Breaking the Myth of Gold as the Ultimate Store of Wealth

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In this article, we shall discuss the over-hyped claim that gold is the ultimate store of wealth.  Gold is accorded such esteemed honors freely, but where are the facts? Is it true that gold’s value would protect its holders from the ravages of inflation? Is it true that our wealth, our hard work and sweat as it’s often called, can be stored ‘inside’ a piece of yellow metal?

The yellow metal is often hyped as very stable in value, but is there any truth to it? Take a look at the value of gold, priced in US Dollars below.

 

 

(Data obtained from the Federal Reserve monthly CPI and World Gold Council)

Which is the rock of stability? Clearly the fiat currency is.  The reason this is so, is very simple.  The dollar is actively controlled by the central bank, gold is not.  What does ‘controlled’ mean? To find out, you will have to download and read the Conundrum of Assets and Money at our website.

The value of gold, by itself, is erratic and unstable.  Therefore storing one’s wealth into gold, is bound to be a bad decision, no matter what.  In 2011, gold’s price dropped by 25% in a matter of two weeks.  Will you be happy if your EPF savings shrink in value by a massive 25%, in two weeks? It took you years to save that much, and you will need more than ten years probably, just to recover from this loss, without any profit whatsoever.  This illustrates clearly the instability inherent in gold, its failure as money and this was the real reason why our grandfathers threw it away for good.  However our warnings and explanations were brushed aside, and people continued to adore and idolize their shiny metal and hail it as the ultimate savior, better than fiat currencies all over the world.  They thought it will save them from the upcoming “hyperinflation”.  Well, it did not.

Once again, today in 2013, it dropped by the largest ever on record, by a massive 30+% in the space of just a few days.  Millions of gold hoarders were affected, and they could not do anything except watch.  No gold buyer, not a single one, since mid 2011, would have made a single cent from their ‘investment’ in the yellow metal especially if they bought physical gold.  That’s right folks, not a single one.  We are talking about hundreds of millions of people.  These group of people would suffer tremendously, possibly until the next generation.  This calculation is made by assuming that those who bought them, plan to sell them only after it appreciate 20% (as gold dealers will charge as much as 15% to 20% premium), or only after a year of purchase.  The recent large drop erased more than two years of gains, essentially returning the market back to 2009.

Now compare that to the US dollar, the world’s de facto currency.  Its value remained stable throughout the period, made possible by the monitoring done by the Federal Reserve.  The main advantage of a fiat currency is that it is being controlled actively, by the issuer.  Gold on the other hand, has no control whatsoever, and is very open to large-scale manipulations.

[We need to mention the performance of gold compare to that of the stock market as well, it is between night and day.  For example the DJIA stock market’s has returned a magnificent 55% over the period excluding dividends(which is also significant).  Gold on the other hand, delivered zero return since 2010). ]

This is a chart comparing gold’s price at its peak, to that of the stock market.

In order to simply catch up to the DJIA growth, gold price must elevate itself by a humongous amount of 91% from its current level.  Again, for this to occur in the short to medium term is almost nonexistent.  Can you now imagine gold’s price going up to USD2,350 in a few short weeks? The chance for this occurring is zero, and the chance for it to occur in the next few years would be very remote as well.  Therefore gold hoarders had permanently lost to the stock market and are left in the dust.  These hoarders are unlikely to come out from their losses, ever.  Again, imagine that if you put 150,000 dollars in the stock market in 2011 and another set of equivalent amount into gold bars, today you would have more than 204,000 dollars sitting pretty in the stock market, but only 98,000 as gold bars.  Your gold bars must grow by almost 100% just to catch up.  As we mentioned just now, the chance for that occurring anytime soon is almost nil.

Apparently, Buffett was right all along.  He made a handsome profit in the stock market, not just in 2013, but in 2012 and 2011 as well.  Putting money into great companies with visions to change the world into a better place is a rewarding endeavor rather than keeping pieces of metal inside a vault somewhere for individualistic benefit.

According to the Public Gold chairman, government can print as much money as they want.  However if they could, they would have done it already.  Why would they bother with bonds and borrowings if they could simply print tons of money?

We also showed that fiat currencies do have value; they are always properly backed up.  To understand this part, we created video presentations for easy understanding at our website.  It is really easy and simple in reality.  No money is ever printed out of thin air.

What is the real purpose of money? We articulated in our book series, that money is simply a medium of exchange, to enable trades between economic participants.  Money must be stable, to allow a trade to occur to completion, without penalizing the seller or the buyer. For example, a trade of selling/buying a house may take up to three months to close from the negotiation stage, all the way to the actual payment and title transfer.  Within these three months, the price or the value of money must remain stable, otherwise the trade could fail.

