RESEARCH PAPER

Gold Dinar vs. Euro

Prof. Dr. Mohd. Ma'sum Billah Independent Researcher and Scholar Applied Islamic Finance

Abstract

A digital reading edition preserved from the original research document.

Gold Dinar vs. Euro:

A Dichotomy

By: Prof. Dr. Mohd. Ma’sum Billah masum2001@yahoo.com applied-islamicfinance@yahoo.com

006-019-3699542 006 019-2790542

Introduction

Currencies have been the focus of the international economy in the past year especially during economic recession in year 1997, whereas there have been currency collapses in many East Asian and Southeast Asian countries. As a result, many of these countries suffer from it, many factories and companies did not able to pay their debts and had to close, level of unemployment increased and inflation rate was also increased. To solve these problems, some of the countries such as Indonesia and also Thailand accepted financial assistant package from International Monetary Fund (IMF).

As been quoted by former Prime Minister of Malaysia, Tun Dr. Mahathir Mohamed, he believed that the currencies have been speculated and manipulated by George Soros, a speculator from United State.

On the other hand, members of European Union (EU) were also looking for implementing a common monetary policy and single currency with the aim of increasing economic prosperity and contributing to “an ever closer union among the people of Europe”.

Based on both situations, Tun Dr. Mahathir Mohamed introduced an idea of using one single currency named as Islamic Gold Dinar to less dependency on US Dollar and avoids our currencies from being attacked by the speculators and also manipulators. In like manner, members of European Union (EU) introduced Euro. It has been introduced to less dependency on US Dollar and boosts their economic activities.

Background

Of Islamic Gold Dinar

The word dinar refers to gold coins used as a medium of exchange by Muslims through out the Islamic history until the fall of the Ottoman caliphate. Dirhams, which were silver coins, were also commonly circulated. However, the dinar and dirham were in circulation even before the advent of Islam but continued to be used by the Prophet (peace be upon him).The dinar was the bezant gold coin whereas the dirham was the silver coins of the Sassan.The Islamic gold dinar was first issued in Damascus by Caliph Abdul Malik ibn Marwan in the year 77H.

On that time, gold dinar has been used as the major international currency circulating throughout the Muslim world and the Christian Europe as well, so that the dinar was minted in large quantities .On a global scale, the gold standard was basically practice throughout the world where currencies were redeemable for a certain amount of gold.After World War II, the gold standard collapsed and was replaced with Bretton Woods system.

Recently, the issues of gold dinar were raised again. According to Khaled Hanaf ; “Islamic Gold Dinar Will Minimize Dependency On US Dollar”;Islam Online.Net(2003) gold dinar was not a new issue.The idea of the Islamic gold dinar belongs to Professor Omar Ibrahim Fadillo, founder of the Morabeteen International Organization founded in 1983 in South Afrika. The first gold dinar, equivalent to 4.25 grams of 22-karat gold, was issued in 1992 on a very limited scale between members of the Morabeteen.

In 1997, the idea developed to be implemented into an exchange framework. It was known by electronic dinar, a system based on using the gold as fund through transactions made on the Internet. The e-dinar company is based in Labuan, Malaysia.

The idea of using gold dinar as one single currency for trading among Islamic countries was adopted by former Prime Minister of Malaysia, Tun Dr. Mahathir Mohamed. He had conducted a bilateral talks in year 2002 with several Islamic countries including Bahrain, Libya, Morocco and Iran, tried to convince those countries to use the Islamic gold dinar as a way of payment in their commercial dealings with Malaysia.

The plan aims to prevent another currency crisis of the scale seen in Asia in 1997-1998. Though Malaysia had pegged its Malaysian Ringgit (RM) to the US Dollar with US$ 1 is equivalent to RM 3.80 in1999 has brought some semblance of stability, the currency is nonetheless still subject to constant volatility. Although gold might not solve the problem, it is less unstable than the US dollar and has an intrinsic value that paper money does not have. It is believed that with gold, speculation and manipulation could be avoided and thus the international trade would safe from being undermined.

Many people are still confusing and questioning, “how the gold dinar will be used? Is it for daily settlement or it’s only for trading among countries? Is gold dinar going to replace the national currencies or it’s going to be a common currency for all countries? Who will participate and use gold dinar?” To answer those questions, Tun Dr. Mahathir Mohamed had explain briefly during a presentation; “The Gold Dinar in Multi-Lateral Trade” made in Kuala Lumpur on November 2002.

The plan is not intended to use the gold dinar as currency for everyday transaction in the domestic market but it will be used for international trade. It is for bilateral payment arrangements and also multilateral payment arrangements. Since there will be no physical transfer of gold, settlement of trade balance between countries could be conducted through their respective central banks every three months.

