By Michael J. Casey
Under [Jesper Toft’s Global Currency Union] plan, the two parties in a cross-border transaction will still do business in their home currencies but their contract will be denominated in “global currency units” whose value is determined by a unique index key based upon a weighted basket of currencies. Because of the counterbalancing and risk-spreading qualities in the currency relationships within that basket, the index key sharply lowers the prospective exchange rate volatility for the two parties to the contract. In other words, it allows firms to forget about the risk of big currency losses and focus on doing business with each other………
via FX Horizons: Danish Businessman Quietly Seeks FX Revolution – WSJ.com.
“….weighted basket of currencies” may be OK while the breeze is favourable, but there is the suspicion that it will have the same inherant faults as the Euro built in……..traders and speculators would be gaming the system and ultimately the “smart money” would be writing trade contracts in alternate units……possibly the stronger, or safe haven currencies at that time.