It is absurd to try to store value in units of money the value of which changes erratically. The standard objection to all plans to eliminate inflation has always been that they are 'politically impossible' to implement. It must therefore be important to preserve, wherever possible, all that is familiar. With the Commodity Pound, the public are already accustomed to the retail price index, and would have nothing else to get used to except the absence of inflation as measured by the index.
Commodity Pound notes would be guaranteed redeemable so as to enable the purchasing in the market of the bundle of goods defined to be the fixed value of the notes given up.
Notes bought by the authorities when the index is above one would have to be taken out of circulation; when the index is below one they would have to be be returned to circulation through relief of taxation or by the purchase from the public of bonds. Although this system would have nothing at all to do with gold, the analogy with the gold standard is exact.
Exchange rates between national currencies all based upon different commodity standards would be no more and no less stable than relative costs of production of the different commodity standards, that is to say, infinitely more stable than at present.
Ivor Pearce, Professor of Economics, University of Southampton, University Rd, Southampton SO9 5NH (tel 0703 595000).