Can Malaysia succeed in convincing the Islamic countries to revive their ‘gold dinar’ as a common currency, as this is ‘necessary’ to get rid of the influence of the west in trade and business dealings, and other economic issues.
Malaysian Prime Minister Dr Mahathir Mohamad, a big supporter on the subject of reviving ‘gold dinar’, believes that this would help in containing the dominance of the World Bank and the IMF in economic and financial affairs of the Muslim world.
In a week-long visit of the representatives from the Middle East, India and Pakistan, to Malaysia early this month revealed that while private sector experts were pleading for the Islamic banking and finance, the government of Prime Minister Mahathir too, was equally supportive of the idea, and that was the reason it was extending all necessary official patronage and financial support in this behalf.
“Malaysia does not accept the dictates of the IMF and the World Bank and if other Muslim states follow the same, we can have our own strong Islamic trading, finance and banking system”, Mahatir told the visiting journalists in his office at Putrajaya — the site of the new administrative centre for the federal government in Kaula Lumpur.
“We do not care about the dictates of the IMF as we are an independent and sovereign nation”, he said proudly, adding that the Muslim world possessed plenty of wealth which was not being invested in productive trade and economic activities. “I was pleading for ‘gold dinar’ among the Muslim states to eliminate the bias of dollar”. The country was proposing gold dinar to strengthen, specially the weak economies of the Islamic countries on the pattern of euro, Mahathir emphasised, while arguing that if Europe can take care of its countries why can’t we follow the same pattern.
Gold dinar had been the currency of Muslim world until the collapse of the Ottoman empire in 1924. Being the single currency at that time, dinar helped in uniting the Muslims, trade, and as a result the trade flourished. Thus, a vast Muslim rule was established with the dominance on knowledge, economy and global power resting with the Muslims.
An interaction with the cross section of the society in Malaysia did reveal that the gold dinar system was desirable and workable, provided the Islamic countries decided to work on it. A two-day conference in Kaula Lumpur on November 2-3 was considered important in which the Islamic Financial Services Board (IFSB) was launched by the 10 founding members — Bahrain, Pakistan, Iran, Saudi Arabia, Sudan, Indonesia, Malaysia, Kuwait and the Islamic Development Bank (IDB). The establishment of the IFSB was considered a significant step for the international players in Islamic finance. It was believed in Malaysia that when the Islamic banking would offer higher rates, many people would switch their deposits to this system from the conventional banking system.
On the setting up of the IFSB, many experts in Malaysia whom the visiting journalists met, were of the view that the IFSB would boost the Islamic banking and financial sector globally, as this would set a benchmark for banks and financial institutions, thus encouraging the establishment of best practices in the industry.
“Every bank and financial institution involved in the Islamic banking, globally would strive to achieve the standards issued by the IFSB”, said the Managing Director, Bank Islam, Datuk Ahmad Tajudin Abdul Rahman.
Interestingly, the IMF was reportedly supporting the idea of establishing the IFSB to promote transparency and have better rules and regulations and discourage the imprudent banking transactions in the Islamic world. People in Malaysia and those from other Islamic countries who attended the two-day conference for the inauguration of the IFSB maintained that Malaysia had strong potential as a regional centre for the Islamic banking and finance. The fact that Malaysia ranked on top in the rest of the Islamic world in terms of corporate governance had placed it in a good position to become the centre of excellence for the Islamic banking.
About the implementation of gold dinar in bilateral payment arrangements and multilateral arrangements, it was understood that it’s always wise to implement a new system or make changes gradually, so as not to rock the present set-up drastically because abrupt changes bring more harm than good. It was also comprehended that in the bilateral and multilateral trade settlement system, the gold dinar need not exist in its physical form. However, the external trade will be denominated in dinar, i.e. a standard unit of weight of gold.
The historic standard was that one dinar was equal to 4.25 grams of gold. “For convenience though, we may denominate one ounce of gold as the standard international trade dinar since currently the international gold price is quoted in the US dollar per ounce. For example, if one gold dinar is equivalent to one ounce of gold, and the price of one ounce of gold is at $300, then the value of one gold dinar would be $300 or its equivalent in other currencies, on the basis of the prevailing real-time exchange rates”, said the Associate Prof Dr Ahmed Kameel Mydin Meera, Department of Business Administration, International Islamic University, Malaysia.
In his paper on, “gold dinar in multilateral trades” presented during the inauguration of the IFSB, he stipulated that the central banks of the participating countries would play pivotal roles in the implementation of gold dinar in the bilateral and multilateral trade settlement system. All external trade transactions pass through the central banks that keep the trade accounts. Exporters would be paid in their own national currencies by their respective central banks on the due date of exports, based on gold dinar exchange rate prevailing at the time of transactions. Similarly, the importers would pay to the central bank.
“As an example, consider that Malaysia and Saudi Arabia signed a bilateral payment arrangement. The trade balances were to be settled every three months. Say in a particular, three months cycle, Malaysia exports 2 million gold dinar worth of goods and services to Saudi Arabia, while importing 1.8 million good dinar. Hence, Malaysia had a surplus trade of 0.2 million gold dinar with Saudi Arabia. Hence, Saudi Arabia needed to settle only this difference of 0.2 million gold dinar”, he said.
A visit to Malaysia shows that the country had not only progressed in every field but it was ready to share its political and economic expertize with other Muslim countries. Assurances have been given from the highest level that Malaysia was ready for extensive cooperation with the Islamic countries even on the implementation of Shariah laws.
“We — over one billion Muslims — need to become real economic force and this would happen when we had harnessed our joint efforts in every field”, stressed Dr Mahathir Mohamad.