World currency unit

Key takeaways

World currency unit belongs to science; place it in that map before memorising details.
Learn the definition first, then one example that makes the definition concrete.
Connect World currency unit to a quantity you can measure, compute or draw — that is where exam questions come from.
Reproduce the core statement of World currency unit from memory before moving on to harder problems.

Reference excerpt

There are two different types of world currency unit in use today that have different origins and usages.

History The WCU was proposed by Lok Sang Ho of Lingnan University, Hong Kong. The WCU was first intended to be the basis for denominating global bonds, a debt instrument that is issued globally and is subscribable by people and institutions around the world. Simply put, it is a GDP-weighted basket of key currencies each of which is indexed against inflation for the relevant countries. The WCU is defined with respect to a base year, so that each unit represents the same global purchasing power as at that base year, when it is equal to US$1. If there is inflation, the WCU will be worth more than $1 after the base year, but will represent the same purchasing power. The unindexed basket, called the benchmark basket of key currencies, is the basis for the derivation of effective exchange rate indices that has been demonstrated to be both easy to compile and superior to most official effective exchange rate indices. Rhett Morson has advocated the Standard Earth Monetary Unit (SEMU) since 1998 and continues to argue in support for it. However, it is not practicable to introduce it in one step for political reasons and so the preferred method of introduction is for countries to gradually move their currencies closer or in some cases to adopt another country's currency as a series of steps inching closer to the SEMU. Examples could include countries that have already adopted the US dollar as their currency or Australia and New Zealand joining forces or Pacific Islands adopting a larger country's currency. Ideally, the SEMU would coincide with trade barriers being removed and international laws moving into alignment.

How it works Today, there are two distinct products which have adopted the name "world currency unit".

WOCU The WOCU (contraction of "world currency unit") is a standardized basket of currencies — the national currencies of the 20 largest national economies measured by GDP, established in 2008. The basket is reweighed semi-annually according to the relative growth of the economies, whereby constituent currencies are replaced by other currencies should the size of the GDP be overtaken by that of another national economy. Conceived as an apolitical and global alternative to the ECU, it is used as a reference currency for global investors and companies seeking to mitigate bilateral exchange rate volatility. The WOCU offers a transparent, relatively stable currency quotation as a hub currency reference for cross border trade to reduce volatility and risk. It reacts to the economic growth and decline of constituent country economies, adjusting the prominence of their respective currencies. The WOCU is outputted in up to real time, in sub second updates. Input FX data is sourced from global aggregated FX data providers. Countries within the Eurozone (those that have replaced their national currencies with the Euro) are treated as individual countries in the WOCU weighting calculation. This means that some countries within the Eurozone are included, such as Germany, whilst others are excluded, such as Ireland, purely on the basis of that country's top 20 GDP qualification or disqualification. The GDP values of each country issued by the International Monetary Fund in its World Economic Outlook forecast are reviewed as these figures become available and a biannual re-weighting of the benchmark basket performed. This means that the member countries included in the basket, and therefore their currencies, may change up to twice a year either by the weighting for their currency being adjusted (up or down) or by their fiat currency being promoted into or demoted out of the basket. This generally results in the basket consisting of 15 separate currencies, the Euro currency being common to normally 6 nation states included in the WOCU basket. Review and approval of weighting adjustments is subject to a confirmation process overseen by the WOCU Oversight Committee, a body consisting of a majority of independent persons qualified and authorized to approve or reject any change to the constitution of the WOCU. In the circumstance of a reweighting where a country changes its currency, the replacement country currency FX data will form exactly the same proportion of the WOCU and the former currency will be dropped (or reduced in the case of the Euro) in the same proportion at the same time that the relevant country officially introduces its new currency, which shall be assessed and approved by the WOCU Oversight Committee. The WOCU is used to price commodities such as bunker fuel and as a reference currency for global investors and companies seeking to mitigate bilateral exchange rate volatility. In early 2019, Unite Global AS, a Norway incorporated provider of a Correspondent banking hub platform for cross border banking payments and real-time settlement revealed it was in discussions for the issuance and distribution of WOCU currency.

… excerpt ends here. Continue reading the full article.

Worked examples

Example 1 — a first encounter with World currency unit

Start with the simplest possible case. Write down what World currency unit claims or describes in one sentence, then invent the smallest concrete situation in which that sentence is true. In science, the smallest case is usually a single object, a single equation or a single measurement. Check that every symbol or term in your sentence has a meaning in that case.

Example 2 — changing one variable

Take the situation from Example 1 and change exactly one quantity: double it, halve it, or set it to zero. Predict what should happen to World currency unit before you calculate. Comparing your prediction with the result is the fastest way to find out whether you understand the idea or only the words.

Example 3 — an exam-style question

Typical questions about World currency unit ask you to (a) state it precisely, (b) apply it to given data, and (c) explain a limitation. Practise writing all three answers in under five minutes; the third part is what separates a full-mark answer from an average one.

Applications of World currency unit

In research: World currency unit appears in science research whenever the underlying quantities have to be modelled precisely. Papers usually cite it as a starting assumption and then explore where it breaks down.
In technology and industry: Engineering practice reuses World currency unit in design rules, simulations and safety margins. Knowing the idea lets you read a specification sheet and understand why the numbers look the way they do.
In the classroom: World currency unit is common in secondary-school and first-year university syllabi. It links to neighbouring topics Monetary economics, Proposed currencies, so understanding it makes those chapters shorter.
In everyday life: Look for World currency unit outside the textbook — in sport, cooking, traffic, electronics or the sky above you. An example you found yourself is remembered far longer than one you were given.

How to study World currency unit in 20 minutes

Read the reference excerpt below once, without taking notes.
Close the page and write down what World currency unit means in your own words.
Compare your version with the excerpt and mark what you missed.
Work through the three examples above with pen and paper.
Explain World currency unit out loud to somebody else — or to Teacher Smith in the lgStudy chat.

Frequently asked questions

What is World currency unit in simple terms?

There are two different types of world currency unit in use today that have different origins and usages. History The WCU was proposed by Lok Sang Ho of Lingnan University, Hong Kong.

Why does World currency unit matter?

Because it connects several science ideas at once: it gives you a definition you can apply, a quantity you can calculate, and a way to check whether a result is plausible.

How should I study World currency unit?

Read the excerpt, restate it from memory, then work through the examples and applications listed on this page. The five-step study plan above takes about twenty minutes.

What does this page cover?

It gives you a compact reference excerpt plus original lgStudy explanations, examples, applications and study material on World currency unit.