Under the defunct gold standard, the seller must contemplate losing 25% of the sale’s price, anytime during the trade, due to the possible sudden change in the value of gold.  A seller who is selling his house worth $500,000 may lose up to $125,000 and pocketed only $375,000, if gold’s price drops suddenly during the trade.  In fact, he may need to top up additional $125,000 to settle his outstanding loans, thereby losing way more than he bargained for.  To avoid this trade from eating him alive, the seller would buffer himself with a very large premium over the selling price, making everything even more expensive for the buyer.  This is one reason why Islamic fixed loans are expensive.  We explained the unfairness of this type of loans in our writings.

The least the currency could do is to remain as stable as possible, until the trade is completed.  Well, the majority of our trades would close within minutes, some in a few days.  But rarely, we need more than several months.  Therefore price stability concerns of the central banks, diminishes greatly after a window of several months.  There is no point in keeping the price unchanged for five years for example, because there is hardly any trade requires such a long period to complete.  More than 10 years? Probably zero trade requires such a long overdrawn period.  Therefore, the central bank focuses their eyes to the short and the medium term period.  If the short and the medium term is rather stable, the long term would take care of itself and will actually reflects the future expected inflation rate.  So is it even proper to compare the value of today’s dollar, with the value of the dollar of ten years ago?  Or 50 years ago? The answer is it is not, because the dollar of today’s, is greatly different than the dollar of yesteryears.  Comparing them would be very confusing and misleading (we have shown this in one of our books).  We coined the term, “temporary store of value” as one of the function of an ideal money.  Any currency that can fulfill this requirement beautifully, would fulfill one of the three criteria of an ideal money.  Is it fair for us to compare theprice of a car of 50 years ago, to that of today’s?  No doubt the price has gone up, but how about the speed, the fuel efficiency and the comfort of today’s modern cars? They are no longer comparable, unless plenty of corrections to quality etc are made.  Did you even know that the cars of the 70s consumed more petrol staying idle, than the cars of today coasting along the highway at the speed of 90 km/h? These cars are no longer comparable, they are essentially very different.

Thus the claim that the dollar has lost 95% of its value from the year 1913, is simply ‘bogus’ and misleading.  If such is the case as claimed, today’s generation won’t be able to buy their tv sets, their smartphones, zero emission cars etc. because their incomes would have shrunk by 95%.  Imagine your salary shrink by that much, what can you buy with it? In reality, the ‘shrinkage’ of the value of the dollar is compensated, by increasing the income of the economic participants, much much more than the claimed loss.  We showed in one of our interesting infographics, how the two compared, over a long period of time in the book series.  The clear fact is, the actual purchasing power of the economic participants have exploded (we mean by going up significantly!)  Despite clamoring for the old Roti Canai price, or the old bread’s price of decades ago or the ‘cheap’ price of a Corrolla of the 70s, you would probably be wondering how and why could you afford more Roti Canai today compared to then, or why you can afford to buy 20 breads, compared to a long time ago.  Despite the so-called higher prices, how could you buy ever more of those things? The real answer is very simple; your purchasing power has jumped significantly, negating completely, all the losses of the currency due to inflation.

 

So, does it matter that the price of a goat of 100 years ago, of say a mere 5 dollars, compared to that is of today’s?  The answer is, it does not.  Even a thousand plus years ago, it still does not matter.  This is one of the argument used by gold proponent, saying that the price of a goat of 1000 years ago (one gold coin) is essentially similar to the price of a goat of today, which is also one gold coin.  Actually, this comparison is meaningless, because throughout the 1000 years, the price of goat has actually gone up and down significantly, only to get back to where it started, a thousand years ago.  In fact it went up to several gold coins (hundreds of percent) and in some countries today, the price is still too high (several coins).  As such, the claim that gold’s price stays the same is actually a bogus claim.   We quote from the book, Secrets of The Temple, the author mentioned that an airplane is said to be ‘stable’ on the ground if one only look at the start and the finish point, forgetting that in the between, the airplane actually went up and down so high in the sky.  Why bother with the value of money of 1,000 years ago, because no trade will need that long to complete?

Now, let’s dissect the claim that wealth can be stored inside a gold bar for instance.  How do we store something, into something else? Believe it or not, this cannot be done no matter what.  You cannot store your house into a gold bar, or you cannot store your sweat, into a gold coin.  Try all you want, it cannot be done.  You may convert your house into gold, only by trading it.  Still, the house is not stored inside; keep that in your mind regardless!

One of the major claims of gold’s supporter to push the world into using gold as the world’s currency is that the value of gold is presumed to be stable.  We have shown that gold’s value is nowhere near stable as they thought and preached.  In fact, there is no one item in the world that does not change in value.  Not one.  We dare to challenge you, the reader, to bring us just one item in the whole wide world, that does not change in value, at all!  Bring to us this one item, and perhaps the gold proponents would then have more to say. Perhaps it’s wood? Perhaps it’s ice? Perhaps iron? Or maybe plastic, oil, water or whatever it is, which may not change in value at all forever? Well until then, their feel good claim is just that, a self belief system propagated by their cronies, repeated over and over everywhere.

