BANKING - The Gold Dinar is Gaining Ground

Harsh criticisms of Islam and Muslims are becoming increasingly common in Western media, but one area they continue to command respect is in the financial sector, especially among Austrian economists.

In the wake of a mortgage melt down, a recession and unprecedented national debt many economists observed that Islamic finance, specifically its prohibition on interest, has shielded many American Muslims from economic crisis.

Now, a state in Malaysia is taking it one step further, by issuing an Islamic currency which they believe will protect consumers from the usury of inflation and market manipulation inherent to a debt based paper currency.

The Islamic Party of Malaysia (PAS) believes that the answer comes from Islamic history, when the dinar and the dirham were gold and silver coins. The PAS are currently the ruling party of Kelantan, a state within the nation of Malaysia.

On August 13, the government of Kelantan announced the launch of a gold dinar and silver dirham intended for use as an alternative to the Malaysian Ringgit notes and Sen coins. So far it has been reported that over 1,000 stores have agreed to accept the the coins for barter trade.

In 2002 Malaysian Prime Minister Mahathir Mohamed advocated for an Islamic Gold Dinar (IGD) system to facilitate international trade between Muslim central banks. This was not successful, but he is currently being advertised as a guest of honor by organizers of the World Riba Conference in Kuala Lampur.

This is the first time since the collapse of the Ottoman Empire that a Muslim government will issue gold and silver coins to be used by citizens in the market. However, the announcement has sparked controversy between the Kelantan state, and the Malaysian federal government, which argues that the authority to issue currency is the exclusive privilege of Bank Negara Malaysia (BNM), Malaysia’s central bank.

In a meeting with reporters and the Kelantan Umno Liason Body the next day, International Trade and Industry Minister Datuk Seri Mustapa Mohamed said, "I advise the Kelantan government not to do so (introduce regulations) as it likes. Matters concerning currency comes under the jurisdiction of the Federal government, and not the state government, and what had been done clearly breached the country's law."

Private individuals are already trading in Islamic currencies. Since 1992, the e-dinar company has minted their own gold and silver coins for private use. In 2000 they established a digital gold currency that be transferred like paypal. They were first incorporated in Labuan, Malaysia as e-dinar Ltd., and now have offices in Dubai, the United Arab Emirates and Indonesia.

Advocates of the gold and silver currency argue that precious metals are the only honest measure of value, and that paper currency is a kind of fraud or usury. When a currency has no commodity backing it there is no limit on the amount a central bank can increase the money supply and no limit on inflation. This gives governments access to near limitless credit, so they can borrow money to fund their projects without directly taxing their subjects.

The result is that the buying power of the new money is taken away from the buying power of the money already in circulation. Economists from the Austrian School point out that inflation is not caused by rising prices, but by a decrease in the buying power of the dollar which results from an increase in the money supply.

In the UK there is the Dinar Exchange, which describes itself as the “official certified supplier of Islamic gold dinar and silver dirham in the United Kingdom.” The organization recently held a series of roadshows in prominent UK cities to raise awareness about the project, and help set up business franchises that can accept the alternative currency.

So far few Muslims have taken an interest in the gold dinar in the US, and no company exists to distribute the coins. This may be because in the US, legal tender laws make it a crime to use gold and silver for private exchange.

However, some Americans are opening up to the idea. The Liberty Dollar, once a widely accepted and successful alternative silver currency was raided by the FBI in 2007. Bernard von NotHaus, monetary architect of the Liberty Dollar and co-founder of the Royal Hawaiian Mint Company, intends to challenge the constitutionality of the federal law in court.

In the mean time, the Free Lakota Bank, of the Lakota Nation issues and circulates their own silver currency. And in New Hampshire a private bullion exchange known as Shire Silver facilitates using precious metals in trade by measuring, certifying and packaging small bullion bars in denominations suitable for exchange.

Any way you slice it, whether the governments of the world like it or not, gold and silver currency is not going away any time soon.

Source : http://www.illumemag.com/zine/articleDetail.php?The-Gold-Dinar-is-Gaining-Ground-13239 -  Sept 5, 2010