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Islamic Dinar

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Aristippus posted on Mon, Apr 18 2011 5:02 AM

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There is a movement to return to a bimetallic standard (with an emphasis on gold) for religious reasons. As part of this, the 'Islamic' gold dinar is being promoted. It's legal tender in the Malaysian state of Kelantan (pop c. 1.5 million), but do you think that it is being used much overall for transactions or that it largely disappears from the economy and is hoarded? With the falling value of the US dollar, as well as further ideological reasons for the greenback's unpopularity in certain regions of the 3rd World, do you think the Islamic dinar could become a standard currency in these countries?

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Kakugo replied on Mon, Apr 18 2011 8:27 AM

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There was a similar movement in Mexico to return to a "silver standard", mostly to boost the local mining industry. Truth to be told some Mexican coins (1993 series 10, 20 and 50 peso) have 92,5% silver content (1/6, 1/4 and 1/2 oz respectively) and are commonly used, though the 50 coin tends to be "hoarded" due to its high silver content. 10 peso coined after 1996 lack the silver content but the older coins remain in circulation and are still legal tender. Technically speaking you can walk into any bank or post office with a wand of banknotes and walk out with a bag of silver coins. It's curious to note the Bank of Mexico is reporting use of these coins is declining, mostly because with rising silver prices people are hoarding them and using banknotes for transactions instead. And that's your answer: bad money drives good money out of the economy. People tend to save good money (silver coins) and spend bad money (banknotes) instead. A gold coin would probably disappear in a matter of weeks, as it gets hoarded.

Also remember what happened to Japanese. In between 1986 and 1990 the Bank of Japan minted the splendid 100,000 yen gold coin. This was legal tender. When Asian economies tanked in the late '90s and gold prices plummeted because everybody was selling gold to get liquidity, investors from the former "Tiger Economies" (Malaysia, Thailand, Indonesia etc) started turning in their coins to get cash. Since it was legal tender the BoJ was forced to pay each coin 100,00 yen, though with the drop in gold prices they were worth considerably less, especially in the older "Hirohito" series. It was a major embrassement and it cost the BoJ hundreds of million.

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digitalgoldmark replied on Mon, Apr 18 2011 12:01 PM

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It's been widely reported in the news that the Gold Dinar and Silver Dirham are "Legal Tender" but this is not true. I refer you to the World Islamic Mint for the details. Also I'm a member of DinarPeople which is a very large trading group of people using dinar/dirham you may want to check it out. http://www.dinarpeople.com/

http://www.islamicmint.com/news_articles/articles/statement_castineria.html

The Gold Dinar and Silver Dirham known as Shariah currency or Shariah coins in the Fiqh are not legal tender. The Shariah currency has no relation to present fiat currencies on many accounts and should not be legally or practically be compared or treated as the same. The Gold Dinar and Silver Dirham relates to religious matters, most important of which is the matter of payment of Zakat, rather than constitutional matters. Its introduction can only occurred on voluntary basis since freedom is a command from Allah in all commercial transactions including the acceptance of money. Its usage has been throughout history open to Muslim and non-Muslims alike.
1.- The Gold Dinar and Silver Dirham are not legal tender. Legal tender or forced tender is an offered payment that, by law, cannot be refused in settlement of a debt, and have the debt remain in force. Personal cheques, credit cards, debit cards and similar non-cash methods of payment are not legal tender only the notes and coins of Malaysia are Legal Tender. The issuing of Legal Tender is the exclusive prerogative of the Federal Government and the Government of Kelantan never had nor has the intention to issue Legal Tender as that is legally impossible.

Filed under: gold bullion, gold dinar, Islamic Banking, silver dirham
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EmperorNero replied on Sat, Apr 30 2011 9:05 AM

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Kakugo:
And that's your answer: bad money drives good money out of the economy. People tend to save good money (silver coins) and spend bad money (banknotes) instead. A gold coin would probably disappear in a matter of weeks, as it gets hoarded.