Since there are not one single item in the world that does not change in value (including gold and silver), then how do we expect the price of any item, to stay the same, forever?  It can’t and it won’t.  Everything changes in value.  That’s the way the world works.  You cannot store your wealth and expect its value to remain the same, five years from now.  We explained this phenomenon thoroughly in our books.

So what is the real value of gold? We showed by mathematics in one of our articles in our blog (go and read them for free) that it is essentially ZERO.  We explained why gold used for investment purposes has no value whatsoever.  Many people would disagree with this assessment, however can they provide solid mathematical proof that it is actually valuable? Can they show the math? Can they show that it is actually as valuable as the very expensive price tag?  One clue, can you survive without gold in your possession? If you can, then the value is far less than what you think it is, perhaps, as we just mentioned, it could be all the way down to zero.  But can you survive without water or food in your possession? Obviously you can’t.

We are yet to mention the view of religions all over regarding hoarding gold because we don’t need to as the economics and the math already confirmed beyond any doubt what its the impact on the general economy.  Don’t let ‘them’ brainwashed you into thinking that Gold is ‘religion sanctioned and approved’.  Find it out from your own Quran or Bible, read it for yourself what God actually say about this piece of yellow metal!

[{As a special to all readers out there, both the authors of259 Trillion Vs 5 Trillion book series had agreed to publish a part of Book 3 titled, "Another Take At Gold" in their website, but it is only for a very limited time (30 days).  The reader would be able to find out their predictions back in 2011 where gold would be heading (they turned out to be correct on the dot!) and where gold would head next.  Read it here

Sharif Rahman is the co-author of 259 Trillion Vs 5 Trillion book series and on a book explaining the Occupy Wall Street movement.  He can be contacted at his email at author259tvs5t@yahoo.com.  The books are available in Amazon.com and for Malaysians who are interested, please do contact him on purchase information.}]

Utah Legalizes Gold, Silver as Currency, More States to Follow?

Utah has now made official the use of gold and silver coins as legal tender.

This marks the first time since 1971 that any government entity in the United States has legalized the use of gold and silver as currency.

The law, signed by Governor Gary Herbert, does not require citizens to pay or accept payment in gold or silver, but rather offers an alternative to the fiat-based Federal Reserve note.

The Utah law will also exempt the sale of gold and silver coins from state capital gains taxes, according to the Associated Press.

The idea was developed by Republican state Representative Brad Galvez, who sponsored the bill primarily as a protest against the reckless monetary policies of the Federal Reserve. Rep. Galvez stated that the American people are losing faith in the dollar and a sound monetary alternative is necessary.

“We’re too far down the road to go back to the gold standard,” Galvez contended. “This will move us toward an alternative currency.”

Larry Hilton, a Utah attorney who assisted in the drafting of Utah’s law, asserted that “We view this as a dollar-friendly measure. It will strengthen the dollar by refocusing policy matters in Washington on what led to the phrase, ‘the dollar is as good as gold.’”

Ralph Danker, project director for economics at American Principles in Action in Washington, D.C., which also helped draft Utah’s legislation, stated that ”Making gold and silver coins legal tender sends a strong signal to Congress and the Federal Reserve that their monetary policy is failing. The dollar should be backed by gold and silver, so we have hard money.”

The AP also noted that “Earlier this month, Minnesota took a step closer to joining Utah in making gold and silver legal tender. A Republican lawmaker there introduced a bill that sets up a special committee to explore the option. North Carolina, Idaho and at least nine other states also have similar bills drafted.”

Source: http://www.goldalert.com/2011/05/utah-legalizes-gold-silver-as-currency-more-states-to-follow/

The best currency is gold and silver, says Marc Faber

INTERNATIONAL. Marc Faber the Swiss fund manager and Gloom Boom & Doom editor predicted the value of the dollar in the long term will be zero and advised investors to become "their own central banks and gradually accumulate gold reserves as a currency".

Speaking early on Monday to CNBC Asia, Faber said: "We are in a contest for the ugliest currency".

Most investors have at least 70%-80% of their money in US Dollars, he said, adding that occasionally the money speculators may be heavily into the euro and negative about the dollar but "there is a huge overhang of US Dollars globally. If people could sell their dollars and move into something they believed in, they would do it".

"I still believe the best currency is gold and silver, and this is not the perception of most people. They believe gold and silver are speculative investments," Faber added.

In a reply to a question from a viewer, Faber said investors "should be their own central banks and gradually accumulate gold reserves as a currency", rather than speculating in gold.

He recommended holding physical bullion over other gold assets and advised against holding gold assets in the US because of the risk of "expropriation" by US authorities, as they did in the early 1930s.

The price of spot gold jumped closer to US$1500 today, reaching a new all-time high of US$1497 per ounce.

Fear of inflation...the high oil price...extreme financial difficulties [for some] Eurozone nations...the US debt-crisis...problems in the Arab world...and the situation in Japan...There are more than sufficient reasons why the gold price further extended its gains to a new all-time high," writes Wolfgang Wrzesniok-Rossbach in his latest Precious Metals Weekly at German refining group Heraeus.

