Sunday, July 22, 2012

Phoenix Rising Radio ~ In Response to the Question about the Gold Dinar ..

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July 19, 2011

by Camille Paldi

The Case for the Islamic Gold Dinar

The concept of the Islamic Gold Dinar has existed since the time of Prophet Mohammed (s.a.w.) and the Rightly Guided Caliphs until the fall of the Turkish Ottoman Empire.

“The Revelation undertook to mention them and attached many judgments to them, for example zakat, marriage, and hudud, etc. therefore within the Revelation they have to have a reality and specific measure for assessment of zakat, etc. upon which its judgments may be based rather than on the non-Sharia’h coins. Know that there is consensus (ijma) since the beginning of Islam and the age of Companions and the Followers that the dirham of the Sharia’h is that of which ten weigh seven mithqals weight of the dinar of gold… The weight of a mithqal of gold is seventy-two grains of barley, so that the dirham which is seven-tenths of it is fifty and two-fifths grains. All these measurements are firmly established by consensus.”[1]

The World Islamic Trading Organization (WITO) adopted this standard whereby the dinar is a weight of 22 –carat gold equivalent to 4.25 grams with a parameter of 23 millimeters. The other currency inherited from the Islamic tradition is the silver dirham which is a weight equivalent to 3 grams of silver. [2]

Some Islamic scholars have said that the use of the gold dinar is compulsory for all Muslims based on the fact that the existing international financial regime is based on riba and prohibited in Islam.[3] Others purport that use of the gold dinar would fulfill the requirements of zakat or charitable giving in the Quran.

“One of the main pillars of the Islamic faith is the observance of zakat, which dictates that Muslims must give at least 2.5% of their income to the poor. The important factor to keep in mind is that these gifts are to be paid only with tangible merchandise and that it cannot be paid with a promise to pay, which is in fact, all that paper money is. The zakat is to be paid with honest money or actual substance and not a promise to pay. The Islamic gold dinar is a 100% gold coin and unit of currency that fits this Islamic requirement.”[4]

Furthermore, there has been a call for the re-emergence of the gold dinar among many Islamic nations amidst the volatility caused for many nations as a result of being pegged to the US dollar and the instability which results from the use of fiat currency. Paper money has no intrinsic value, making the exchange rates arbitrary and subject to manipulation by governments and others. Furthermore, fiat money is based on supply and demand and may lose its’ value without notice due to economic crisis or the collapse of the issuing government.

In 2000, Indonesia minted the first gold dinar and silver dirham under Islamic Mint Nusuntara and Logam Mulia and IMN introduced the e-mobile payment system called Dinarfirst – mobile exchange system.

Also in Indonesia Wakala Induk Nusantara (WIN) has begun minting Islamic gold coins for use in Australia, Malaysia and Singapore. In 2009, 25,000 pieces of this gold coin were in use.[5] There is even a UK connection to the increasingly globalised Islamic gold dinar movement. The Indonesian grouping is adhering to a fatwa issued by the South African-based cleric Sheikh Abdalqadir as-Sufi, a Muslim convert in Cape Town formerly known as Ian Dallas of Scotland.[6]

Malaysia also began minting gold dinars:

Kigang Emas (Bank Negara Malaysia) minted by BNM and circulated by Maybank;
Dinar Emas Kelantan (Kelantan Corporation Berhad) minted by KCB and circulated by Ar-Rahn and KCB; and
Dinar Emas Negeri Perak – Issued by the Perak State Government and minted by Mariwasa Kraftangan.

On September 20, 2006, the northern Malaysian state of Kelantan became the first state to launch gold dinar coins. The coins can be bought and sold at the Kelantan Corporation Berhad (Perbadanan Kelantan Berhad) and all eight Ar-Rahn Islamic pawnships in the state.

