Money should function as a medium of exchange, a unit of account, a store of value, and a standard of deferred payment, but the world has become used to money that performs these functions poorly. We work with many different currencies, none of them a reliable measure of any particular type of value. The value of conventional fiat money emerges from a complex system of expectations, but it is momentary and essentially unpredictable. The apparent stability of national currencies is largely a product of ‘price stickiness’, but this is itself an indication of persistent economic distortion.

We do not yet have a unit that refers to a known equivalent financial value in the future. The concept of ‘equivalent financial value’ relates to opportunity cost. An efficient investment position will give an economic return through time, so that a dollar today is worth more than a dollar next year. Arriving at an objective standard for such a position is no simple matter. Central bank interest rates are often used by default, but this involves speculation on a single currency and its rates. It is also misleading if our standard is to reflect, as it should, the neutral wealth-preserving position of an informed international investor.

The rewards for establishing this standard are significant. A monetary unit based on it has the peculiar quality of maintaining equivalent financial value through time, making ‘time value of money’ calculations redundant. The value of the currency itself will deliver a reasonable rate of return and preserve financial wealth, neatly addressing all of the main functions of money. This kind of money also has the advantage of linking the basic rate of return to actual investment activity, an important economic signal that becomes lost in the noise of monetary policy.