"The moderate interest-rate hike in Europe has not had the ability to change the trend, nor has the relatively restrained demand for bars and coins, observed not only in Germany but also in Asia."

On the direction of the US Dollar, he told CNBC the greenback may see a temporary rally but he maintained his long term prediction: "The value of the US Dollar will be precisely its intrinsic value, namely zero, precisely zero".

The Gloom Boom & Doom editor has not changed his stance towards gold. In a March 2009 interview he advised to "buy every month a little bit and become your own central bank because you can't trust central banks anymore to act responsibly and maintain the function of paper money as a store for value. So, you want your own reserve".

In a discussion about the US deficit in today's CNBC appearance, Faber said he didn't think it was possible to "reduce the deficit meaningfully unless the US increased taxation significantly and cut spending meaningfully".

He expects "the US government to raise the debt ceiling, but the deficit will stay around US$1.5 trillion for the foreseeable future" because of politics.

The US has the Republicans on one side and the Democrats on the other and I don't think they will compromise, he said.

Note: Dr Marc Faber was born in Zurich, Switzerland. He went to school in Geneva and Zurich and finished high school with the Matura. He studied Economics at the University of Zurich and, at the age of 24, obtained a PhD in Economics. Between 1970 and 1978, Dr Faber worked for White Weld & Co in New York, Zurich and Hong Kong.

Since 1973, he has lived in Asia. From 1978 to February 1990, he was the Managing Director of Drexel Burnham Lambert (HK). In June 1990, he set up his own business which acts as an investment advisor and fund manager.

In 2000 Faber decided to spend more time writing his newsletters as well as growing his advisory business. He moved back to his home in Chiang Mai, Thailand, maintaining only a small administrative office in Hong Kong.

Dr Faber publishes a widely read monthly investment newsletter 'The Gloom Boom & Doom Report' which highlights unusual investment opportunities, and is the author of several books.

Source: http://www.bi-me.com/main.php?id=52224&t=1&cg=4

Gold and currencies: an historical perspective - Mineweb

Gold was money long before currencies came into the fray but a look at how the world moved from a gold standard to the current situation provides some useful food for thought

Author: David Levenstein

JOHANNESBURG -

s gold continues to make new record highs, there are many analysts scratching their temples trying to understand what is going on. And, as I have mentioned many times in the past, many of these analysts are stock brokers, financial advisors, accountants and other geniuses. Some of them even have a string of academic qualifications behind their name. But, what has this got to with the gold. The answer is absolutely nothing. And, this is one of the problems facing individuals who are interested in investing in precious metals, in particular gold and silver.

Most of these individuals rely to a large extent on the advice given to them by their financial advisors. This is certainly the case in South Africa. Or they watch and listen to the commentators on main stream media. While many of these analysts are brilliant when it comes to evaluating stocks, most of them have no knowledge about the actual physical markets for gold and especially silver. In South Africa, practically every single one these "experts," have denigrated gold as an investment since the price was less than $300. However, they have yet to understand that investing in gold mining shares and accumulating the physical metal is not the same thing. And, yes, I agree, South African gold mining shares have been miserable performers in the current gold bull market. But, in their confused state, these analysts have failed to make the important distinction between gold mining shares and the reason why someone would want to buy physical gold. And, the majority of these advisors are only familiar with the modern day fiat currency system with some vague understanding of gold. Yet, it is these individuals who proffer advice on investing in gold. If you break your leg, do you go to the nearest library and ask the librarian on duty to help you by looking up the relevant procedure from some medical journal? Or do you go to your doctor? The same applies with investing in precious metals. If you want to know more, go the people who are the experts in this field and not someone who has no idea of what is going on. When it comes to understanding gold it is important to have a knowledge and understanding of money.

The emergence of money was perhaps one of the most important events in the history of mankind. Historically many different goods have been used as money including beads, shells, tobacco, copper and sugar etc. Without money there was no medium of exchange and thus the only way people could trade with one another was through a system of barter. However, it was not a practical means of trade because some goods were more widely demanded than others and some were more divisible into smaller units without the loss of value. Some were also more easily transported than others.

But, over centuries gold and silver emerged as the two commodities that offered the best solution. Both these precious metals were uniquely marketable in that they had worldwide acceptance. This allowed for much easier trade transactions, both domestically and internationally, something we now take for granted. And, over the years, silver was used for smaller transactions while gold was used for larger transactions. Then, gold and silver were minted into coins, for smaller, day-to-day transactions, and into large bars for bigger transactions.

As these coins and bars gained wider acceptance, there were other problems such as the supply of money and of course the problem of "fractional reserve banking." In simple terms this came about by banks that were the custodians of gold on behalf of clients. They simply printed more warehouse receipts than the actual quantity of gold that they held. While these pseudo receipts were nothing more than counterfeit documents, governments gave banks their approval. These banks were simply using the gold reserves of their depositors to create new money. And, of course, this new money increased the economy's supply of money without the country having to increase their holdings of gold.

