PETALING JAYA: Disunity in the Islamic bloc and the preference for the status quo in world banking and trading links will probably scuttle the idea of a gold dinar as a new international currency, say two experts.
Nazari Ismail, a professor of economics at Universiti Malaya, said Saudi Arabia is not keen on the idea. “So that will be a big damper” as the country is an influential country in the Muslim world and is the host country of the Organisation of Islamic Cooperation.
Prime Minister Dr Mahathir Mohamad had brought up the idea of a gold dinar as an international reserve currency for Muslim countries in preference to the US dollar as the dollar was sometimes unstable.
Nazari said Indonesia and Pakistan would probably not be interested as well, if it was true that they did not attend the KL Summit because of strong pressure from Saudi Arabia.
He said Qatar exports a lot of natural gas and would be likely to prefer the dollar, while Turkey’s private sector had a huge external debt almost completely denominated in US dollars.
“In other words they will need plenty of US dollars to pay back their dollar-denominated debts,” he said.
Nazari said the private sector in all countries, including Muslim countries, were keen on fast and efficient international money transfers and were more likely to use the US dollar.
The banking institutions of all countries are interlinked and they would prefer to maintain a system that facilitates their operations. “So they are likely to prefer the status quo too. I am not at all optimistic that Mahathir’s idea will be taken up soon,” he said.
He said the priority of all Islamic countries should be to minimise external debts in order to maintain economic and political stability.
“If external debt is high, then your bargaining position will be very weak. Pakistan best illustrates this point” as the country was not able to resist Saudi pressure because it needs Saudi Arabia’s financial assistance to overcome its debt situation.
Gold standard and the Great Depression of the 1930s
Business analyst and consultant Hoo Kee Ping said Mahathir had not defined the type of gold to be used for the dinar – whether physical gold, futures and digital gold.
“Assuming if he is referring to physical gold, where do we find that much gold to back paper money,” he said, pointing out that one reason for the Great Depression of the 1930s was the reliance on currencies backed with gold.
He said it was difficult for the world to circumvent the US dollar as an international currency. Europe had tried by creating the euro currency, but failed to challenge the US dollar.
Yeah Kim Leang, former chief economist of RAM Holdings, preferred a “multi-bilateral currency” to reduce dependency on the dollar.
For instance, Malaysia and Saudi could agree to use a common currency of dinar. “That is possible because Saudi is oil rich. But it should not be based on gold,” he said.
Malaysia could also work with Europe to use the euro and the same with China. “This is more workable to have multiple bilateral currency exchange to reduce dependency on US dollars,” he added.