Overcoming the Notion of a Single Reference Currency: A Currency Basket Approach

¹ The concepts developed in this discussion, including the notion of
customized currency baskets, except for the Global Reserve Currency Index
(GRCI), have been developed and presented by Giuseppe Ballocchi at a number of
conferences over the years. Hélie d’Hautefort is the creator of
the GRCI. See also Ballocchi (2008).

² The functions of money were first described by William Stanley
Jevons, a British economist (Jevons 1875).

³ The “streetlight effect” refers to an old joke: A
police officer sees a drunk man searching for something under a streetlight
and asks him what he is looking for. The drunk says he has lost his keys, and
the two men look under the streetlight together. After a few minutes, the
officer asks the drunk if he is sure he lost his keys here, and the drunk says
no, he lost them in the park. The policeman asks why he is searching here, and
the drunk replies, “This is where the light is.”

⁴ For the dollar’s replacement of the pound sterling as the
world’s reserve currency, see Chitu, Eichengreen, and Mehl (2014);
Eichengreen and Flandreau (2009 and 2012); and Eichengreen (2011).

⁵ They have also been recently introduced in crisis-stricken
eurozone countries, such as Cyprus and Greece.

⁶ For central banks, Gintschel and Scherer (2004) advocate a dual
benchmark optimization approach for wealth and liquidity
preservation.

⁷ See www.bis.org and www.imf.org.

⁸ Currency basket indexes have been proposed recently by other
authors. To our knowledge, the GRCI, introduced in 2009, was the first. The GRCI
was developed in response to investor demand for an independent and objective
store of global wealth, capable of withstanding currency turmoil and
depreciation. It is also used as the reference for recently launched
Globcoin^® multi-currency accounts. Reserve Currency Solutions
owns the intellectual property underpinning the GRCI and produces and maintains
the index.

⁹ The performance hedged into the GRCI is calculated daily as the
sum of the performance of the S&P 500 and of the GRCI itself, both expressed
in US dollars. It corresponds to an investment in the S&P 500 together with
a foreign exchange overlay into the GRCI (short the US dollar and long the GRCI)
for the full amount invested into the S&P 500.