For many years, the world adopted a gold standard or a form thereof. It must be emphasized that gold was not selected arbitrarily by governments to be the monetary standard. Gold had developed for many centuries on the free market as the best money; as the commodity providing the most stable and desirable monetary medium. From 1815 to 1914 the world was on a gold standard, which meant that each national currency (the dollar, pound, franc, etc.) was merely a name for a certain weight of gold. The US dollar was defined as 1/20 of an ounce of gold, the pound ¼ an ounce of gold, and so on. This international gold standard meant that the benefits of having one money medium were extended throughout the world, thus facilitating freedom of trade, investment, and travel throughout that trading and monetary area. But, with the advent of World War I this system broke down, The system itself did not break down, but in order to pay for this disastrous war, governments had to inflate their own supply of money which meant that it was impossible for the warring governments to keep their pledges of seeing that all paper money was redeemable in gold, and so they went off the gold standard.

Then, from 1926 to 1931 the world returned to a gold standard. While the US continued to redeem dollars for gold, England and the other countries of the West returned to somewhat of a pseudo gold standard. British pounds and other currencies were not payable in gold coins, but only in large sized bars, suitable only for international transactions. This prevented the citizens of Britain and other European countries from using gold in their daily life, and this allowed for a wider degree of paper and bank inflation. Furthermore, Britain redeemed pounds not merely in gold, but also in dollars while other countries redeemed their currencies not in gold but in pounds. As sterling balances piled up in France and the US, and when France attempted to cash in its sterling balances for gold, Britain went off the gold standard.

The world was back to the monetary chaos of World War I. International economic and monetary warfare raged between currencies as they devalued against one another. This was followed by exchange controls, and trade barriers until eventually international trade and investment came to a virtual standstill. Sound familiar?

Then, a new international monetary system emerged at a monetary conference held at Bretton Woods in 1944. And, the world returned to another gold exchange standard which lasted from 1945 to 1968. This gold standard was much the same as gold exchange standard of 1920 but now the dollar had taken over from the pound. The other difference was that the dollar was no longer redeemable in gold to American citizens but it was redeemable to foreign governments and their central banks. Under the Bretton Woods system the US pyramided dollars on top of gold while other governments held dollars as their basic reserve. And, since the US had a huge stock pile of gold at the time there was plenty of room to create more dollars. And, as the US government embarked on its post war policy of continual monetary expansion, a policy that it has pursued ever since, by the early 1950's the continuing US inflation began to worry other nations. While the US was expanding money and credit, many of the major European governments (Germany, Switzerland, France, and Italy) pursued a more "hard currency" approach. By the late 1950's these countries as well as Japan were getting even more concerned about being forced to pile up dollars that had then become increasingly overvalued. But, Europe still had the option of redeeming dollars for gold at $35 an ounce, and, this is exactly what they did for almost two decades until the US gold stock pile had dwindled from some $20 billion to $9 billion. And, as US dollars kept inflating on a gold stock pile that was gradually declining the system began to unravel in 1968.

As European central banks threatened to redeem as much of their dollars for gold as possible, in August 1971, President Nixon, declared that the US would no longer be part of the gold standard and for the first time in American history, the dollar became a totally fiat currency without the backing of gold in any shape or form. As the dollar declined in value and the West German mark, the Swiss Franc, and the Japanese yen, all soared higher against the dollar, Friedmanite economists hailed this as the monetary ideal. And, since the US went off the gold standard and established the Friedmanite fluctuating rate system of currencies in March 1973, the entire world has suffered some of the worst bouts of inflation in its history. And, in their scorn of gold, Keynesians and Friedmanites, each devoted to the fiat monetary system, predicted that when fiat money was established, the market price of gold would fall to about $8 an ounce.

We are currently in the midst of another monetary crisis brought on by many of the same reasons that brought on previous disasters. While I do not know how this crisis is going to be resolved, I do know that it has the potential to be the worst we have ever experienced. And, the higher gold prices are merely reflecting the deteriorating situation with global currencies. Unfortunately, it seems that this global monetary crisis is only going to get worse before it gets better.

TECHNICAL ANALYSIS

The break above $1440 an ounce has set gold up to test $1480 and then $1500 in the short-term. However, the longer-term picture suggests that gold is head to $1600.

Source: http://www.mineweb.com/mineweb/view/mineweb/en/page103855?oid=125324&sn=Detail&pid=102055

Kelantan, Malaysia: Embracing Shariah currency

Kelantan, Malaysia: Embracing Shariah currency
By The Halal Journal published Yesterday

Original Article Source: The Halal Journal Jan/Feb 2011


By Abdalghany Aoueskhanov

The historic launch of the Gold Dinar and Silver Dirham, also known as “Shariah Currency”, on 12 August 2010 (2 Ramadhan 1431H) by the Kelantan Sultanate in Malaysia was indeed historic. On that day, the people of Kelantan embraced Sunna Money by free choice. The introduction of bi-metallic currency in this north-eastern Malaysian state was a resounding success as it proved once again that when people are given freedom to choose their money, they choose gold and silver.

