The Grondona System of Conditional Currency Convertibility Based on Primary Commodities

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Abstract

Taking a different approach to the problem, Leo St. Clare Grondona devised a system of conditional currency convertibility that individual countries can implement independently in terms of their own currency. For each of the durable, essential, imported commodities included in the system, instead of stipulating a price-range to be maintained, Grondona stipulated a “price-schedule” in which the price-range to be guaranteed for each commodity adjusts in proportion to the quantity of reserves held, falling as they rise and vice versa. In this way the maximum possible outlay that could be required, even under extreme market conditions, can be decided in advance. Consequently, a government establishing a Commodities Reserve Department (CRD) to implement such a system could legitimately pay for reserves through corresponding expansion of the national money supply, which would be reversed as and when the reserves were repurchased.

Publisher

IGI Global

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