In fact, Dubai is in on the gold dinar movement as well and is supporting Muslims to open gold dinar accounts in the Emirates. “An Islamic Agency has been set up to handle accounts and payments between accounts in the city of Dubai. This will allow the use of Islamic Dinars to spread in the Muslim world as a medium of exchange. At present, this undertaking is quite modest, with only $200,000.00 worth of gold deposited in Dubai. Dubai is viewed as an attractive place to keep money away from the taxation authorities since there are no taxes on individuals, corporations, or merchandise sales there. The organization may link up with another new and exciting development in the modern world as far as gold is concerned. They may soon be trading gold Islamic dinars globally on the Internet through an organization located at www.e-gold.com. The sponsors of the Islamic dinar may suggest to Muslims that they convert their paper currency denominated accounts into Islamic Dinar in Dubai.”

Shall Muslim nations be slaves to exploitation by Western nations and killing grounds for Western profit or shall they be free? In order to be free, nations must break free from the hegemony of the US dollar and the invisible forces of the Bretton-Woods system, where currencies and crashes are manipulated for the benefit of the elite few maneuvering the system in their interest and using Bretton-Woods institutions to lock nations into positions of grueling debt and an unbreakable cycle of poverty, destroying families, humanity, and the environment.

Call for the Islamic Gold Dinar

One reason for the call for the gold dinar is to release Muslim nations from the requirement of having to transact in the US dollar in commercial dealings.

“There is a case for the replacement of the US dollar as the new international currency. But whether it will be a going back to the Gold standard pre-Bretton Woods must remain a moot point. The Chinese, the world’s largest capital owners today, have long argued for this. But for the moment they are a hostage to their massive holdings of US Treasury bonds which together with the Japanese holdings effectively underwrite the obscene US budget deficit, which in reality is not fully payable.”

More reasons for moving towards the use of the gold dinar includes to harmonize commercial dealings between Muslim nations and to avoid transacting within a monetary system which is inherently based on interest, uncertainty, and speculation. In fact, the gold dinar may lead to greater things for the well-being of Muslims including possibly an economic bloc similar to the EU and NAFTA.

‘Looking at the Euro, which is currently being used as the common currency of the EU, the gold dinar could potentially be the common currency for Muslim nations. The objective of strengthening the economy of Muslim nations, by departing from the vulnerable interest-based financial system and liberating Muslims from the continuous hegemony of the US greenback would serve as a great incentive towards this.’

Malaysia in the 1990’s and early 2000 era avoided dependence on the US dollar in various ways in order to preserve economic sovereignty.

“Noticing that its dependence on the unstable US dollar for international trade has been one of the reasons for its inability to protect its economy from external factors, Malaysia has been reducing the use of the US dollar and instead has been borrowing in Yen and Euro while generating funds to rebuild its economy.

Malaysia has also entered into agreements with its neighboring trading partners on the use of ASEAN currencies such as the Thai baht and the Singapore dollar for bilateral trades.”

If such a bloc were created, this might result in increased voting power at the World Bank, IMF, and increased influence at the WTO. The formation of such a bloc may increase the influence of Muslim nations in the decision-making involving the Bretton-Woods policy being formulated today for the world economy which is done currently mainly by Western nations. At first, it is advisable to increase influence in the decision-making process of the current world economic system and then to replace it with a new system based on ethical or Islamic finance. Actually, many of the banking concepts found in the Qu’ran can also be found in the Torah and the Bible.

Therefore, our new world economic system should be based on the principles of Holy Book banking with Islamic finance at the forefront. We have been left a message by a Higher Being on how to structure our financial transactions and world economy and it is about time we listen because without divine guidance humanity cannot survive into the future.

The gold dinar may also help Muslims to transact in a system which is not riddled with interest, uncertainty, and speculation. Even if the product or transaction is free of these elements, they must still be conducted within a system which is built on these concepts…therefore making true Islamic banking difficult to accomplish.

“It is widely known that the principal elements of Islamic transactions (Muamalat) are the prohibition of usury (riba); ambiguity (gharar); and excessive speculation to the extent of gambling (maisir). However, while commendable efforts and ground-breaking initiatives have been seen mainly in Islamic banking and financing activities, a fundamental structural flaw in this area remains to be successfully addressed: the Islamic notion of money and the monetary system.

