Title: Viability of oil as commodity money and international unit of account for global payment: an empirical study on US data

Authors: Osman Sayid Hassan Musse; Ahamed Kameel Mydin Meera

Addresses: Faculty of Economics and Muamalat, Islamic Science University of Malaysia, Bandar Baru Nilai, 71800, Nilai, Negeri Sembilan, Malaysia ' Department of Finance, Kulliyah of Economics and Sciences, International Islamic University Malaysia, Jalan Gombak, 53100, Kuala Lumpur, Malaysia

Abstract: The purpose of the study is to investigate the suitability of oil-backed monetary system as an alternative to fiat money and particularly to act as a just and reliable international unit of account for global payments in order to overcome the problems of fiat money. The study applies coefficient of variation to determine the volatility in the prices of the selected commodities under oil-backed and fiat monetary systems. The study also uses standard deviation to measure price stability under the proposed and the current monetary systems. The findings indicate that the oil-backed monetary system has experienced high volatility in the prices of the selected commodities in relation to fiat monetary system. This is mainly because oil is a consumed commodity with a high global demand and frequent supply shocks. Thus, this study concludes that oil-backed monetary system lacks stability and does not offer a just and reliable international unit of account for the global payments.

Keywords: oil-backed monetary system; fiat monetary system; international unit of account; commodity money; global payment systems; oil; price stability; price volatility; commodities; supply shocks.

DOI: 10.1504/MEJM.2015.072476

Middle East Journal of Management, 2015 Vol.2 No.3, pp.231 - 239

Received: 23 Feb 2015
Accepted: 19 Apr 2015
Published online: 14 Oct 2015 *

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