The Gold Dinar is minted by a Company, Kelantan Golden Trade Sdn Bhd. Wonder who are the shareholders?
Immediately, the PAS propaganda machine were into high gear claiming accolades for materialising an idea promoted by Tun Dr Mahathir.
But in his speech at a Securities Commission function on March 26th, 2002, Dr Mahathir had suggested the use of Gold Dinar for international trade settlements. The basis was to reduce risk and cost from speculation.
Gold dinar can be used as central bank reserve and settle differences in imports and exports between nations but "it is not meant to replace the currency of any country" the way Kelantan Government is doing.
Did they expect us not to know what they are doing is a mere political hype?
Not legal tender?
Dato Husam Musa, Kelantan senior exco claimed 1,000 traders and merchants are willing to participate in the use of gold dinar for trade. Signboard will be erected in the main markets to show the daily gold to ringgit conversion.
The syariah currency can also be used in dealing with state government to pay zakat and employee salary.
That created a controversy because under the law, Bank Negara Malaysia is the sole authority to issue currency for legal tender.
Husam Musa denied and came up with some cunning excuses. Does he think we are dumb?
The issuing Company outrightly claimed in their website that "This is the first time in the last 100 years, since the fall of the Ottoman Caliphate, when a Muslim government introduces Shariah Currency."
Before discussing any further, let's read this August 19th Business Times article, below:
Of dinars, dirhams and Malaysian politicsImpractical money
IT WOULD be easy to dismiss the Kelantan PAS state government's attempt to revive the use of gold and silver coins for trade as a quixotic way to hearken to the glory days of the Islamic civilisation. In fact, current politics is at the very core of the scheme. It was designed to burnish the Islamic credentials of the theocratic party.
A new currency not based on debt, but on its intrinsic value, would show which of two Malay-based parties in Malaysia - Umno and PAS - is on the right side of the theological divide and which is the outlier. Kelantan's leaders may also be circumventing the federal laws on legal tender, which sets Bank Negara as a sole issuer of legal tender currency.
The issue of RM2 million (S$857,000) worth of gold dinars and silver dirham coins, it is claimed, can be used as an alternative currency in about 1,000 shops that have voluntarily agreed to accept the dinar and dirham in exchange for goods and services.
As it is voluntary, it is a unit of account only, not legal tender. As well, the coins are being touted as a better store of value than the ringgit, or indeed, any other fiat currency.
Of course the scheme is not practical. How does a shopkeeper make change for a 4.25g gold dinar (worth about RM582 at the current price of gold) when the silver coin is worth only RM13, unless he uses ordinary notes and coins as well.
Indeed, the very fact that the coin issue was 'oversubscribed' - as one state leader put it - reveals the true situation: coin collectors have decided that these items will soon be rarities and thus have appreciating numismatic value. In any event, RM2 million in coinage is hardly enough to support even the small-agrarian Kelantan economy.
But what the scheme does reveal is the current state of jockeying between Kelantan (and the other opposition-ruled states) and the federal government led by Prime Minister Najib Razak's National Front coalition.
Despite the fact that the Front has managed to regain the Perak government via defections and is watching keenly for an opening as politicians in opposition-ruled Selangor squabble among themselves, it has not made headway against the entrenched PAS government in Kelantan.
The state's leaders seem to have devised this project as a way to retain and buttress support of those disaffected Malay voters who helped drastically cut down the size of the Front's victory in the March 2008 general election.
Kelantan's coin scheme should thus be seen as a strategy to set the political agenda and to push Mr Najib's administration on the back foot. If Mr Najib attempts to ban the use of Kelantan's coins, it would diminish his Islamic credentials. If he allows it - it would be perceived as a victory for PAS. So far, apart from Bank Negara's warning about legal tender, Kuala Lumpur has said nothing. The political pace in Malaysia is quickening.
Mr Najib is reported to want an early election - not due until 2013 - to get his own mandate. Expect more political games in the meantime.
It is a nice ploy but frankly it is a cumbersome process to use the gold dinar. Read here on the confusion and chaos that will occur in their attempt to use it as a medium of exchange.
