Article II: The Global Dollar System
The cryptocurrency experiment, ill-conceived as it may be, is a symptom of steadily increasing demand for an independent global currency. Although progress is uneven, the long-term trend is towards international integration even within organisations. Currencies that vary on a national basis make some sense when the nation is the principal economic unit, but in many ways this is not the modern reality. Rapid development of internet commerce over the past decade has added to this new globalisation down to the level of the individual consumer. A typical transaction anywhere in the world now has very few degrees of separation from the international economy, if any.
Another characteristic of the past decade has been extreme economic uncertainty and currency fluctuation, which has served to highlight some of the basic weaknesses of the existing system. Politics and local conditions have a disproportionate and arbitrary effect on the real economic obligations implied by contracts and debt.
The US dollar remains dominant, accounting for most foreign currency reserves, but this dominance is set to decline in an increasingly multipolar world. The US dollar has never been a true global ‘second currency’ in the way that English functions as a global second language; it is unlikely that such a thing would be possible without a mechanism for ensuring real financial stability and independence from any individual government or economy. The value of the US dollar outside the economic context of the United States itself is as arbitrary as, for example, a gold-based currency, but less reliable.
The Exchange Traded Note (ETN) is a class of investment product that has been gaining in popularity over the past decade. The ETN is legally similar to a bond, being a form of tradeable debt, or institutional obligation to pay a specified amount at a later date. Unlike a bond, the amount of the repayment varies according to a predefined index or asset. Like the related Exchange Traded Fund (ETF), the ETN will normally be created or redeemed by the issuer at a standard rate in response to institutional demand. As a result, the open market price of an ETN will tend towards the value of the underlying index or asset, indicative valuations being regularly published by the issuer. ETNs differ from ETFs in that the latter represent a direct ownership interest in assets that are held in trust; ETNs can avoid many of the complications, including income distribution and taxation, which might arise from ETF ownership.
The Global Dollar is a currency unit that will be based on an ETN; each ‘Global Note’ (GLN) will trade on the open market as an ETN that reflects certain underlying assets, created and redeemed according to demand. The GLN will differ from most ETNs in being open-ended, with no set maturity date. ETN value will be defined and backed by the Global Dollar Reserve (GDR), an asset base that is specifically designed to reflect the characteristics of an ideal international currency. The GLN will therefore exhibit a highly predictable value combined with high liquidity. Based on an extremely diversified portfolio of global financial assets, the GLN will approximate the worldwide low-risk economic opportunity cost of funds. No other form of currency enables the specific design of value characteristics in this way.
Physical cash and its notional equivalent of central bank deposits represent the base assets of a fiat monetary system, although in effect this constitutes a fairly small proportion of money in circulation. The main ‘creators’ of effective currency are banks, which are able to credit customer accounts with balances far in excess of the base money actually held. Nevertheless, customers are entitled to withdraw their credit as cash, and transactions with other banks must eventually be settled, normally in the form of central bank deposits. Thus banks have a need for real, liquid reserve assets, which in turn underpin the larger money supply.
In the Global Dollar system, this ‘hard cash’ equivalent is the GLN, transferred or traded through normal brokerage mechanisms. The Global Dollar (GL$) can therefore exist either as an independent Exchange Traded Note (the GLN) or as bank money in a standard account. One is a tradeable debt security based on an asset reserve, the other a bank guarantee to provide this security on demand.
A significant advantage of an ETN-based currency is that the legal and institutional framework remains largely conventional. The ‘hard cash’ of the GLN is as real as the underlying assets of the GDR, effectively at no more risk than the trillions of dollars already invested in the passive fund industry. In addition, handling exchange traded assets through internet brokerage is becoming an increasingly simple and inexpensive exercise, even at consumer level, making a broker account feasible as an alternative ‘wallet’ for the Global Dollar.
The Global Dollar will be the most stable currency in the world by design. Listing as an ETN on multiple exchanges will provide constant foreign exchange price availability, while the creation/redemption mechanism makes the concept of ‘monetary policy’ irrelevant. Liquidity will be made available exactly as required, and the GL$ itself will reflect the constant financial value of an extremely diversified investment portfolio. In so doing, the GL$ makes passive fund investment returns available to consumers and businesses on an extremely convenient and liquid basis – that is, more convenient and liquid than any existing currency.
Given that the GL$ will come to define a financially neutral disposition of funds, interest rates in a normal lending scenario can theoretically be limited to the addition of a risk premium (approximately the probability of default) and a management fee (including profit). In principle, this simplification should allow parties to focus more effectively on the core elements of the transaction – the specific risk of the borrower and the institutional efficiency of the lender.
The emerging global currency zone is not defined geographically, but by the elements of national economies that are internationally integrated; foreign exchange costs and currency risks will decline with increasing GL$ adoption. An equilibrium will be established between GL$ and local currency use in accordance with the efficiencies to be gained within the international (or near-international) sector. In this way, the Global Dollar promises a revolution in monetary affairs that has real economic value.