The dinars and dirhams of Kelantan were sold out quickly: the first batch worth RM2 million was sold out before the end of Ramadhan prompting Kelantan Golden Trade, the state company in charge of minting and distributing the coins, to restrict the selling of silver dirhams to only those who wanted to pay Zakat with it. Payment of Zakat with gold and silver coins, not promissory notes, is the restoration of the third pillar of the Deen and fulfilment of the most important obligation after Solat (prayers).

After Ramadhan, the Kelantan government increased the budget for the second batch to RM4 million and it too was sold out completely. The third batch worth RM6 million is now in the process of being minted and will arrive in Kuala Lumpur, Malaysia, in a matter of days.

The Islamic coins of the Kelantan Sultanate were minted according to the latest international standard of the World Islamic Mint (WIM) [read more on WIM on page xx].

The news of the launch of Shariah Currency in Kelantan on 12 August broke out all over the world, and almost all major international media and news agencies highlighted the event. Most significantly, Kelantan’s brave call for freedom resonated among all those who wanted to throw off the evil chains of Usury. Muamalah Council Malaysia’s news centre received emails from numerous individuals, Muslims and otherwise, from around the globe congratulating the government and people of Kelantan and expressing their excitement and solidarity. These are just a few of those letters:

“I am a Christian, but I share your enthusiasm for your people ridding themselves of the control of corrupt, interest-stealing, money-debasing bankers.

Good luck in your endeavours.

God bless,

David Rogers (Canada)”

“I am not a Muslim but I am very proud of your decision to accept "honest" money. The best of luck to you and remember that each minted precious metal coin is one step further away from the tyranny of the modern banking system. I applaud your decision to promote the protection of "the little person", gold and silver are freedom and you are promoting pure freedom from the chains that bind the world. Thank you for starting the revolution towards true economic freedom.

Thank you from Greece,

Christofer Chalukidi”

Wakala Induk Nusantara (WIN), the only accredited minter and distributor of dinars and dirhams by the World Islamic Mint (WIM) in Indonesia, has started to phase out the existing coins in circulation, which were minted according to the old standard of WIM, and replaced them with the new standard coins. “Within the first half of next year, we’ll complete the transition to the new standard that will give our customers added value coins not only due to improved quality and enhanced counterfeit level, but most importantly, 1:1 ratio exchange with other coins in the region,” said Zaim Saidi, Director of WIN and the leader of the biggest dinar movement in the world. WIN is already using WIM stickers stating “We Accept Dinar and Dirham” within its network of shops and traders, called “Jawara”.

Muslim communities in Europe, Australia and the United States are starting to distribute WIM coins within their communities. This year saw the launch of the much-awaited project, Dinar People – a new online marketplace and directory where Dinar users and supporters can meet like-minded people from around the world. This network serves as a real-time virtual open marketplace where anybody can communicate, interact and initiate commerce with other members.

The government of Pakistan plans to hold its first international forum on Gold Dinar next year. And in June 2011, there will be the 2nd World Conference on Riba, to be hosted by Nigeria, the country where the Gold Dinar movement promises to explode next (The 1st World Conference on Riba was held in Kuala Lumpur, Malaysia, on 1-2 November, 2010. Read about it on page xx).

Going back to the Malaysian state of Kelantan, more than 1,500 shops and business outlets are already accepting Shariah Currency, and, according to the CEO of Kelantan Golden Trade (KGT), Umar Ibrahim Vadillo, next year, it is expected that 20,000 shops in the state of Kelantan alone will be accepting the Islamic medium of exchange. Customers can identify these shops by the sticker “We Accept Dinar and Dirham” issued universally by the WIM, World Islamic Mint. The list of shops and Wakalas (agencies appointed by Kelantan Government to sell the coins) can be viewed on KGT’s website: www.dinarkel.com.

In 2011, the government of Kelantan will introduce Wadiah institutions that will provide safe-keeping service and also act as Wakala to facilitate payment operations upon instruction of its clients. The Kelantan Wadiahs are fully developed and endorsed by WIM. Along with Wadiahs, Malaysians will be introduced to an SMS service that will allow them to know the real-time price of dinar and dirham daily by automatic SMS update; subscription to this service must be renewed annually.

These will be the first localised Wadiahs in modern history that are 100 per cent Shariah-compliant (e-Dinar being the first international Wadiah) and Kelantan’s model will be replicated throughout Malaysia and the world, creating a multitude of local repositories plugged in the single data base, e-Dinar.

