Image from “Analysis of a Commodity Reserve Currency System from Siyasah Shariyyah Perspective,” Journal of Islamic Accounting and Business Research (2018). Interestingly, some commodity proposals (e.g., Grondona-type) have been seen as uniquely Sharia compliant; see also “Simulation of Shariah Compliant Commodity Backed Currency System: A Turkish Case-Study,” Turkish Journal of Islamic Economics (2018). Note that these are buffer-stock/automatic-stabilizer proposals in addition to their other features.
(←Questions Related to International Trade & Currencies)
It is important to note that the proposals for a supranational currency have been made with various, disparate goals. Some are primarily interested in some aspect of commodities, others primarily or completely the supranational-currency aspect. These can overlap in several ways. The primary possibilities:
- “Sound money” beliefs, “backed” by a physical thing. These can be for a supranational currency or for a single country. The Grondona type proposals in the caption above have been proposed for both countries and as a supranational currency.
- They can be based on commodities with the goal of creating a buffer-stock of commodities to stabilize global commodity prices (and/or global commodities themselves). The aim of helping developing countries can be explicit here also, as they might benefit the most from stable commodity prices.
- Purely for the supranational aspect. The motivation can be to reduce problems related to hegemony of one country/currency. This can be viewed as political/military hegemony or from the point of view seen more recently of the dominant country’s monetary policies for domestic goals being harmful to the rest of the world. Note it could be that the opposite is a problem as well – sectors or classes of the dominant country may suffer from monetary policy that serves its elites’ domestic and ROW interests.
- Primarily for the balance of trade aspect. This can be A) indirect, such as the potential for being based on commodities having an automatic-stabilizer effect on trade balances, or B) direct, such as Keynes’ International Clearing Union (ICU) that would directly shift the burden of balancing global trade onto surplus countries.
I would like to note the particular elegance by which Keynes’ plan would have created a non-chartal, non-commodity global trade currency, I’ll get back to that. But also that there is, besides the commonly observed political difficulty in getting it implemented, another insurmountable problem that despite its elegance made/makes it unworkable.
(continued: The Two Families of Global Reserve Proposals & Swap Lines)
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