be expressed in any currency; and in terms of the US dollar, for example, its nominal value will rise if there is inflation or if the US dollar depreciates against other major currencies. 2. What may it do for savers? WCU-denominated bonds(Ho, 2000) offer an opportunity for savers to protect the purchasing power of their savings against a global basket of goods and services—which is becoming more and more important as people are more widely traveled and source their supplies more and more globally. This means that their savings are protected from the risks arising from exchange rate movements or from unexpected inflation. Particularly for smaller savers, WCU denominated bonds offer a viable alternative to the purchase of real assets, such as real estate, or securities denominated in specific currencies, the prices of which may be inflated, such as the Japanese asset market in the 1980s. For Japanese savers of that time, even investing abroad would not have helped either, because huge yen appreciation means a significant capital loss in yen terms for foreign-held assets. 3. What may it do for borrowers, and what does it do for the global capital market? Because buyers of “global bonds” denominated in WCUs enjoy the protection from global inflation indexing and the benefit of exchange risk diversification, they will accept lower yields on the bonds that they buy. This implies a lower borrowing cost for issuers of such global bonds. For borrowers whose incomes are in a single currency issuing WCU-denominated bonds does pose some exchange risks. They need to compare the advantage of lower interest rates that they have to pay when they issue global bonds versus the advantage of zero exchange risk in the cost o