Worth noting that the dead baby value is very different from the actual amount which most Westerners regard the lives of white, middle-class people from their own country as being worth. In fact, pretty much the whole point of the statistic is that it's SHOCKINGLY low. I suppose we could hope that Dead Baby currency would result in a reduction to that discrepancy... although I think in the case of the actual example given, the Malthusians* have a point where it would dramatically increase access to life-prolonging things without increasing access to birth control much, resulting in more population and thus more people to save.
*To clarify: I actually agree with the Malthusian ecology- it's just a basic fact of ecology, I'm amazed that anyone seriously disagrees with it- but not to the objection to charitable donations on that basis; anyone who actually thinks that would go "you should instead give money to provide birth control".
If the demographic transition continues, I'm not too worried about Malthusian scenarios. It seems that people who are less worried about their children being wiped out by disease have fewer children.
Another option is interventions that improve lives without saving them, such as deworming.
From Yvain's 'proposal' to measure money in dead children:
This makes sense to me, to a limited extent. You can spend money for your own benefit or to help others elsewhere, and there really are people who wouldn't have to die if you would forgo some luxuries. Making this tradeoff more explicit ("we're looking for an apartment costing no more than six dead children annually") might lead some people to greater generosity. It's a way of abstracting compassion.
Two things worry me, though. The first is that there's a big focus on spending here [2], but increasing earnings deserves more focus: getting a raise or a new job that added $10K to my salary would let me keep more children from dying than would reducing my spending on myself to zero. [3] The second is that thinking of all your purchases in terms of dead children is likely to make you miserable. Not just that, but miserable to little gain: you still probably spend almost as much money on yourself, you just feel more guilty about it. Much better, I think, is to pick a rule for how much to give and then apply it to money as it comes in. That way each purchase has no effect on the number of deaths you're averting.
(Note: I also posted this on my blog)
[1] The current number is probably closer to $2K.
[2] Maybe this is because it sounds weird to talk about salary in terms of dead children? ("I wonder what job earns me the most dead children?") Perhaps for earning the unit should be the "undead child"?
[3] In 2011 Julia and I lived on $18K for the two of us, not including taxes or health insurance.