Gold Dinar - Economy

RELATIONSHIP BETWEEN GOLD/GOLD DINAR & ECONOMIC CONDITION

CHE SURIATY DISA (815226)

HANIS HAZWANI AHMAD (817801)

SITI KHADIJAH SALEH (818578)

SITI NOOR ADNAN (817481)

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INTRODUCTION•Our former Prime Minister Dr. Mahathir Mohamad was first expressed his interest in Gold Dinar currency after Malaysia and other Asian countries were attack by the speculators in year 1997, which leads to financial crisis. •Tun Dr. Mahathir Mohamad suggested that, Gold Dinar currency could be used to help uniting Muslim countries due to the fact that, the value of the Gold Dinar currency has remained stable in relation to basic consumable goods. Therefore, it shows that Gold Dinar value is stable over time (Mahathir, 2003).

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•He wants to use the Islamic Gold Dinar in place of the American dollar for overseas trade settlements. •Therefore, Gold Dinar in international trade is seen as a strategic move to protect the interest of nations as far as monetary stability, independence and justice are concerned.•(Siti Zaiton & Nurshuhaida, 2013)

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WHY USE GOLD DINAR?•An alternative system to fiat money whereby the value of currency is Gold value rather than paper note.•The implementation and usage gold dinar give more value added as opposed to fiat money

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CONT.•The of gold as a currency and financial instrument it leads us to follow the way of Islamic society in the past.•They establish the usage of fiat money such as paper money to change the system of gold dinar after the Khalifah system collapse.(Malaysia Economist Blog)

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Advantage of Gold Dinar

•It has intrinsic value •It leads to harmonization in currency system that people cannot make injustice for the usage of it

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CONT.•Inflation maybe happened in natural way•It can solve the problem of overproduction in printing money. Do not lead to discrimination•The value gold of stable.

(Malaysian Economist Blog)

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Relationship of Gold Dinar with Price Currency

1.Price stability◦ Used to measure the value of a local

currency◦ Eg: if there is high demand from industry

requires gold for production. This will cause gold price rise.

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According to mahmood (2001), the practice of muslim states in the first centuries of islam confirm that a true and acceptable monetary unit is that which has a stable worth due to the intrinsic value of the metal it is made of. History has shown that the gold price shown stable and fit to be money and there is no money more unfit than paper money.

(MAHMOOD, 2001)

Price Stability

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Cont. Regarding the price stability, history has proven that the movement of the price of gold is more stable than fluctuations in the value of fiat money

For example, when the ringgit fell by 43 per cent to the US dollar, this would be a good illustration of how fluctuations in fiat money can affect trade.

Even though the low ringgit was attractive for the export market, the fact remains that the country's import bill climbed substantially. This condition had an indelible impact on Malaysia's economic development.

(Source: Saifuddeen Shaikh Mohd Salleh, New Strait Times )

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CONT.2.Import and Export◦ Effect countries that impact and

export◦ Eg: Import > Export = Currency ↓◦ Import & export using Gold =

Strenght in currency.

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CONT.3. Inverse Relationship between US Dollar and Gold Dinar• The freeing of the US dollar from the gold standard has

enabled it to fluctuate more widely while the value of the gold remains stable, making it a safe for investors in times of uncertainty, as a hedge against inflation and recession.

• The value of the gold remains stable in comparison to currencies, but its price in any given currency can fluctuate as the perceived value of that currency changes.

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CONT.• The fluctuations in its price in US dollars reflects confidence in

the currency, as the dollar revalues itself in relation to gold. • Thus, the price of gold tends to move in opposite directions to

the value of the US dollar. • The history of the US dollar’s association with gold can be

useful, in order to predict when the inverse correlation is most likely to be triggered and how this can be used to one’s own advantage when investing.

(http://www.kitco.com)13RELATIONSHIP GOLD DINAR AND ECONOMIC CONDITION

Gold Investment• Investors generally buy gold as a way of diversifying risk• Traditional way of investing in gold is by buying gold bars such as in a

country like Canada, Austria, Liechtenstein and Switzerland, these can easily be bought or sold at the major banks. •Banks in Malaysia offer gold investment accounts to customers who will

make deposits when prices of gold are low and withdraw at a profit when prices rise

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Impact on Economic Condition• Investing in Gold will spread the risk in a country that control the economy• Investment in gold guarantees value and provides security (Zuhaimy Ismail, 2003) • Investment in Gold will contribute to economic growth.• Investing in Gold mean turn the currency into gold bars may protect you from the

devaluation of currencies.• But investment in gold may affected by the political risk that states to a situation

where the government make alterations laws and regulations or its usage as currency.• For example: In 2005 Chavez, the Venezuelan president announced the confiscation

of the property held by Crystallex, a Toronto-based gold-mining company.This resulted in a drop of its share price by 50 per cent in a single day.

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PROBLEM SITUATION•Paper money quantity can be increased since there will always be demands from the public to increase the quantity of money which would cause inflation = manipulation of paper money•Floating rate exchange is the currency rate that is unstable which can be easily fluctuating

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Solution : How can Dinar help in Economic Crisis

•The gold prices are indeed relatively stable compared to other commodity prices, exchange rate movement and the stock market index •Manipulation of currencies and the impact toward one economy could be reduced because of the fact that gold does not inflate in value as it is a commodity and thus has an intrinsic value•If gold coin were used, then counterfeiting would also be checked

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CONT.•With dinar and elimination of interest, we would have a stable currency and monetary system, money supply growth (from new discoveries of gold) can be expected not to exceed growth in the real sector, thus eliminating the inflationary pressure in the economy •If all these exchange rates are eliminated by means of a single currency like the dinar, then speculation, arbitrage and manipulation will be very much removed if not eliminated

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Can Gold Dinar solve the trade problem among the Islamic countries?•Organization of Islamic Conference (OIC) • International organization grouping to pool their resource together, combine their effort and speak with one voice to safeguards progress and well being of their people and all Muslims in the world

•The successful implementation of the Islamic Gold Dinar is the level of acceptance among OIC members

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CONT.•“The Gold Dinar could be an important facilitating mechanism to help the smaller countries of the world move away from an inherently unstable and ultimately unjust global monetary system,” (Minews, 2002).

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CHALLENGE•Gold as means of exchange has encountered a number of challenges right from its beginning until the late 20th century when its circulation as was finally prohibited by the World Bank. •The recent re-introduction/re-invention of gold dinar (money) in Kelantan comes with its own challenges with protests against its adoption as an alternative currency.

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Issues

•Kelantan Gold Dinar (DEK) •Benefit from the advantages of gold dinar in various forms of activities such as reserves, investments, zakat payments, jewelry and wedding dowry.

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CONT.•Kelantan is the first state in Malaysia to accept zakat payment in gold dinar form. •Gold dinar as a wedding dowry has also been practiced by some community in Malaysia. In 2001 Malaysian artists M Nasir and Marlia Musa became the first couple to gold dinar as their wedding dowry (Utusan Malaysia, 2001).

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CONCLUSION•Most central bank around the world invest more in gold to preserve their assets during volatile economics conditions especially for Islamic countries.•Gold Dinar is an alternative to control and protect economic crisis because of its own characteristic.

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