For example, the dollar crashed 33.6 percent from July 2001 to December 2004. This crash meant that all financial markets denominated in dollars had to go up 50 percent just to stay even in terms of global purchasing power. Gold did better than keep pace, but all the dollar-denominated Dow did was climb back to the same level it was at in July 2001, which means that it actually lost 1/3 of its global purchasing power during this time.
Whenever the dollar rallies, the same forces move in reverse.
Why Use the Stable Currency Benchmark?
The SCB is like a new, super-stable currency. When
you see a change of value in something, many times the real change is not in the thing itself but
in the yardstick. Sometimes the only change
is in the yardstick.
The SCB solution
- Constancy. The SCB mitigates the fluctuations of ever-changing currency relationships, meaning that as a measure of value it is divorced from individual local currency swings.
- Stability in dire situations. The SCB creates a hypothetical basket of the currencies that together are likely to remain stable in adverse economic conditions.
- Uniformity. The SCB gives users a single unit of measure for valuing goods in any country, thereby reducing the need to convert currencies.
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