A Dicey Dollar Could Yet Revive Keynes’s Bancor Currency Plan

Context: A well-funded International Monetary Fund (IMF) could act as the world’s lender of last resort if America’s Federal Reserve (using its dollars) gives up that role or fails in it

Need of a Universal Currency: 

• Dollar Depreciation: The dollar’s fall in July to a two-year low against the euro due to the economic slowdown has raised questions over the credibility of the Federal Reserve as the lender of last resort.
• Declining Investor’s Confidence in Dollar:

• Difficult to maintain “Interest Parity”: where the outlook for interest rates complements the change in the exchange rates.
• Risky and erratic United States’ trade policy: 
• President Donald Trump’s administration has done more than any in living memory to disrupt US trade
• The US today is no longer the reliable alliance partner it once was.

• TINA: There is no alternative:

• The euro is not an alternative: 

• The stock of safe euro assets remains segmented along national lines.
• The issue of 750 billion Euros of European Union (EU) bonds is less than 5% of the stock of the US government, making it a drop in the bucket.
• Nor the Renminbi: given the heightened tensions between China, no Western government will encourage its residents to depend on the People’s Bank of China for liquidity

Way Forward:  Bancor -  as proposed by John Maynard Keynes: Allowing the IMF to provide more resources to the countries in crisis with the currency that a future Fed may fail to provide.