Money has been the acceptable means of economic exchange ever since our forebearers moved from the bater system.
The first known form of currency was the metal coin made of bronze and copper and invented in China thousands of years ago. Later, when precious metals like Gold and silver were discovered, coins were made from them. Coinage first emerged from the Roman Empire, stamped coins were invented and used to pay armies. They usually had the embossed image of the emperor. Much later, paper currency came into being (also invented in China).
Currently, all countries of the world use one form of paper currency or the other. The popular ones are the US Dollar, British pounds, the Euro, Chinese yuan etc.
Various countries use money to trade with one another but it became a little complicated to trade in several currencies hence the need for countries to have one or two reserve currencies with which they could trade with one another. A few countries have a basket of such (where they maintain several reserve currencies)
The United States dollar has been the world’s primary reserve currency for some time now. Under the World Bank aka Bretton Woods system, when the dollar was pegged to gold and most other currencies were pegged to the dollar. As a result of this, the dollar was used as the main intervention currency.
The Bretton wood system/ gold standard was abandoned in 1971 when President Richard Nixon’s administration ended the practice. The value of the US dollar then went into freefall as inflation soared. To save the American economy, the petrodollar was created through a deal between the US and Saudi Arabia. The country agreed to price its oil in US dollars and in turn, the United States promised to protect them with its military might.
With oil standardized dollars, any country that purchased oil from Saudi Arabia (the world’s largest producer of Crude Oil) would have to use dollars. This led many other oil-producing countries to also standardize oil prices in US dollars. This gave the US dollar the dominance it has today.
The use of the petrodollar system is slowly coming to an end as more countries are opting to deal in other currencies. Strained international relations with major oil producers like Iran and Russia are leading these countries to reconsider their dependence on the US dollar.
With the Russian- Ukraine war, Russia began selling its oil in Russian Rubles. Recently due to strained relations with the US as an aftermath of the killing of Jamal Khashoggi, the Saudi dissident journalist by suspected Saudi assassins, the Saudi government has threatened to abandon petrodollars.
African countries like Nigeria which are heavily dependent on the Western world are still tied to the dollar and it remains the nation’s only reserve currency (even though there had been talks to add the Euro and the Chinese Yuan to form a basket of reserve currencies).
Little wonder why our focus in Nigeria remains the exchange rate of the dollar to the Naira; our trade reserves are domiciled in dollars (the world’s reserve currency).
#MEMBA11 #The Benjamin
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