Foreign Exchange Reserve Union

John Maynard Keynes and E.F. Schumacher conceptualised and proposed a supranational currency, the Bancor, and the International Clearing Union in 1942. The theory behind their proposal is different from the result, i.e., the US dollar standard supported by the establishment of the World Bank and the IMF.

After Trump administration gave up the global leadership, there is little incentive for developing countries to follow the US dollar centric forex reserve system. Instead, those countries which do not enjoy seigniorage by funding IMF but their currencies are not included in SDR basket, started pointing out the unfairness of the current system.

In order for the CBDC platform can be most effective, there needs to be a fairer exchange mechanism between each fiat currency. This is especially true for those developing countries whose GDP and the money circulation is relatively small as the cost of exchange is inversely correlated to the size of GDP or international trades.

One solution for those developing countries to keep seigniorage and gain an economy of scale, is a foreign exchange reserve union. GVE is developing fairer reserve union which might be attractive to those countries.