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Overcoming the Notion of a Single Reference Currency: A Currency Basket Approach

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Wealthy families with a global footprint have liabilities and financial objectives in multiple currencies. To manage their currency risk, it is necessary to abandon the notion of a single reference currency in favor of a customized basket of currencies. We introduce the Global Reserve Currency Index, a useful proxy for the world currency.


  1. 1 The concepts developed in this discussion, including the notion of customized currency baskets, except for the Global Reserve Currency Index (GRCI), have been developed and presented by Giuseppe Ballocchi at a number of conferences over the years. Hélie d’Hautefort is the creator of the GRCI. See also Ballocchi (2008).

  2. 2 The functions of money were first described by William Stanley Jevons, a British economist (Jevons 1875).

  3. 3 The “streetlight effect” refers to an old joke: A police officer sees a drunk man searching for something under a streetlight and asks him what he is looking for. The drunk says he has lost his keys, and the two men look under the streetlight together. After a few minutes, the officer asks the drunk if he is sure he lost his keys here, and the drunk says no, he lost them in the park. The policeman asks why he is searching here, and the drunk replies, “This is where the light is.”

  4. 4 For the dollar’s replacement of the pound sterling as the world’s reserve currency, see Chitu, Eichengreen, and Mehl (2014); Eichengreen and Flandreau (2009 and 2012); and Eichengreen (2011).

  5. 5 They have also been recently introduced in crisis-stricken eurozone countries, such as Cyprus and Greece.

  6. 6 For central banks, Gintschel and Scherer (2004) advocate a dual benchmark optimization approach for wealth and liquidity preservation.

  7. 7 See www.bis.org and www.imf.org.

  8. 8 Currency basket indexes have been proposed recently by other authors. To our knowledge, the GRCI, introduced in 2009, was the first. The GRCI was developed in response to investor demand for an independent and objective store of global wealth, capable of withstanding currency turmoil and depreciation. It is also used as the reference for recently launched Globcoin® multi-currency accounts. Reserve Currency Solutions owns the intellectual property underpinning the GRCI and produces and maintains the index.

  9. 9 The performance hedged into the GRCI is calculated daily as the sum of the performance of the S&P 500 and of the GRCI itself, both expressed in US dollars. It corresponds to an investment in the S&P 500 together with a foreign exchange overlay into the GRCI (short the US dollar and long the GRCI) for the full amount invested into the S&P 500.

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About the Author(s)

Giuseppe Ballocchi, CFA
Giuseppe Ballocchi CFA

Giuseppe Ballocchi most recently served as the head of financial engineering and risk analytics at Pictet & Cie in Geneva, Switzerland. He also lectures at the University of Lausanne, where he is a member of the Steering Committee of the Master in Finance. He also serves as a foreign exchange advisor to a microfinance fund. Previously, he was chief investment officer at Olsen Ltd, a fixed-income manager at the Asian Development Bank in Manila and a high-energy physicist at CERN. Mr. Ballocchi served two terms as chair of the Audit and Risk Committee of the CFA Institute Board of Governors and is a past president of the Swiss CFA Society, where he also served as chair of continuing education and university relations. He has been a CFA exam grader, served on the Executive Advisory Board of the Education Advisory Committee of the CFA Institute and on the Annual Conference Committee, and was on the Board of Regents of the Financial Analysts Seminar. Mr. Ballocchi holds a laurea (MS) in physics from the University of Bologna (Italy), an MBA from the Open University (United Kingdom), and a PhD in high-energy physics from the University of Rochester (United States). He is the author of 30 academic publications in physics and finance, and served as adjunct professor at the University of Genoa (Italy).

Hélie d’Hautefort

0.5 CE

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Additional Information

Published by The CFA Institute Research Foundation

20 pages


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