Bancor: Keynes's Proposed International Currency

The bancor was economist John Maynard Keynes’s proposed supranational currency, presented at the 1944 Bretton Woods conference. Instead of one nation’s currency (the US dollar) dominating global trade and reserve holdings, Keynes envisioned a neutral, internationally-managed currency that would smooth trade imbalances, prevent deflationary crises, and distribute the burden of adjustment fairly between creditor and debtor nations.

The Problem Keynes Was Solving

In 1944, with World War II still raging, the Allies met at Bretton Woods, New Hampshire, to design a new international monetary order. The pre-war system — built on the gold standard and sterling’s dominance — had collapsed in the 1920s and 1930s, spawning competitive devaluations, trade wars, and ultimately the Great Depression.

Keynes, representing Britain, was acutely aware that the old system had structurally favoured creditor nations (those with trade surpluses) and punished debtor nations. When a country ran a trade deficit and its gold reserves dwindled, it faced forced deflation: prices and wages fell, unemployment rose, and imports became less affordable. But a surplus nation could simply accumulate gold and let its economy overheat. The deficit nation bore all the painful adjustment.

Keynes worried this asymmetry would reassert itself after the war, leading to economic instability and, eventually, another depression. He proposed a solution: a supranational clearing currency that would enforce symmetry — requiring both surplus and deficit nations to adjust.

How Bancor Would Work

Keynes envisioned an International Clearing Union (ICU) that would issue bancors, a abstract unit of account backed by a basket of national currencies and commodities. Each central bank would hold bancor accounts at the ICU. When Country A needed to import from Country B, it would pay in bancors; the ICU would record the transaction and manage the settlement.

Crucially, the bancor would not be convertible to gold or any single currency. Instead, it would exist as an accounting unit within the system. This prevented any single nation from acting as the reserve-currency issuer and earning exorbitant privilege. The ICU would manage the value of the bancor and enforce discipline on members.

The key innovation was the symmetry mechanism. A nation that ran persistent trade surpluses would accumulate large positive balances in bancors, which would trigger automatic pressure to revalue its currency, reduce export subsidies, or increase imports. Similarly, a deficit nation would face pressure, but through a negotiated facility rather than forced deflationary austerity. Both would adjust, neither would suffer alone.

To make this palatable, Keynes included “overdraft facilities” — essentially IMF-like credit lines — that would allow deficit nations to smooth temporary imbalances without immediate deflation. This was radical: it enshrined the principle that trade deficits are not always a disaster and that creditor nations have obligations, not just debtor nations.

Why the US Rejected It

The US delegation at Bretton Woods, led by Harry Dexter White, rejected the bancor. Instead, they proposed — and imposed — a dollar-centric system: the Bretton Woods Agreement, in which the US dollar would be convertible to gold at a fixed rate ($35 per ounce), and all other currencies would peg to the dollar. The dollar would function as the reserve currency, the standard by which all other currencies measured themselves.

Why did the US reject a more symmetrical system? Several reasons:

Power asymmetry. The US emerged from the war as the world’s undisputed economic and military powerhouse. It held most of the world’s gold reserves and wanted to leverage that strength. A supranational currency and ICU would dilute that leverage.

Monetary sovereignty. The US wanted to retain the ability to print dollars and conduct monetary policy without international oversight. A globally-managed bancor system would constrain that freedom.

Practical complexity. The bancor was an elegant concept, but implementing a neutral, internationally-managed currency proved daunting. By contrast, pegging to the dollar — already a globally-accepted currency — was simpler and required less institutional innovation.

British weakness. Keynes and the UK had little bargaining power. Britain was exhausted from war, deeply indebted, and dependent on US aid. The US simply said no, and the UK, unable to resist, accepted the dollar-centric order.

The Dollar-Centric Outcome

The actual Bretton Woods system (1944–1971) made the US dollar the global reserve currency, granting it the exorbitant privilege that Keynes had sought to prevent. The US could run deficits, print dollars, and finance its wars and social spending; other nations had to adjust. It worked for two decades, but by the late 1960s, deficits had accumulated and other nations wanted to cash in their dollars for gold. The system collapsed in 1971 when the US abandoned gold convertibility.

Bancor Redux: SDRs and Modern Proposals

The International Monetary Fund, established at Bretton Woods, later created a partial substitute for the bancor: Special Drawing Rights (SDRs), a supranational accounting unit backed by a basket of major currencies. SDRs are used among central banks for certain transactions but remain a secondary instrument, not a true global reserve currency.

After the 2008 financial crisis and amid calls to reform the international monetary system, economists and policymakers revived Keynes’s ideas. The Governor of the People’s Bank of China, in 2009, explicitly called for a supranational currency akin to the bancor. Keynes’s principle — that an international monetary order should distribute adjustment burden fairly — regained attention.

Some modern proposals for a global digital currency or a supranational cryptocurrency echo Bancor’s vision: a currency no single nation controls, backed by algorithms or treaties rather than power, and designed to prevent the asymmetries that plague dollar dominance.

Why Bancor Remains Unrealised

The bancor has never been adopted, nearly 80 years after proposal. Why?

Power remains unequally distributed. Just as the US rejected the bancor in 1944, dominant powers have consistently resisted surrendering monetary privilege to international institutions. China, India, and the EU might all benefit from a supranational system, but none has the leverage to impose it while the US retains dollar dominance.

Institutional barriers. Creating a truly neutral global authority to manage a world currency proved technically and politically harder than imagined. National governments jealously guard monetary policy. Asking them to cede control to an ICU was (and remains) politically infeasible.

Dollar path dependency. Once the dollar became the global standard, inertia took over. Trillions of contracts, debts, and reserves are denominated in dollars. Switching to a new system would impose enormous transition costs. The status quo, however imperfect, persists.

Lack of consensus on fairness. What constitutes “fair” adjustment is contested. Keynes’s vision was appealing, but implementing the mechanisms to enforce symmetry has never been achieved.

The Bancor’s Enduring Insight

Though never implemented, the bancor encodes an enduring truth: reserve-currency systems concentrate power in one nation and can lead to instability when that nation abuses its privilege. Keynes’s vision of a neutral, symmetric, internationally-managed currency remains conceptually sound — an alternative to the current order in which the US enjoys exorbitant privilege and other nations resent it.

Modern debates about de-dollarisation, emerging-market currency blocs, and supranational digital currencies are, in essence, echoes of Keynes’s 1944 argument. The bancor was not implemented, but its spirit haunts discussions of global monetary reform. If ever a coalition of nations with sufficient economic weight seeks to reshape the international monetary order, they will find Keynes’s blueprints waiting.

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