It is also not the intention to make the dinar as a common currency for all countries. It is not really the Gold Standard with a fixed value against local currency. If countries print more local currency there would still be inflation within the country. But trade would be stable and enhance. Speculators and manipulators will not be able to undermine international trade.

Furthermore, the gold dinar can be used as a trading currency for all countries, not necessarily for Muslim countries only. For the initial stage, Malaysia is going to use the gold dinar for bilateral trading among Muslim countries because Muslim countries are in the best position to demonstrate the viability of the system.

Background

Of Euro

The history of Euro began when The Treaty Of Rome (1957) declared a common European market as a European objective with the aim of increasing economic prosperity and contributing to “an ever closer union among the peoples of Europe”. The Single European Act (1986) and the Treaty on European Union (1992) introduced Economic and Monetary Union (EMU) and laying foundations for introducing a single currency to be used.

The stage of EMU began on 1 January 1999, when the exchange rates of the participating currencies were irrevocably set. Euro area Member States began implementing a common monetary policy, where Euro was introduced as a legal currency and the 11 currencies of the participating Member States became subdivisions of the Euro. Greece joined on 1 January 2001 and so 12 Member States introduced the new euro banknotes and coins at the beginning of 2002.

Euro was being introduced because of several objectives. Firstly, members of the European Union want to strengthen their relationship. With this single currency, it is easy for them to cooperate among each other and increase trading transaction in which people, services, capital and goods can move freely. In addition, they want to strengthen their currency and reduce dependency on US dollar.

There are 12 Member States of the European Union participating in the common currency such as Belgium, Germany, Greece, Spain, France, Ireland, Italy, Luxembourg, The Netherlands, Austria, Portugal and Finland, Meanwhile, Denmark, Sweden and the United Kingdom are members of the European Union but are not currently participating in the single currency. Denmark is a member of the Exchange Rate Mechanism II (ERM II), which means that the Danish krone is linked to the euro, although the exchange rate is not fixed.

The new single currency, ‘euro’ originates in the Treaties. All the Treaties were prepared and signed by members of the European Council, which comprises the Heads of States or Government of each of the Member States of the European Union, and then ratified by each country according to national legislative procedures. The European Central Bank (ECB) was establish on 1 June 1998.It is based in Frankfurt am Main, Germany, and aims to maintain price stability and to conduct a single monetary policy across the euro area.

This is done through its own activities and through working with the national central banks. Together, the ECB and the euro area national central banks are known as the Eurosystem. The Eurosystem’s primary objective is the maintenance of price stability. It meets its objectives through deciding and implementing monetary policy, conducting foreign exchange operations and operating payment systems.

So when they settle it| | |is the ultimate | | |netoff as a result of trading transactions over a period which would | | | |be credited to | | | |the particular country's account with the central bank.If the country wants it can | |redeem its gold also. | | | |scale between the members of the Morabeteen. In 1997,the idea developed into what was| |called the electronic | |dinar,a system based on using the gold as fund through transactions made on | | |the internet. | | |Several countries around the world are currently dealing directly with 100,000 | |Islamic gold dinars and 250,000 | |silver dirhams issued by the company,hoping that one day it will replace the | | |us dollar in the | | |dealings of the 1.3billion citizens of the Islamic | | | | | |countries | | | | |

| | | | |the transition from one currency to another currency.| | | | | |As for the common man gold cannot be carried from place to place that easily, | | |yet this can be solved by putting information technology to its effective use.| | |With the introduction of e-dinar,e-gold this problem is already solved | | |partially. | | |Also gold dinar will have to face the challenge of global acceptability like | | |how the | | |Euro has been accepted by world's major economies. Here again since the value | | |of the gold has been recognized through ages, this would’nt be a | | | |problem. | | | |Major world currencies including the Euro, Yuan are trying to peg their | | |currencies | | |to the value of Gold, rather than the US Dollar.

This clearly shows a change | | |of focus | | |of major economists, and they are slowly beginning to realize that the fiat money is | |in | |the early decline stage after the fall of the once stable US | | | | |Dollar. | | | | |There is also a view that the main reason of U.S. waging a war with Iraq is to acquire| |the oil reserves so that to stabilise its currency against the increasing | | |Euro. | | |Taking into account all the factors, the only possible way out of | | | |these | | | |dangerous economic downturns and uncertainities is the introduction | | | |of gold dinar in full swing, thus bringing prosperity and stability to the global | |muslim ummah. |

Introduction

Background

Of Islamic Gold Dinar

Background

Of Euro

Assalamu Alaikum