This is currently, a gedanken experiment, but may well form the basis of a whitepaper - or better still, an actual project.
I am trying to come up with a practical way of creating a "currency index/basket" (of sorts) between a set of countries who want to form some kind of (geo?)political alliance, but currently, have their own currencies.
The idea is that if a freely convertible currency exists (ignore who "controls" the currency - for the purposes of this thought experiment), then the countries in the "allowed set" can freely interchange between each others currencies - without having to go through the Dollar, EUR, Reminbi or other external currency first.
The thinking is very much along the lines of the Euro (although the constituent countries need not be restricted to the same geographic zone in my case).
So, here are the salient points:
- A set of independent sovereign states exist, and they would like to increase trading amongst themselves
- Currently intra-set trading involves triangulation involving one of the majors.
- Wish to create an index that is effectively a weighted index of the currencies within the aforementioned set
- The index should be pragmatic, and ideally take into account inputs that affect people on the ground (i.e. cost of a basket of household items, factory inputs, market price of any natural resource that forms a portion of GDP revenue for the country etc. - rather than things like M1,M2 and M3)
- The index should be something that can be calculated on a daily basis - so the value can be set at the beginning of the day (akin to London metals price fixing - or indeed the fixing of LIBOR rates at the beginning of the day)
My questions are this:
- What would be suitable inputs to capture (on a daily basis)?
- How can these inputs be weighted to create the currency index? (i.e. suitable methodology etc).