Aug 14 2010
The Muslim-governed northeastern Malaysian state of Kelantan has 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.
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 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 MR$581($183) and one dirham is valued at MR$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.