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A problem in world trade is the agreement of prices and the applicable currency. Between conclusion of contract and payment, exchange rates may change. When the currency of one page is used, the other carries the price risk alone. Commodity prices are often quoted in US $, even if none of the contractors are based in the US. However, this currency is rather inappropriate because its prices are influenced by speculation in international currency markets. As interest rates rise in the US, prices will rise due to higher demand for US $, which will create additional speculative demand. Then commodity prices will rise worldwide, but not in the US.
To solve this problem, in addition to the existing currencies, a conversion unit must be created that itself can not be traded on the financial markets. For this purpose, the gross domestic product 2017 of all currency areas was first added in an experiment, provided that it exceeds 1,000,000,000,000 US $. Thereafter, an artificial currency was calculated which amounted to 1,000 Swiss francs (CHF) on 01/01/2018 and is composed of the stated percentages of corresponding amounts from the national currencies.
Fig.: Composition of the Mondo
gross domestic product proportion of
$ 19.390 billion, 29.87% 307.56 dollar
EURO area $ 12.810 billion 19.73% 168.41 euros
China $ 12,240 billion 18.86% 1,260.61 yuan
Japan $ 4.872 billion 7.51% 8,669.49 yen
United Kingdom $ 2.625 billion 4.04% 30.70 pounds
India $ 2.611 billion 4.02% 2,629.46 rupees
Brazil $ 2.055 billion 3.17% 106.73 reals
Canada $ 1.652 billion 2.55% 32.86 dollar
Russia $ 1.578 billion 2.43% 1,433.92 rubles
South Korea $ 1.538 billion 2.37% 25,913.95 won
Australia $ 1.380 billion 2.13% 27.96 dollar
Mexico $ 1.149 billion 1.77% 355.80 pesos
Indonesia $ 1.011 billion 1.56% 216,202.61 rupees
$ 64,911 billion 100.00% Σ = 1,000 CHF
(Source: own illustration)
Then the result was divided by 1,000 and you get an artificial currency, which was named after the Euro Mondo (the world, French le monde), in the equivalent of one franc. Based on the euro reference prices published by the Austrian National Bank, the above amounts were converted into CHF for each day between 01.01.2017 and 16.11.2018, added up and divided by 1,000.
If you look at all currencies in CHF and in Mondo, then there were the following fluctuations around a mean:
Fig.: Currency fluctuations in Swiss francs and index currency
in CHF: in Mondo:
USA -5.79% 5.06% -3.98% 4.13%
Eurozone -6.16% 5.75% -6.78% 3.99%
China -5.14% 7.39% -2.30% 3.75%
Japan -4.16% 4.46% -3.77% 3.77%
United Kingdom -5.33% 7.14% -5.22% 5.44%
India -10.75% 6.20% -8.50% 5.33%
Brazil -21.07% 13.11% -18.04% 13.17%
Canada -5.64% 4.59% -4.49% 4.42%
Russia -15.16% 9.84% -12.69% 9.34%
South Korea -5.33% 6.52% -4.10% 3.59%
Australia -7.19% 4.59% -4.97% 4.54%
Mexico -11.44% 6.18% -11.16% 8.05%
Indonesia -9.68% 7.44% -7.94% 7.04%
(Source: own illustration)
When quoted in CHF, the Mondo fluctuates between -4.12% and 3.93%, while prices in Mondo fluctuate around the mean between -3.80% and 4.28%. In an attempt to remove India, Brazil, Russia and Mexico as the countries with the strongest fluctuations from the artificial currency, there was hardly any stabilizing effect. Such interventions can therefore be dispensed with.
The fluctuation range in the artificial currency was consistently lower. If a different calculation currency was used instead of the franc, exactly the same values were found for the fluctuations in Mondo. Even if a strong rise in the price or depreciation of the franc was simulated, this had no effect on the price fluctuations in Mondo. Thus, speculation against the Mondo would not be possible. This artificial currency would therefore be better suited to international commodity prices than the US dollar. The US could no longer avoid the consequences of exchange rate fluctuations.
Major international banks could offer their customers accounts in Mondo and transfer money to Mondo accounts of other owners. Customers only realize price gains or losses if they switch Mondo back to local currency. A hedging via derivatives would be partly superfluous. The Mondo would not be an international organization, but a product of financial service providers.
Cuba has two currencies, the peso (CUP) as pure domestic currency and the convertible peso (CUC), which can be exchanged with other currencies. Many services are provided only against CUC. The CUC is tied 1: 1 to the US dollar. If Cuba replaced the USD by linking the CUC to the Mondo as the arithmetic unit of the 13 currencies of the largest currency areas, Cuba would be less dependent on international currency fluctuations. If the National Bank were to determine prices transparently in accordance with the approach outlined in this article, the CUC would be the future world currency in which prices can be agreed on international goods markets.