ABSTRACT
In the world of floating exchange rates there is no God-given numeraire, and if there is great monetary uncertainty in the reserve-currency countries, there may be no suitable numeraire for speculative transactions. This chapter concerns the problem of choosing the speculative numeraire. Traded goods are those which enjoy low transport costs relative to unit value and which therefore sell at similar prices in different national markets. The proportions in which the different categories of traded goods, each with their own currency numeraire, are represented in exports from and in imports to a country usually differ. Most European countries are substantial net importers of primary commodities, including oil, which have numeraires heavily weighted towards the US dollar. Numeraire construction for each commodity category requires an estimate to be made of net demand responses in different countries to a change in its price. The US dollar should itself receive a heavy weight in the selective index of the US dollar.
