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

摘要

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.