Early 2011, the Gold Dinar Cooperative will be set up with headquarters in Kuala Lumpur. The cooperative will register Halal money users nationwide and mobilise them into a social movement for economic freedom. Under the cooperative, there will be conducted activities such as training programmes, seminars, publications, and information bureau. The registration has already started, and enquiries can be made to zahimi@al-qafilahinternational.com.This e-mail address is being protected from spambots. You need JavaScript enabled to view it

Since 12 August 2010, the silver dirham appreciated vis-à-vis the Ringgit by 45 per cent and the gold dinar by 10 per cent in November 2010. Anybody interested to obtain Kelantan dinars and dirhams can do so at Nubex Sdn Bhd (www.nubex.com.my), the official distributor for Kelantan Golden Trade in Kuala Lumpur.

The price of dinar and dirham can be viewed 24 hours live at the official websites of the World Islamic Mint: www.islamicmint.com (in USD and EUR) or www.islamicmint.com.my (in MYR).



*About the Author: An economist by training, Abdalghany is a free-lance researcher and writer for various Malaysian NGOs and media publications with the scope of interests ranging from consumerism and health care to economics and geopolitics, writing articles in both, Russian and English. Vast work experience and extensive research led Abdalghany to the conclusion: paper money is the biggest injustice of modern times. In the past seven years, he was actively involved in a number of projects related to the restoration of Islamic currency – Gold Dinar and Silver Dirham. He was instrumental in the organisation of the launch of the Islamic currency in the state of Kelantan on 12 August 2010. He is currently the editor of the website and newsletter of Muamalah Council Malaysia – a non-profit organisation dedicated to disseminating the knowledge on sound money to Malaysian public.


sources : "http://www.halaljournal.com/article/5385/kelantan,-malaysia:-embracing-shariah-currency"

Gold Dinar makes a comeback on high gold price

Gold Dinar makes a comeback on high gold price
By Bernama published 5 years ago


By Che Halit Morad

KUALA LUMPUR, March 2 (Bernama) -- Gabungan Koperasi Universiti Bhd (Gakub) is currently working with Swarnabhumi International Holdings Sdn Bhd towards making a reality of the government's intention to use the gold dinar as an instrument in the international Islamic financial system.

Zahimi Chik, a director of Swarnabhumi, the company that produces the gold dinar, said efforts were being taken to bring back the glorious past of the currency by introducing it for saving purposes, as a wedding gift, for zakat payment and trading.

As a first step, it is hoped that the recently launched gold dinar is accepted and used by Gakub members and eventually by more than the five million cooperative members nationwide, he said.

"The gold dinar is suitable for savings due to its lasting, intrinsic values, and it can be used anywhere and cannot be easily created or made a counterfeit.

"For zakat payment, using the gold dinar would mean payment by cash, while payments through paper money, cheques or promisary notes are still techincally considered as being debt instruments," he said.

In a larger context, Zahimi said the usage of gold dinar in the commercial sector would make a reality of the vision to make the gold dinar the choice mode of payment in international trade.

"It can unite the Muslim community through the usage of a common currency among the member countries of OIC or Organisation of Islamic Conference and see the return of fair trade for everyone," he said.

The gold dinar and silver dirham had been the syariah currency unit for the Muslim nations for 1400 years.

They were used for savings, as payment and measuring units before the advent of the paper money in the early 1900s which then replaced the use of the gold and silver currencies.

In Malaysia, former Prime Minister Tun Dr Mahathir Mohamad become a leading voice in advocating the use of gold dinar in international trade.

During his tenure as prime minister, he had often stressed on making the dinar a trading currency for all countries and not just the Islamic countries.

The Islamic countries, however, are in the best position to prove the effectiveness of the system, he said.

During the OIC summit in Putrajaya, he said the grouping had agreed to Malaysia's proposal to use the gold dinar in trade transactions between member countries.

Zahimi said his company made the 1.0 gold dinar which was equivalent to 4.25 grammes of gold of 22 carats as well as the half dinar (2.125 gms) and 8.0 dinar (34gms)

Pure gold is 24 carats, but pure gold without the addition of other elements would not be suitable for making a currency unit as it is too soft, he said.

He said that although the value of gold dinar fluctuated, its value remained high, for example, for the 1.0 gold dinar the value was at RM302 on February 21, compared with RM300 as at January 12.

Over the last 5 years, gold prices have doubled, making gold an excellent long term savings investment.

Response for the gold dinar from cooperatives and individuals meanwhile has been good and the company is now in the process of appointing its main agent to help market the gold dinars nationwide, he said.

An agreement would be also soon signed to appoint the company to mint the gold dinar, he said.

Swarnabhumi is expected to produce 10 kg or 3,000 pieces of the gold dinar per month during its initial stage of production, Zahimi said.

Chairman of Gakub, Mohd Said Mohd Kadis meanwhile said that for now the gold dinar could be bought at any cooperative that has a kiosk for dinar exchange (Kodex).

"It is a proactive measure from the cooperative to encourage the use of dinar. Imagine if the gold dinar is kept as a form of savings for workers in the Employees Provident Future," he further said.

"The question now is whether other parties such as banks and financial institutions are prepared to buy the gold dinar as marketed by Gakub?" he asked.


