How We Choose SCB Currencies
The Stable Currency Benchmark comprises equal-value portions of four currencies:
- the Swiss franc
- the Singapore dollar
- the New Zealand dollar
- the U.S. dollar
The SCB is rebalanced to equal-value portions on the last trading day of each calendar quarter.
How did we choose these particular currencies?
Each currency is the most attractive one within its global financial quadrant Europe-Africa, Asia, Oceania and the Americas from the standpoint of political and fiscal stability. To arrive at the safest and most stable currency in each of those quadrants, EWI analyzed each issuing country based on:
- The liquidity of its banking system
- Its national savings rate
- Its central bank's integrity and transparency
- The history of its legal system
- The extent of its political neutrality
- The degree to which it is isolated geographically
- Its prospects for inflation
- Geographical detachment from the other selections
EWI further strives to include currencies from countries that are geographically detached from each other.
Why is it important to include four currencies?
The point of the SCB is to create a measure that reflects stable global purchasing power. When one currency is weak, the others will usually be strong. So fluctuations tend to cancel one another out, leaving a consistent and stable global benchmark of value. In a sense, money managers, hedge funds, international banks and global citizens now have their very own currency. So does everyone else who is afraid of losing value in his or her home currency.
Special note on the U.S. Dollar
The dollar is a necessary component of the SCB primarily because it is the stabilizing factor relative to the other three components. The U.S. dollar is currently the world’s reserve currency, and when it rises, other currencies mostly fall, and when it falls, other currencies mostly rise. Without the dollar in the SCB, it would look almost the same as the Dollar Index but inverted, and it would thus have nearly the same level of volatility. The point of the SCB is to form a stable benchmark.
The SCB can satisfy the critics who have long complained that the dollar is an imperfect unit of account. Yet rather than replace the dollar with another wildly fluctuating single unit, such as the yen or the euro, the SCB does something far better: It uses a basket of currencies from four corners of the globe, carefully selected to provide net stability. As the best currency in its quadrant, the U.S. dollar is one of those currencies, but it is no longer the primary currency.
The EWI Stable Currency Benchmark is maintained by Elliott Wave International, an economic and market forecasting company.