Imagine buying food at a roadside stall in Kota Baru, the one dinar can pay for the food and buy the stall too. That is the problem of paying in exact values. Do we crack the gold and silver into fractions to the exact sum? Gold dinar and silver dirham does not serve as unit of value but still the ringgit.
Husam's excuse to get around the accusation that Kelantan is issuing it's own legal tender was to claim gold dinar and silver dirham is part of barter trade mechanism. Cute answer, because the Islamic concept of money does not limit itself to only gold, and silver but non perishable tradeable commodities.
The difficulty in barter trade exchange lies in the absence of a common unit in terms of which can be measured the values of goods and services, the problem with matching needs, no satisfactory unit to engage in contracts involving future payments and does not store purchasing power.
What Husam refuse to elaborate further is that his barter trade exchange involving the gold dinar is the exchange between goods and the gold dinar. The awkward part is the ringgit is still used as the unit of value.
Eventually, the dinar and dirham will only serve for investment or store of value. The issuing company will make money from service charges.
Paper money replace barter trade
Paper money is more practical to overcome problems with barter trade. The gold dinar could not perform all the functions of the 'evil' paper money as unit of value, medium of exchange, and store of value. Why do we need to revert back to the primitive old days?
It is understood that the problem with currency or money in general is that it can be devalued internationally.
This subsequently lead to give rise to the occurance of reduced value of salary, increase unemployment, debt problems, increase cost of borrowing, reduced economic activity, political upheavel, etc.
To circumvent this problem, the central bank should hold gold reserves for reserve portion not used to hedge foreign balance of payment. The purpose is turn our currency or paper money as an asset based money, instead of having debt based foreign currencies as backing.
Will there be enough gold in the world to back the currencies of the world? If you remember your Chemistry, gold is a precious metal because it is scarce and inert periodic table element.
One idea bandied around is the use e-dinar as currency to circumvent the problem of scarcity and access to gold. PAS Government intend to push the envelope and is toying with that idea.
What is backing the e-dinar without gold metal? Commodities such palm oil or dates or pork belly? At the end of it, it only shows the shallow understanding of PAS on economics.
No riba economy
The bigger priority over gold dinar is to pursue an economy based on Islamic principle of justice. That is to remove element of riba in the economy. Riba is not limited to interest on borrowing only but it's more significant meaning is excess profiteering.
Even though the businessman could be a Pak Lebai with skull cap on, flying the green and moon flag, and endlessly spewing Quran and Hadith, making excessive profit is unislamic.
It is equally unislamic practise to launch schemes of investments and donations such as Koperasi Kohilal and Tabung Memali, where there were negligence by management and breach of trusts. It goes the same for UMNO or anybody.
Claiming Bank as Islamic does not make it any more Islamic if exorbitant markups and interest is imputed in the costing calculation.
Then there are questions, why Islamic Banks do not practise profit and loss sharing and charge penalties? They do overcharge and speculate.
If PAS or for that matter, UMNO or anybody, any group is serious to champion Islamic economy, one quick and practical way is to stop the practise of compounded interest in conventional banking.
Interest is added on to the principal to exponentially increase the payable interest. That is where the excess profiteering is subtly hidden!
By Islamic Bank considering the comparable interest rate and repayment amount on loans by conventional banks, compounded interest is also imputed in so-called Islamic Banks.
If compounded interest is ban, then there is a serious move in the right direction to realise the Islamic principal and values in economy and trade.
Some optimist will claim that issuing the gold dinar is the first step of many in the direction to Islamise the economy. Sure ... why then the need for the cheap propaganda?
Unfortunately, the impact is minimal and negligible. There is nothing spectacular in this PAS initiative from UM economics graduate Husam.
He should be aware that there are already developments of such product as Islamic SDR (Special Drawing Rights). That is really picking up from Dr Mahathir's 1992 speech. Read in this critic by Malaysia Instinct here.
It is a mubazzirin political gimmick only to put wool over the eyes of the simple folks of Kelantan. Frankly, there is no difference between Kelantan gold dinar (Kelantanis should call it riya instead of calling ringgit as riya) and the Canadian Maple Leaf or South African Krugerrands, except one.
Someone said Ariffahmi is a shareholder in Kelantan Gold Trader Sdn Bhd.
* Updated and edited: 22/8 12:25 PM