A Malaysian state has introduced Shariah-friendly gold dinars and silver dirhams as a local currency medium. Will the idea spread in the Muslim world?
The Muslim-governed northeastern Malaysian state of Kelantan has, according to an AP report, introduced gold dinars and silver dirham coinage which state officials say is the revival of currency circulated in early Islamic societies.
State officials were quoted as saying that the gold and silver coinage is a better alternative to currencies affected by the fluctuations in value of the U.S. dollar and other foreign currencies.
The gold and silver coinage was introduced on Thursday and the new gold dinar and silver dirham coins will be able to be used at around 1,000 outlets in the state capital city of Kota Bharu while the state government is also considering the option of paying part of employee salaries with the new coinage.
According to a comment on the scheme in London’s Financial Times, the coins comply with traditional Islamic teaching on the use of coins with intrinsic value as a medium of exchange, rather than paper money. The FT goes on to say that the coins are minted to a specified weight and purity and are available in a range of denominations from half a dinar to eight dinars, and from one dirham to 20. At the current price of gold, one dinar is worth M$581($183) and one dirham is valued at M$13 ($5).
The launch was, unsurprisingly, much praised by the Muamalah Council, which seeks a peaceful return of an Islamist social and economic system. In a statement the Council said that the introduction of the coinage was « history in making as it marks the beginning of both, the rise of Islam and demise of Capitalism for the two can’t co-exist….This is the first time in the last 100 years, since the fall of the Ottoman Caliphate, when a Muslim government introduces Shariah Currency….. The introduction of the Gold Dinar and Silver Dirham in the state of Kelantan is not a new idea or experiment, it is the return to the medium of exchange that has been known for 1400 years ». It also states that the « Gold Dinar and Silver Dirham are mentioned in the Quran and Hadith, they are integral components of the Sunna and Amal of Ahl al-Madina, that is why they had been known as Shariah Money and had always been the currency of the Muslims throughout history. «
With only $630,000 worth of gold and silver coins minted so far the effect on the precious metals markets is insignificant, but, should the idea catch on across much of the Islamic world – not exactly U.S. dollar-friendly societies for the most part – then it could have an enormous effect. Hugely populous nations like Indonesia and Pakistan, as are swathes of Africa and the CIS, are mainly Muslim, and there would likely be considerable appeal for the idea across the Middle East, where doubts have been expressed of late of holding currency reserves in U.S. dollars amid nervousness of where the dollar is headed given the huge extent of the money supply increases in the U.S. itself.
The idea, if it gained traction – and that’s obviously a very big ‘if’ – would lead to a huge inflow of gold and silver to these nations financed by their dumping of increasingly devalued dollars – and could also lead to the Muslim oil exporting nations asking for their black gold to be paid for in yellow gold and silver – a demand which Western nations may have a hard time in meeting. One can certainly see the idea appealing to Iran, although whether it has the wherewithal to implement such an idea is perhaps unlikely.
It obviously remains to be seen whether the idea will catch on. Most Islamic-governed states are too attuned to a form of Capitalism to overly rock the boat, but this isn’t to say that some disaffected nations might not dip their toes in the water. What it does bring home, though, is that traditionalist Islamic teaching does support money of intrinsic value and there could well become a greater trend throughout the Muslim world to return to a form of gold and silver standard, although most Muslim countries are too far down the fiat currency road to easily reverse this.
Malaysia looks to ancient alternative currency – gold
Paper money is so old hat. While De La Rue – which makes banknotes for 150 currencies – struggles with production problems and management turmoil, in one part of Malaysia, they are looking at an ancient alternative – gold.
In a move applauded by some local Muslims, the state government of Kelantan said it was introducing a new monetary system featuring standardised gold and silver coins based on the traditional dinar and dirham coins once used by the Ottoman Empire.
Nik Abdul Aziz, the state’s chief minister, spoke in visionary terms of an economy in which state civil servants would be paid in the new sharia currency, and the poor would be protected against inflation by the intrinsic value of the precious metals used to produce it.
About 1,000 shops and restaurants in the state have said they will accept the new currency, which follows an earlier issue of gold dinars in 2006. The coins comply with traditional Islamic teaching on the use of coins with intrinsic value as a medium of exchange, rather than paper money.
The coins, minted to a specified weight and purity, are available in a range of denominations from half a dinar to eight dinars, and from one dirham to 20. At the current price of gold, one dinar is worth M$581($183) and one dirham is valued at M$13 ($5).
The launch was lauded by the Muamalah Council, a campaigning organisation that seeks the peaceful introduction of an Islamist social and economic system. The council said it was “the main Islamic event of the last 100 years”.
The details of the scheme suggest, however, that the people of Kelantan are unlikely to abandon the ringgit, the national currency, in a hurry. The state government said the value of the new coins was M$2m at the current price of gold. It is not known how many of each denomination have been minted, but if they were all worth one dinar there would be just under 3,500. That works out at about one coin for each 400 people in the state.
The chief minister also admitted that there were “many technicalities” to be overcome before the scheme could be significantly extended. He did not explain why a switch to gold and silver coins would protect against fluctuations in the value of money, given that the US dollar price of gold has risen more than five fold in a decade.
In spite of its small scale, the scheme may pay political dividends for the state government, which is run by PAS, an Islamist party that is in opposition in the national parliament. PAS is locked in a ceaseless struggle for control of Kelantan with the United Malays National Organisation, the main party in the federal government coalition, which also claims to represent Malay Muslims, the largest population group in Malaysia.
Burnishing its Islamic credentials is unlikely to do PAS any harm. The only certain winner, though, is the gold market. Although small, the scheme will help to increase demand, pushing up prices even further.