Nugget. A Gold--Weight--Anchored Unit of Account for International Settlement

Abstract

Background:For more than four decades, international and supranational bodies have relied on artificial units of account rather than on national currencies to denominate budgets, bonds, and contracts. The earliest of these instruments, the Unit of Account (UA) of 1955 and the European Monetary Unit of Account (EMUA) of 1973, were defined as a fixed weight of fine gold, \SI{0.88867088}{\gram}, identical to the gold content originally underlying the par value of the US dollar.Material and methods:Following the collapse of the Bretton Woods gold-dollar peg in 1971 and the transition to floating exchange rates, a fixed-gold-weight unit of account lost its practical anchor and was replaced, in 1979, by the European Currency Unit (ECU), a composite basket of the currencies of the European Communities. The ECU was in turn replaced, at par, by the euro in 1999. This paper revisits the historical rationale for abandoning gold-weight-defined units of account and asks whether a modern, purely notional gold-weight unit could recover the stability such units were designed to provide, without reproducing the practical failure that led to their abandonment.Results:We introduce such a unit, provisionally named the Nugget, defined strictly as a quantity of fine gold and expressed hierarchically (Nugget, Gram-Nugget, Kilogram-Nugget, Tonne-Nugget) analogous to the metric system. Unlike a classical gold specie or bullion standard, the Nugget requires no physical transport of gold between parties: it functions purely as a Rechnungseinheit (unit of account) into and out of which national currencies are converted at market-determined rates at the moment payment falls due. Conclusion:We discuss the resemblance of this construction to its 1955, 1973, and 1979 predecessors, the respects in which it differs from them, and the principal objection to any gold-weight-based unit of account, namely that a floating gold price reintroduces exactly the volatility that motivated the move to the ECU's currency-basket design.