Monday, 26 April 2010

SA would need no foreign currency to operate internationally

The world economy would function much better if we only had one currency: a universal unit of real value. The USD is used world wide as a proxy of that universal unit of real value - especially in countries with weak local currencies. The USD is the natural hard currency used by all countries in very high inflation and hyperinflation, like Venezuela at the moment.

It is interesting that countries like Zimbabwe regard it as impossible to function without access to foreign currencies, especially the USD.

The US does not need foreign currencies to function: they create the USD that is accepted universally as money.

Many people rant about the fact that fiat money has no intrinsic value. However, the value of any currency is backed by all the other underlying value systems in an economy; e.g. good governance, sound monetary policies, sound economic policies, sound industrial policies, sound mining policies, sound education, a sound legal system, sound justice, a sound defence force, a sound police force, sound health policies to name just a few.

If South Africa had very, very sound systems in all the above and all the other underlying value systems in the country, everybody would accept the Rand as means of payment all over the world. SA would not need any foreign currency to function internationally, just like the US. Very few people understand this.

Kindest regards

Nicolaas Smith

Copyright © 2010 Nicolaas J Smith