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John Maynard Keynes

The bancor was a supranational currency that John Maynard Keynes and E. F. Schumacher[1] conceptualised in the years 1940-42 and which the United Kingdom proposed to introduce after the Second World War. This newly created supranational currency would then be used in international trade as a unit of account within a multilateral barter clearing system – the International Clearing Union – which would also have to be founded.

John Maynard Keynes proposed an explanation for the ineffectiveness of monetary policy to stem the depression, as well as a nonmonetary interpretation of the depression, and finally an alternative to a monetary policy for meeting the depression. Keynes believed that in times of heavy unemployment, interest rates could not be lowered by monetary policies.

The bancor was to be backed by barter and its value expressed in weight of gold. However, this British proposal of introducing a supranational currency could not prevail against the interests of the United States, which at the Bretton Woods conference established the U.S. dollar as world key currency.

Seemingly, Milton Friedman insisted that John Maynard Keynes theories were incorrect and believed that, “Inflation was highly destructive and that only monetary policy could control it and that monetary policy is a heavyweight instrument and cannot be used for short-term economic management.” [2] Moreover, Friedman rejected government intervention and fiscal policy arguing that such measures would have no significant effect on inflation and other fluctuations in the business cycle.

Since the outbreak of the financial crisis in 2008 Keynes's proposal has been revived: In a speech delivered in March 2009 entitled Reform the International Monetary System, Zhou Xiaochuan, the governor of the People's Bank of China called Keynes's bancor approach "farsighted" and proposed the adoption of International Monetary Fund (IMF) special drawing rights (SDRs) as a global reserve currency as a response to the financial crisis of 2007–2010. He argued that a national currency was unsuitable as a global reserve currency because of the Triffin dilemma - the difficulty faced by reserve currency issuers in trying to simultaneously achieve their domestic monetary policy goals and meet other countries' demand for reserve currency.[3][4] A similar analysis can be found in the Report of the United Nation's "Experts on reforms of the international monetary and financial system" [5] as well as in the IMF's study published on April 13, 2010 [1][6]

See also


  1. ^ E. F. Schumacher, Multilateral Clearing Economica, New Series, Vol. 10, No. 38 (May, 1943), pp. 150-165
  2. ^ Friedman. M., (1968) The American Economic Review, Vol. 58, No. 1, 1-17
  3. ^ Xiaochuan, Zhou (2009). "Reform the International Monetary System" (PDF). BIS Review. Bank of International Settlements. Retrieved 2010-11-28. 
  4. ^
  5. ^ Recommendations by the Commission of Experts of the President of the General Assembly on reforms of the international monetary and financial system, 20.3.2009.
  6. ^ Reserve Accumulation and International Monetary Stability, 13.4.2010,

Friedman. M., (1968) The American Economic Review, Vol. 58, No. 1, 1-17</ref>

Further reading