Bring Back the Bancor Campaign

Justin Collery

Following from some threads about the destruction of wealth, Ireland leaving the Euro and currency wars how about a campaign to "Bring Back the Bancor!". Okay, so the Bancor never existed so we can't exactly bring it back, but it was proposed by Keynes in '42 as the transnational reserve currency, and I suggest we propose it again.

So, what is a Bancor. It is a notional currency, it exists only in a computer, you cannot spend it or touch it. It is backed by nothing. But each central bank promises to swap x amount of Bancors for y amount of their currency. The rate is set daily, and is directly proportional to the amount of currency that central bank has issued. How does that work?

Day one the fed sets the system up and sets an initial a rate of $2 = 1 Bancor. The fed can never create another Bancor, but it can create as many dollars as it wishes.
America wants to buy lots of stuff from China and doubles the amount of dollars
Because they have doubled the amount of dollars the rate has halved so $1 = 1 Bancor
China has a stack of dollars and wants to get in on the act so asks to join too.
Using the Yuan:USD rate and the amount of Yuan in existance, the Chinese central bank gets x amount of Bancors and the first days rate is set to 7 Yuan = 1 Bancor.
Next, the Chinese want to offload their $ risk, so they swap their dollars for Bancors with the fed.

The fed can keep doing what it is now, creating dollars, and the Chinese can keep doing what they are doing, buying them up. Relative to the Bancor however the dollar is becoming worth less and less, so it becomes pretty transparent to any Chinese company they are actually making less and less 'real' money and there is nothing they can do about it (well actually there is, they can sell in Bancors instead of dollars, making the US pay more which is the same as the Yuan appreciating in value).

Why would you the punter ever want such a thing. Lots of reasons it turns out.

Inflation. It's a hedge against inflation. It pays no interest, but it's value is proportional to the amount of currency in circulation, so, if you convert at €1 = 1Bancor, and the number of €'s double, your Bancor will get you €2 back.

Currency wars. The US, UK, and Japan are all trying to devalue their currencies to get their economies going. It is impossible for them to devalue at the same time relative to each other, but they can against something else, the Bancor.

Safety. Not happy with your bank or currency, convert your money to Bancors.

Will it never happen. Well, it might, but I'd be surpirsed. The reason, in my view, is a little cynical. Inflation. As it is linked to the amount of currency in circulation it's inflation proof. Lets say a country has $100 total wealth, and you own $50 of that $100. You own half the countries wealth. Now, if there are no Bancors and I, as the government want to take half your money, all I have to do is create inflation, double the amount of money in circulation so there is now $200, you still have $50, so now you only have 25% of the wealth. Bancors stop this from happening.

Still reading, think this is a bit crazy. Think of it another way. You own your house completely, it's yours, you paid your taxes, bought it 100%, you own it lock stock and barrell. Every year the government comes and takes a couple of bricks, until you have nothing left. Inflation is a removal of a property right, it allows governments to take your money, and that is why the Bancor will never happen. Well, maybe.