Islamic gold dinar move sparks debate about legitimacy of dollar
The announcement last week by the Kelantan state government in Malaysia that it is introducing gold dinars and silver dirhams as legal tender alongside the Malaysian ringgit, is a damp squib of a failed attempt at financial UDI (unilateral declaration of independence).
Perhaps more importantly, it betrays the financial and monetary policy illiteracy which has been symptomatic of the ruling PAS administration since it won power at the state level in 1990. PAS is the Islamic Party of Malaysia which has a running battle with UMNO (United Malays National Organization), over who really represents the Muslims in the southeast Asian country. UMNO is the dominant party in Barisan Nasional, the coalition that has ruled Malaysia since independence.
The fact that PAS announced the introduction of the coins at the onset of the Muslim holy month of fasting, Ramadan, smacks of cheap political opportunism trying to ride on the emotional and religious sympathies of Muslims. Talk about a "Shariah currency" is as misinformed as it is inaccurate.
PAS would have had much more credibility had it tried to introduce the coins say in the immediate aftermath of the global financial crisis and its attendant credit crunch in 2008.
But then PAS like most Islamic parties including the National Salvation Party of Necmettin Erbakan and the party of Hassan Al-Turabi in Sudan have proven to be disastrous in power, partly because of an outdated and inflexible authoritarian and patriarchal view of the state and the dominance of men in power. PAS is the party that introduced religious apartheid in Kelantan where women have separate check-outs at supermarkets or Muslim women are spot-fined RM50 if they do not wear the hijab in public.
It is in the economic and financial policy sphere that Islamic parties, especially PAS, are so naive that a so-called Islamic gold dinar or Islamic finance is a panacea and would solve the problems of the world simply because of its faith-based philosophy and ethos.
However, it would be equally naive to suggest that PAS is the only party in Malaysia involved in the exploitation of Islam as a political tool, especially in the economic and financial space. UMNO itself is a past master in this.
The question of an Islamic currency is not new. In fact, there is already a functioning Islamic currency in place - the Islamic Dinar (ID), which is the unit of accounting of the Islamic Development Bank (IDB), the multilateral development bank (MDB) of the Muslim world. The ID is equivalent to one SDR (Special Drawing Right), the unit of accounting of the International Monetary Fund (IMF). The ID has successfully served the Muslim MDB since its establishment in 1975.
If Muslim countries want a unified currency, the ID of the IDB would be an ideal one to consider. However, as the problems related to the proposed monetary union of the GCC countries and the euro zone suggest, unified currency, whether a fiat paper based on gold or silver, is a highly complex issue especially in a globalized economy and financial system where the disparities in individual economies only serve to exacerbate these complexities. In the 57 countries this could be more true. Of the 56 IDB member countries, over 21 are classified as LDC (least developed countries) and, according to UN definitions, are some of the poorest countries on earth.
In the Malaysian context it is also not new. The governments of both Prime Ministers Mahathir Mohamed and Abdullah Badawi did toy with the concept of the Islamic Gold Dinar (IGD) to be used to settle accounts between participating Muslim central banks. One of the architects of the IGD concept, which is effectively a metallized version of the Bilateral Payments Arrangement (BPA) pioneered by Malaysia, is Nor Mohamed Yakcop, former Minister of Finance II and currently a Minister in Prime Minister Mohd Najib Abdul Razak's Office.
The BPA is a unique bilateral payments and trade settlement arrangement between Malaysia and developing countries which at the time bypassed the need for costly correspondent banking in London, New York and Frankfurt.
Under the IGD, there would be an IGD exchange which uses the gold dinar as the accounting unit for trade between Malaysia and her trading partners. Malaysia even set up a company promoting the gold dinar, IGD Practice (Labuan) Sdn Bhd, which even took a 34 percent stake in the Kazakhstan Gold Mining Corporation, which in turn owns the Artul Trud Closed Joint Stock Company, which operates the Bolshevik Gold Mine, said to be one of the largest in the world.
Despite Nor Yakcop's assertion that the IGD concept is workable, it never saw the light of day because it was ill-thought out, limited in scope and failed to attract the support of most of the Muslim countries, who cannot deal with a concept of ceding sovereignty, albeit in this case partially, because of the nature of their governance systems which range from absolute monarchies to military industrial dictatorships.
The Kelantan state move may be a reaction to the above failed initiative. At the same time it could also be a riposte to the 1 Malaysia policy of Prime Minister Mohd Najib Abdul Razak. The inculcation of a single Malaysian identity as the 1 Malaysia policy seems to suggest, according to many Malaysian Muslims is far too premature, insubstantive and politically immature. This especially at a time when the Malay Muslim ownership of Malaysian economic GDP is still low (less than 30 percent) in terms of per capita per population. Hence also a growing underlying unease at any suggestion that the Najib government would abolish the New Economic Policy (NEP) which is Kuala Lumpur's affirmative action policy or (Bumiputra Empowerment Policy) in favor of the majority Malays.
The Islamic gold dinar move has also resulted in an unintended debate in some of the most unexpected circles about the legitimacy of the US dollar as the international currency. This is a legitimate and pertinent debate which has attracted the likes of Nobel laureates to the bleary-eyed barefoot economists to some of the delusional Islamist economists.
There is a case for the replacement of the US dollar as the new international currency. But whether it will be a going back to the Gold standard pre-Bretton Woods must remain a moot point. The Chinese, the world's largest capital owners today, have long argued for this. But for the moment they are a hostage to their massive holdings of US Treasury bonds which together with the Japanese holdings effectively underwrite the obscene US budget deficit, which in reality is not fully payable.
As for the Kelantan government move, no sooner had the Kelantan Chief Minister Nik Abdul Aziz Nik Mat announced the launch of the currency, his Economic and Finance Minister Husam Musa was forced to issue a humiliating retraction that the gold dinar is not a currency but an alternative to barter trade in the state.
Earlier he had stressed that the state would strive to expand the use of the gold dinar and silver dirham in all transactions, including paying civil servants' remuneration. "We have over 1,000 shops that have signed up to our campaign and agreed to accept the dinar and dirham for the purchase of goods," he told local reporters at the launch.
The Najib government let loose Deputy Finance Minister Awang Adek Hussin to remind Kelantan that under Malaysian law, currency matters came under the purview of the federal government and Bank Negara Malaysia (BNM), the central bank, which earlier already issued a rebuke to the Kelantan state government in this respect.
Hussin even suggested that the federal government may take some punitive measures against Kelantan, which have had long-time grudges (some of which may be legitimate especially pertaining to the distribution of oil and gas revenues to the state government) against the ruling Barisan Nasional Coalition.
The Kelantan authorities are bemused by the furore their action has caused. "Several news report about the dinar being Kelantan's second currency are not accurate and have caused confusion. I do not see why this issue has to be blown up following Kelantan introducing the use of the dinar, as it has been around since the beginning of Islam," Hussam Musa stressed. However, he added that there were still many technicalities that had to be addressed by the state government over the use of the currency.