In light of the announcements made by Brazil, Russia, India,
China, and South Africa (BRICS) challenging the supremacy of the US dollar, and
because the Jordanian dinar has been pegged to the dollar, many in Jordan have
expressed concern about the American currency. The debate regarding the dollar
as the world's reserve currency is global; therefore, it warrants some
discussion of the merits and demerits of such a claim regarding the dollar.
اضافة اعلان
Carl Menger, the founder of the Austrian Economics School of
Thought, once explained: "Money is not an invention of the state. It is not
the product of a legislative act. Even the sanction of political authority is
not necessary for its existence. Certain commodities came to be money quite
naturally, as the result of economic relationships that were independent of the
power of the state." So, yes — money was invented to replace the tiresome
barter system.
Since the 15th century (1450), there have been six major world reserve currency periods dominated by the currencies of the following countries: Portugal, Spain, Netherlands, France, Great Britain, and the US since 1921 as the world's major reserve currency.
Money also became a store of value (this is valued at so
much), a unit of account (Jane has so much), and a medium of exchange (I will
pay this for that product). Some money, or currencies, came to dominate the
world scene as a means of exchange. Since the 15th century (1450), there have
been six major world reserve currency periods dominated by the currencies of
the following countries: Portugal (90 years), Spain (110 years), Netherlands
(80 years), France (95 years), Great Britain (105 years), and the US since 1921
as the world's major reserve currency (typically defined as a strong currency
that is widely used in international trade such that a central bank is prepared
to hold as part of its foreign exchange reserve). The competitors to the dollar
are the euro, yen, and yuan.
Until the beginning of this century, the dollar made up
around 70 percent of the world's central banks' foreign reserves; currently,
the dollar is 59 percent of these reserves. Such a representation within the
coffers of central banks is due to several factors: The size of the US economy
(16 percent of the global economy) and its importance in international trade
(the US dollar is used in 84 percent of foreign trade); the convertibility of
the dollar; the use of the dollar as a currency peg (as in Jordan); and the US
domestic macroeconomic policies.
However, in recent years, there has been a 40 percent
increase in the US money supply to combat COVID-19, which led to the highest
inflation rates in almost half a century; there was a rise in the US public
debt to 119 percent of the GDP; and an aggressively deglobalizing US foreign
policy that produced sanctions on many countries. Altogether, these factors do
not present a stable view of the US.
On the other hand, the BRICS countries comprise about 32
percent of the global economy or twice the size of the GDP of the US. Should
other countries like Saudi Arabia, the UAE, Egypt, Turkey, Thailand, and
Indonesia join the BRICS countries, their size and scope (technology, markets,
raw materials, fuel, etc.) would grow considerably.
Jordanians need not worry; the BRICS will not be able to replace the dollar anytime soon. And given the size and mix of the basket of foreign currencies at the Central Bank of Jordan, the dinar has never been safer or more stable.
Moreover, the BRICS countries are discussing creating a fiat
currency to challenge the dollar. Given the political stability of the US, the
institutional mindset based on merit and achievements, the leading and safest
government bond market, the absence of capital controls, and a reputation for
enforcing the rule of law, a BRICS fiat currency will prove no match to the US
dollar. However, if the BRICS produce a currency that is backed by a commodity
such as gold (their gold reserves make up around 60 percent of the US gold
reserves), the new currency may pose a threat to the dollar's dominance.
In short, Jordanians need not worry; the BRICS will not be
able to replace the dollar anytime soon. And given the size and mix of the
basket of foreign currencies at the Central Bank of Jordan, the dinar has never
been safer or more stable.
Yusuf Mansur is CEO of the Envision Consulting Group and former minister of state for economic affairs.
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