The current international monetary regime in which paper currency (especially the US dollar) dominates financial and commercial transactions is blatantly tainted with elements of riba, gharar, and maisir. As a simple illustration, fiat money is issued by a central bank to which the government owes money and will have to pay interest for the use of that money. This is of course riba. Then the money is circulated in the market and lent by commercial banks to earn interest without any real economic activity, which would be gharar. In recent times, the currency speculators earned their notoriety by flagrantly manipulating weaknesses in the international monetary regime to influence the rise and downfall of currencies. Their excessive speculative maneuvers are clearly maisir as the effects have caused absolute disasters to economies.

As a result, even Islamic banks cannot truly operate on Islamic principles in the present system. Most Islamic financial products are tied to the market interest rate – the very element that they are supposed to avoid. Failure to tackle this aspect of the economy has not only hampered the progress of Islamic banking and finance, even worse, it has subjected many Muslim nations to continuous Western hegemony and suppressed Muslim countries into a cauldron of debt. Such deficiency makes it imminent that a monetary system is free from riba, gharar, and maisir be put into place.”

Recently, the Prime Minister of Malaysia, Dato’ Seri Dr. Mahathir Mohamed called for the gold dinar to be used for international trade and a return to the gold standard of the original Bretton-Woods system. After World War I, the United Kingdom was the world economy’s lender-of-last resort and could convert its currency into gold at any given moment. After World War II, the US took this position in the newly created Bretton-Woods system making it the world’s most powerful economy, however, in 1971, President Nixon changed the system to one based on floating exchange rates which allowed currencies to float and be manipulated by speculators.

“The market claimed it could determine the exchange rate through the demand and supply of currencies freely traded in the market. But the profiteers moved in and manipulated the value of the currencies so that there was chaos in terms of exchange rates of currencies.”

In the current Bretton-Woods system, a powerful elite manipulates the world economy for profit and uses the Bretton-Woods institutions such as the IMF and World Bank to restructure poor nations so as to lock them into positions of servitude to meet the labor and raw material needs of mainly Europe and the United States through inescapable debt and reorganizing economies to produce specific commodities leaving these nations unable to diversify and escape their position in the international economy. The system locks them in to a position which opens the country up for massive exploitation by corporations and traps the specific nation into producing inputs for the larger economy as a whole. It is like forced economies of scale – dictated by an artificial force and not the market itself.

Gold prices as well can be manipulated as well, however, not as easily as the US dollar or other currencies.

Benefits of the Gold Dinar

_‘It is commodity based and therefore has intrinsic value;

The intrinsic value would remain stale notwithstanding the passage of time whereas paper money can rapidly fluctuate in accordance with inflation (the rise and fall of interest rates);

_It does not need a government to issue it, in fact, it does not need rules or regulations, laws or official control. It only needs the individual freedom to possess and use gold and silver coins, with an implicit elimination of all taxes imposed on their use;

_It is a naturally international currency notwithstanding different names and various weights and standards;

_It cannot be inflated by printing more of it; it cannot be devalued by government decree and unlike paper currency it is an asset which does not depend upon anyone’s promise to pay.’

Use of the Gold Dinar in International Trade

In Malaysia today, there are many scholars who advocate the implementation of the use of the gold dinar in international trade.

“International trade would need the advantage of the gold dinar since it has a definite value based on world demand for gold and any fluctuations are minimal. The risk of speculation can be reduced to almost nothing. Arguably, world trade can actually expand because the cost of business will be much reduced as the need to hedge will practically disappear. In addition, trade need not be paid in actual dinar but the imports and exports of a pair of trading nations can be balanced and only the difference paid in dinar.

Local gold prices would determine the exchange rate for the local currency against the dinar.”

The use of the gold dinar would threaten the entire system and the powerful elite who control it. In fact, the use of gold as a medium of payment has been specifically prohibited by a key Bretton-Woods institution, the IMF. “Some have raised concerns that the use of the gold dinar could contravene an existing prohibition by the IMF on the use of gold as a medium of payment and could be a return to the Bretton- Woods policy of a gold reserve system (see s2(b).”

The people in control today do not want to see a return to gold reserve system initially envisioned after World War II.

