Keynes Wasn't Wrong About Everything

Just most things. Still, let's revisit his bancor concept... with a twist.

Let’s give John Maynard Keynes his due: maybe he wasn’t wrong about everything. His vision for a global currency called bancor, which he proposed at the 1944 Bretton Woods conference, might have been a masterstroke.

But it was thwarted by a rising hegemon.

Envisioned as a neutral, supranational currency tied to a basket of stable commodities, the bancor aimed to stabilize global trade and curb economic imbalances. With the rise of BRICS, the dollar’s decline, and moving geopolitical fault lines, reviving this idea—but reimagined with distributed ledgers—could deliver a more resilient financial system.

The History

At Bretton Woods, global leaders shaped the post-war financial order. Keynes, representing a weakened Britain, proposed the bancor as a reserve currency managed by an International Clearing Union (ICU), pegged to commodities like gold, silver, iron, and copper to ensure relative stability. But the US, riding high on post-war dominance, had other ideas.

Harry Dexter White pushed the dollar, loosely gold-backed, to the center of the system. The bancor was sidelined, and global finance became tethered to America’s economy. This worked until the U.S. ditched the gold standard in 1971, leaving the world with a fiat dollar vulnerable to political whims and inflation.

The Cracks

In 2025, the dollar-centric system shows its cracks: Triffin’s Dilemma trade imbalances, currency wars, debt spending, and using sanctions as geopolitical cudgels. Some see the dollar-as-reserve-currency powers as features, not bugs. But these are mostly people who want to use the dollar to fight wars through non-kinetic means, or benefit directly from the Cantillon Effect.

A modern bancor could address such issues by pegging its value to a basket of stable commodities—gold, silver, iron, and copper—chosen for their universal demand, relative price stability, and relative geopolitical neutrality. The basket’s value, weighted by global consumption patterns and updated periodically, perhaps algorithmically, could defend against inflation and manipulation.

But unlike Keynes’s ICU concept, an intermediary that risks political capture, a blockchain-based system could help to ensure transparency and trust.

The Ledger

Imagine a decentralized ledger, publicly auditable, where banks and financial institutions run nodes to validate transactions. The bancor’s value, calculated as a weighted average of commodity prices (e.g., 20% gold, 30% oil, 20% wheat, 20% copper, 10% silver), would be managed by smart contracts. Real-time price feeds from trusted oracles would adjust the bancor’s value automatically, while settlements occur without intermediaries.

Multi-signature governance, requiring consensus from diverse global stakeholders, would handle updates to the commodities basket, and regular audits of physical commodity reserves would maintain credibility. This blockchain approach—secure, transparent, and resistant to unilateral control—replaces the ICU’s vulnerabilities with code-driven accountability.

Arguably, it replaces the need for central banks, as the value of the bancor would depend on the value of real-world goods, and the price of credit would be determined by lenders in a competitive market.

The Critics

Critics might argue that commodity price swings or global cooperation hurdles make this impractical. A blockchain-based system, while not perfect, mitigates these risks through decentralization and transparency, unlike fiat systems prone to speculative bubbles and debt spirals.

Otherwise, it’s interesting that the biggest criticisms are likely to come from (drum roll, please)… Keynesians.

Consider the following points, with my response in italics:

• Commodity backing. Tying money supply to physical commodity reserves inherently limits expansion, creating scarcity-driven deflationary pressure as economies grow faster than commodity supplies.

"[S]carcity-driven deflationary pressure" is actually sound money forcing the economy toward genuine productivity gains rather than unsustainable fiscal policy and artificial inflation. Economic growth should come from increased production and efficiency, not monetary expansion that distorts price signals and creates malinvestment.

• Gold standard parallels. This recreates many problems of the classical gold standard, which was abandoned because it prevented monetary authorities from responding to economic downturns with necessary liquidity expansion.

The gold standard wasn't abandoned due to inherent flaws. Instead, demand for redeemable gold outstripped the supply. Plus, government wanted the power to inflate away their debts and finance wars through monetary expansion. The need for "liquidity expansion" during downturns prevents necessary market corrections and prolongs necessary economic adjustments. The *lender of last resort*

• Procyclical effects. During recessions when commodity demand falls, the bancor's value basis would contract exactly when expansionary policy is needed, amplifying downturns.

Downturns, even amplified ones, are the market's natural self-correcting mechanism for clearing out malinvestments and misallocated resources. Expansionary monetary policy during recessions merely postpones inevitable adjustments while creating bigger bubbles and more severe corrections later. Monetary Keynesianism is can kicking.

• Hoarding incentives. A currency expected to appreciate due to supply constraints encourages saving over spending, reducing aggregate demand.

All hail J.B. Say. Increased saving—"hoarding"—provides the capital necessary for genuine investment and production expansion. Artificially stimulating consumption through monetary expansion creates unsustainable boom-bust cycles by encouraging present consumption at the expense of future productive capacity.

This system would not be perfect.

Of course, such a system is not without serious design and governance challenges. I still hesitate when it comes to potential criticisms, such as how to deal with liquidity crises and bank runs; whether distributed ledgers and oracles are resilient enough to ensure price integrity under stress; and whether setting algorithms or choosing a commodities basket can ever be truly apolitical, even in a decentralized framework. I also worry that month-to-month price volatility could frustrate the use of a commodities basket as a realistic unit of account, even though purchasing power would be far better than the USD, which has lost half its value in the last quarter century.

To be honest, I’m probably out over my skis attempting to write about such a complicated state of affairs. But, despite my relative ignorance, something’s got to give when it comes to the Bretton Woods/Fed status quo.

The Preppers

F.A. Hayek has persuaded me that a fully decentralized, free market in currencies might be the best system thanks to a market’s inherent discovery mechanisms. Still, the dollar’s faltering dominance and the Fed’s ongoing shenanigans invite a monetary rethink—a new Bretton Woods. Perhaps such a system will emerge and evolve from a thousand experiments, rather than the designs of central monetary powers.

In any case, a Big One is coming. We have to prepare for it—including life before, during, and after.

The rising BRICS system represents a real threat to the dollar, beyond the currency’s endogenous problems. A blockchain-backed bancor could stabilize trade, reduce reliance on any single government’s fiat currency, and foster more trust in a multipolar world.

Keynes’s bancor was buried by American hegemony, but its core—a currency rooted in real value—is at least an interesting thought experiment. By marrying Keynes’s vision to a heavy dose of decentralization, the result could be a financial system that is better protected from the machinations of the powerful.