Some Insight about Gold Dinar

October 23rd, 2002, The Gold Dinar In Multi-Lateral Trade Seminar at IKIM Hall, Kuala Lumpur. Speech by Dr. Mahathir Mohamad

"26. If we want to avoid being short-changed we must have a currency that has intrinsic value. Gold does fluctuate in price but the fluctuation is minimal. It is not possible to devalue gold by one hundred percent or one thousand percent. Nor is it possible to revalue gold by the same percentage. The fluctuation in the value of gold can only be by a few percentages, up or down.

27. When the Allied nations met in Bretton Woods to determine the principle for the rate of exchange of international currencies in order to facilitate trade, they decided to use gold as a standard. The value of the U.S. Dollar was fixed at one dollar for 1/35 ounce of gold or 35 U.S. Dollars per ounce. All other currencies were valued in gold through the rates of exchange with the U.S. Dollar.

28. This worked quite well until some countries wanted to devalue their currencies in order to become competitive in the international market. Then other countries also decided to devalue in order to remain competitive. Finally the U.S. Dollar was devalued against the Gold.

29. At this stage the gold standard could not be sustained. The market claimed that it could determine the exchange rate through the demand and supply of
currencies freely traded in the market. But profiteers moved in and they manipulated the value of the currencies so that there was chaos in terms of exchange rates of currencies. Business became very difficult. Indeed many good businesses went bankrupt when the domestic currency gets devalued. The hedge Funds which claim to insure the value of the currencies made huge sums of money speculating and manipulating the values of the currencies.

30. This anarchy in the international financial regime will remain because it benefits the rich and the powerful. If we want to protect ourselves we must evolve our own payment system, our own trading currency.

31. The Gold dinar can provide the currency for trade between nations. If we value all trade items against gold, then we will have no problem with the exchange rate. We know that in the last resort we can melt the gold and sell it in the market. You obviously cannot do that with paper currency, worst still with figures on a computer. They have no intrinsic market value as gold has.

32. But gold is bulky. We cannot be carrying gold all over the world in order to pay for goods we want to import. But we need not do that.

33. It is not intended to use the gold dinar as currency for everyday transactions in the domestic market. For this we can use national currencies. If there is inflation then the currency can buy less gold and other goods. And vice versa. So there is no necessity to carry bags of gold coins for transaction within the countries.

34. But even for international trade the transport of gold bullions or gold coins would be very minimal. Through bilateral payments arrangements the imports can be balanced by the exports and the differences settled in gold dinars. The Central Bank can provide a guarantee for the gold required for the payments of the balance. In the following weeks or months the deficits may be reduced or a surplus achieved. In that case the payments of the balance can be made through accounting arrangements between the Central Banks. It is only occasionally that a necessity might arise for the actual gold dinar to be used to pay for the purchase of imports.

35. We cannot really verify the amount of money a country has. A country's own currency cannot be regarded as its reserve. But gold dinars or gold bullion or gold ingots can serve as a country's reserve. Still in the end we have to trust each other. If we are good Muslims then the cases of fraud by Central Banks would be minimal.

36. Assuming that Malaysia exports to a Dinar Area country a hundred million Dinars worth of motor vehicles and then imports 110 million dinars worth of oil, then the payment required by Malaysia would be just 10 million dinars. The ten million dinars is credited to Malaysia's trading partner. If in the following month the trading partner buys 110 million dinars worth of Malaysian cars and Malaysia buys 100 million dinars worth of oil, then no payment need to be made by either party. The 10 million dinars that has to be paid by Malaysia's trading partner for the motor vehicle can be offset by the credit of 10 million dinars from the previous month's transactions.

37. Today with computers we can close account and pay more frequently. Through this method it is not necessary to purchase or earn hard currency.

38. Of course there may be some countries which are so poor that they cannot have gold dinars. We can buy some raw materials to be paid in gold dinars. They can be helped to build up the reserves of gold dinars.

39. There will be problems. But if we begin with just a pair of countries we would be able to minimise problems and demonstrate whether it works or not. We will be able to identify the weaknesses and the faults and correct them."