Presidents have been assassinated over attempts at trying to return to the gold reserve system in combination with attempting to dismantle the US Federal Reserve system. Imagine what the powerful elite in control might try to do to an Islamic attempt to overhaul and revamp the current structure. My guess is that either they would try to secretly hijack Islamic finance and put forth a fake model of Islamic finance which continued their agenda or they would make the world believe through manipulation of the media that Islamic finance is terrorist financing in the ‘war on terror’ and try to ban it in as many jurisdictions as possible akin to banning wearing of the hijab in France. In addition, the powerful elite may also try to make the world believe that all Muslims are terrorists which need to be bombed endlessly for no specific reason but based on a vague and distorted notion that Muslims are continuously plotting against the West. In fact, fictitious characters might even be created and broadcast through all forms of media to create fear in Western societies that this ‘movement’ has a leader.

Again, article IV under the IMF Articles of Agreement provides that exchange arrangements between its members may include the maintenance by a member of a value for its currency in terms of the special drawing right or another denominator other than gold.”

However, in 1982, the Islamic Development Bank was prescribed by the IMF as a holder of Special Drawing Rights (SDR’s). SDR’s are a unit of IMF currency tied to gold.

The Islamic dinar, which is the unit of account at the Islamic Development Bank, is equal in value to one SDR.

Therefore, there is room for a clever lawyer to argue that the Islamic gold dinar does not violate the Articles of Agreement of the IMF and make room for its implementation and use on the world stage.

Malaysian Proposal to use the Gold Dinar in International Trade

“The proposal is to denominate external trade in dinar (a standard unit of weight of gold) whose denomination has yet to be set. Exporters would be paid in their respective national currency by their central bank on the due date of exports based on the gold dinar exchange rate prevailing at the time of the transaction. Meanwhile, central banks would settle the difference in bilateral trade balance every 3 months by transferring gold in their custodians account at the Bank of England. There would not be physical transfer of gold from one country to another but a transfer of beneficial ownership in the gold custodian’s account.”

The Islamic dinar concept is currently having trouble attracting the majority of Muslim countries because of the nature of their governance systems, which ranges from absolute monarchies to military industrial dictatorships.

However, if Arab unity could be fostered somehow and Muslim brotherhood and sisterhood truly developed, Muslims of the world could unite to protect themselves first and then to contribute to the betterment of the world and the survival of humanity. Divided we fall, united we stand. If people try to divide you to make you weak, unite and strengthen yourselves in numbers. If your culture and religion are being subjected to relentless media invasion, go back to your roots and remember who you are and where you came from. When you lose your religion, you will be turned to dust. Your system might actually be better for the world than the current system in place no matter what you may have been led to believe.

Dual Currency System in Malaysia: Use of the Islamic Gold Dinar in Domestic Transactions

The use of the gold dinar on the international scale may lead to the use of the gold dinar in the domestic economy in Malaysia. This raises regulatory issues as well as other matters. “A widespread use of the gold dinar in local business will gradually create a dual-currency system in Malaysia which requires adequate monitoring and control by Bank Negara Malaysia. Bank Negara would need specific regulatory and monitoring powers under the CBMA specially tailored for the gold dinar. Amendments of the CBMA must take into consideration the following principal differences between the gold dinar and the ringitt:

(1) It is commodity and not fiat money;

(2) Its issuance is not controlled by Bank Negara Malaysia as it can be issued by private entities and not only governments; and

(3) It has almost no inflationary risk thus limiting Bank Negara’s ability to control supply and demand simply by determining interest rates.[21]

The idea of having a currency which is not subject to governmental and political control is certainly shocking and scary especially to central banks and monetary authorities. However, the use of the gold dinar should go over well with the business community as they can make business plans without concerns over the interest rates and inflation risks. Furthermore, central banks and monetary authorities that have experienced the exhaustion of their foreign reserves in the struggle to maintain their currency value in view of attacks by speculators would be able to relax. Commodity money notwithstanding its exposure to supply and demand has proven to be stable and not prone to speculative attacks.

Conclusion

Shall Muslim nations make the move to using the gold dinar? At first, such nations can implement the use of the gold dinar in international trade, then domestic transactions and then attempt to unify in a Muslim trading bloc. How about starting with the expansion of the Gulf Cooperation Council and build from there? The current Arab and Muslim organizations in place today first need to be strengthened and expanded and then consensus reached about adopting a gold standard.

Sources of Information .. here