kaldor

It should also be emphasised that the advocacy of a commodity-reserae is not the same thing as the advocacy of commodity-money. any more than .the gold reserve is the same thing as a goldcurrency. There is no suggestion that individual currencies shouldhave a fixed and unalterable par value in terms of commodities:on the contrary, the proposal is advanced in order to makechanges in par value (i.e. adjustments in exchange rates) easier tointroduce than it is under the so-called "gold-exchange standard"at present.

1 As wiil be argued below (p. 164), the rate ofaddition to reserves under this systemis likely to approximate, over a run ofyears, the rate ofincrease in the world productionand consumption of the commodities included in the "standard."

2 The proposal is therefore entirely free from the objection Keynes advanced againstthe commodity reserve proposal that in a world of rising money wages stabilising theprice level by means of a commodity-money might lead to highly undesirable resultssince it would prevent the rise in prices that is necessary to compensate for the risein money costs (cf. Economic Journal, June-Septemberr rg43.p. 176).This would betrue only ifindividual countries were not free to devalue in terms ofan international standard when their "efficiency wages" rose in relation to others. But since the move

ment of "efficiency wages" of different countries is far from uniform, the possibility

of individual devaluations does not obviate the advantages of having a stable inter-

national standard in terms of commodities or the parallel advantages of stabilising the

price level of commodities in terms of an international standard.

INTERN ATI

ONAL COMMO DITY RESERVE CURRENCY I45

The best way of applying such a complicated idea as that of

onetising a whole bundle of primary commodities must obviously

be hammered out through long discussion, among people with

any kinds of expertise and experience. Responsible policy-

akers cannot be expected to accept such a novelty the first

time that it is put forward; and there will be plenty of time to work

out details in the future. Yet it is hard to come to grips with the full

implications of such a proposal unless it is crystallised in fairly

concrete form. Only by considering a proposal which has been

worked out in a fair amount of detail can one form a reasonable

judgement as to whether the difficulties raised by a plan of this

ature are of the kind that can be overcome by straightforward

adaptations, or whether they are of a kind that lead into a morass

of further difficulties-with each adaptation to cope with some

particular problem opening up a series of further problems.

Accordingly, we shall proceed in Section II of this memorandum,

to put a scheme forward in some detail.

When an idea is turned into a concrete scheme, it is necessary

to take into account factors which would be important if the

scheme were to be adopted in the near future but which would not

necessarily enter into an "ideal" solution in the abstract, or if

one were only considering its adoption at some remote future

date. Thus account had to be taken of the present existence of

large stocks of a number of commodities carried by various

governments, which could not be ignored if, in the near future,

the building up of stocks by the international authority

envisaged; and it was found that the absorption of these stocks

into the commodity reserve would not only ease the problem which

the very existence of these stocks present to the production and

marketing of the commodities concerned, but it would make the

initial introduction of a commodity reserve currency a great deal

easier than it would otherwise be

An even more important consideration is that, given the present

status of gold as a reserve medium, it is essential to safeguard the

standard when their "efficiency wages" rose in relation to others. But since the move

ment of "efficiency wages" of different countries is far from uniform, the possibility

of individual devaluations does not obviate the advantages of having a stable inter-

national standard in terms of commodities or the parallel advantages of stabilising the

price level of commodities in terms of an international standard

146:

II. OUTLINE OF A PROPOSAL

An I.M.F. Currencltr. It is suggested that, in line with other monetary reformproposals, the I.M.F. should establish its own currency-let uscall it the "bancor"-which after an initial ,,build-up period,'should be convertible into (a) gold, (D) a bundte of commoditiesconsisting of the thirty or so principal commodities in worldtrade which combine a high degree of standardisation withreasonable durability in storage.e. Bancor issued by the I.M.F. should be fully covered by goldand commodities, except for a fiduciary issue which should befixed in amount (subject to possible revision by re-negotiation inlater years).3. Bancor operations should be held distinct from the existing

system of drawing rights of members to purchase each others'currencies out of holdings at the disposal of I.M.F.; such drawingsshould not lead to emission of bancor.4. Bancor should be exclusively a deposit currency, and only thecentral banks of member countries should be entitled to holdbancor balances with I.M.F. The bancor unit shouid be distinctfrom the monetary unit of any member country, and should beassigned a gold par value that is large in relation to that of anynational currency unit (equivalent, perhaps, to Ioo or r,ooo IJ.S.dollars). Member countries should undertake to accept bancor insettlement of claims in the same manner as gold.5. It is suggested (the figures are intended as illustrative) thatinitially the I.M.F. should aim at an issue of bancor of theorder of the present equivalent of U.S. $3o billion, made up asfoilows:

(i) $5 billion in exchange for gold.

(ii) $zo billion in exchange for commodities of various kinds,according to the procedure described below.

(iii) $S billion against loan obligations of member countries(constituting the fiduciary issue).

Commodit2 Bundles6. The composition of the "commodity bundle" should beagreed upon at the outset, on the basis of the followingprinciples:(i) As many internationally traded commodities,as possibleshould be included, provided that each commodityincluded satisfies four basic criteria:(a) A high degree of standardisation (which means that itpossesses a clearly defined world-market price, whenquantity, grade, place and date of delivery are speci-fied).(D) Reasonable durability in storage (which means thatthe stock need not be turned over, to avoidphysical deterioration, more often than say, once aYear).