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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 1940–1942 and which the United Kingdom proposed to introduce after World War II. The name was inspired by the French banque or ('bank gold').[2] This newly created supranational currency would then be used in international trade as a unit of account within a multilateral clearing system—the International Clearing Union—which would also need to be founded.


John Maynard Keynes proposed an explanation for the ineffectiveness of monetary policy to stem the Great Depression, as well as a non-monetary 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 ability for capital to move between countries seeking the highest interest rate frustrated Keynesian policies. By closer government control of international trade and the movement of funds, the Keynesian policy would be more effective in stimulating individual economies.

Bancor would not be an international currency. It would rather be a unit of account used to track international flows of assets and liabilities, which would be conducted through the International Clearing Union. Gold could be exchanged for bancors, but bancors could not be exchanged for gold. Individuals could not hold or trade in bancor. All international trade would be valued and cleared in bancor. Surplus countries with excess bancor assets and deficit countries with excess bancor liabilities would both be charged to provide symmetrical incentives on them to take action to restore balanced trade. In the words of Benn Steil,

Each item a member country exported would add bancors to its ICB account, and each item it imported would subtract bancors. Limits would be imposed on the amount of bancor a country could accumulate by selling more abroad than it bought, and on the amount of bancor debt it could rack up by buying more than it sold. This was to stop countries building up excessive surpluses or deficits. Each country's limits would be proportional to its share of world trade ... Once initial limits had been breached, deficit countries would be allowed to depreciate, and surplus countries to appreciate their currencies. This would make deficit country goods cheaper, and surplus country goods more expensive, with the aim of stimulating a rebalancing of trade. Further bancor debit or credit position breaches would trigger mandatory action. For chronic debtors, this would include obligatory currency depreciation, rising interest payments to the ICB Reserve Fund, forced gold sales, and capital export restrictions. For chronic creditors, it would include currency appreciation and payment of a minimum of 5 percent interest on excess credits, rising to 10 percent on larger excess credits, to the ICB's Reserve Fund. Keynes never believed that creditors would actually pay what in effect were fines; rather, he believed they would take the necessary actions ... to avoid them.[3]

Bretton Woods conference[edit]

Keynes was able to make his proposal the United Kingdom's official proposal at the Bretton Woods Conference but it was not accepted.[4]

Proposed revival[edit]

Since the financial crisis of 2007–2008 Keynes's proposal has been revived. Its proponents have argued that since the end of the Bretton Woods system when the United States dollar was unpegged from gold, the United States was incentivized to run high government spending and high deficits, which made the global financial system unstable.[5] 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. U.S. Secretary of the Treasury Timothy Geithner expressed interest in the idea of greater use of SDRs as a reserve. However, he was criticized severely for this in the United States, and the dollar lost 5 cents against the euro in exchange markets following his statements.[5] He and President Barack Obama shortly afterwards backtracked Geithner's comments.[5][6]

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.[7][8] A similar analysis can be found in the Report of the United Nation's "Experts on reforms of the international monetary and financial system"[9] as well as in the IMF's study published on 13 April 2010.[10]

See also[edit]


  1. ^ E. F. Schumacher (May 1943). "Multilateral Clearing". Economica. 10 (38): 150–165. doi:10.2307/2549461. JSTOR 2549461. Archived from the original on 23 September 2015. Retrieved 15 November 2015.
  2. ^ Benn Steil, The Battle of Bretton Woods: John Maynard Keynes, Harry Dexter White, and the Making of a New World Order (Princeton: Princeton University Press, 2013), p. 143.
  3. ^ Benn Steil, The Battle of Bretton Woods: John Maynard Keynes, Harry Dexter White, and the Making of a New World Order (Princeton: Princeton University Press, 2013), pp. 143-44.
  4. ^ "Should the IMF dole out more special drawing rights?". The Economist. ISSN 0013-0613. Retrieved 12 April 2020.
  5. ^ a b c Tooze, Adam (2018). Crashed: How a Decade of Financial Crises Changed the World. New York, New York: Viking Press. p. 266. ISBN 978-0-670-02493-3. OCLC 1039188461.
  6. ^ MarketWatch, Lisa Twaronite, Polya Lesova, &, William L. Watts. "Dollar pares losses after Geithner clarification". MarketWatch. Retrieved 29 January 2022.{{cite news}}: CS1 maint: multiple names: authors list (link)
  7. ^ Zhou Xiaochuan (2009). "Reform the International Monetary System" (PDF). BIS Review. Bank of International Settlements. Retrieved 28 November 2010.
  8. ^ "China calls for new reserve currency". Financial Times. 24 March 2009.
  9. ^ "Recommendations by the Commission of Experts of the President of the General Assembly on reforms of the international monetary and financial system" (20 March 2009).
  10. ^ "Reserve Accumulation and International Monetary Stability" (13 April 2010).

Further reading[edit]

  • John Maynard Keynes (1980). The Collected Writings, Volume XXV: Activities, 1940–44: Shaping the Post-war World: The Clearing Union. Basingstoke.{{cite book}}: CS1 maint: location missing publisher (link)
  • Armand van Dormael (1978). Bretton Woods. Birth of a Monetary System. London. ISBN 978-0-8419-0326-5.{{cite book}}: CS1 maint: location missing publisher (link)

External links[edit]