Sources : "http://www.halaljournal.com/article/167/gold-dinar-makes-a-comeback-on-high-gold-price"

Gold Dinar as Halal Money

Gold Dinar as Halal Money
By Vivy Yusof published 2 years ago

Filed Under: Islamic Finance >> Currency


Many are aware of the concept of Halal money, but to them, Halal money is money obtained in an honest way, which means not by gambling. There is a bigger issue to be addressed regarding Halal money, and the secret lies within the currency note itself.

If I told you that your RM50 note is worth nothing, would you believe me? This all comes down to history. Let’s recap: in the 1800s, colonies robbed us by monopolising our land, taking our resources. In return, they issued a paper IOU, which is a promise to pay, signed by their companies involved. While waiting and wishing for our tangible returns, the IOUs were circulated and used by us, as a medium to trade. The paper IOUs gradually decreased in size and were beautified by pictures of the rulers. Soon, they were accepted as a medium of exchange, and known to all of us as Money, something we all chase for to survive.

This shows that while God has given Muslim countries so much richness such as oil, precious metals and fertile land, we generously hand them over to others and succumb to their manipulations. Paper money as a dishonest tool is a highly sensitive topic to touch upon, and determining the Halal aspect of it would be best left to the Ulamas to decide. However, we can all use our common sense with this simple example. The third pillar of Islam urges Muslims to pay Zakat, which is the act of giving a proportion of our income to the poor. Zakat is only to be paid with tangible goods, such as gold, goats, and camels. Many Muslims just shake off their Zakat responsibility by paying using paper money. Considering the origins and history of paper money, being just a promise to pay, is our Zakat accepted in Islam? Ultimately, paper money symbolises a debt, and in Islamic law, a debt cannot be used as a medium of exchange.

Zakat has to be paid with honest and Halal money, and what springs to mind is the obvious; Dinar. This 100 per cent gold coin fits the requirement of Halal as it has value and is tangible merchandise. One of the persons most passionate about Gold Dinar is Umar Ibrahim Vadillo, who wrote The Return of the Islamic Gold Dinar. He is one of those who believe strongly that any true Muslim carries the responsibility to reject paper money. To him, paper money is a form of “fraud” despised by Allah and therefore, the absolute worst thing a Muslim can do is to use it. He believes the only means of exchange allowed by Syariah law are gold Dinar and silver Dirham.

He quotes the words of Imam-ad-Dean Ahmad which says, “Muslims cannot escape the fact that gold is our money. Instead of fighting the will of Allah, I propose that we embrace it. If the 1 billion Muslims of the world would use gold as their unit of account, the volatility would stabilise.”

There is another person closer to our hearts fighting for the good of gold Dinar; Malaysia’s former Prime Minister, Tun Dr. Mahathir Mohamed. In 2003, he, along with his economic adviser, Tan Sri Nor Mohamed Yakcop, proposed the introduction of Islamic gold Dinar as currency to be used for international trade among the Muslim countries. Reason for this is to suppress the overly-traded US dollars and to ensure that the US dollar’s instability does not affect our international trade. Islamic gold Dinar is more stable in the sense that it is tied to the price of gold. The idea of using gold instead of the paper money is understandably a bizarre one to many. We might not be able to imagine people going about their everyday lives carrying bags of gold instead of thin currency notes. However, shouldn’t we be patient and open-minded so as to see the other side of the story, perhaps the better side?

So, why gold? As elaborated by Umar Ibrahim in his book, gold is an asset that is no one else’s liability. According to him, paper assets (bonds, shares, and so on) are promises to repay money borrowed, and its value is dependent upon the investor’s belief that the promise will be fulfilled. Gold by itself is a precious metal. No one can deny that gold is valuable and always treasured. Gold cannot be created or destroyed, whereas paper money can be easily torn, burned or created numerously. Only a fool would turn down the idea of receiving gold. Also, gold would not contribute to inflation problems. For example, during Prophet Muhammad’s (peace be upon him) time, a chicken costs 1 Dirham (silver). Today, a chicken still costs approximately 1 Dirham. Therefore, within over a thousand of years, the effect silver had on inflation is virtually zero. On the other hand, the existence of paper money has caused prices to increase ten-folds! The value of gold is independent of the financial system, whereas the value of currencies depends on the strength of their countries. If we wanted stability, the obvious answer would be to choose gold.

Gold Dinar is already used in some Islamic countries, but still very small-scaled. The World Islamic Trading Organisation, following the standards of Umar ibn Al-Khattab, established that one Dinar is equivalent to 4.25g of 22K gold and 23mm in its diameter size. In recent years, China is also showing affinity to gold, as their people are encouraged to buy and trade gold. The Chinese government is committed to increase their gold reserves to reduce reliance on the US dollar. India is another example of a country that has a high demand of gold. The Indians find gold as a commodity of immense value in their religious beliefs, and feel that gold is the only form of protection for Indian rupees against the US dollar. Currently there are 1.3 billion Chinese, 1.1 billion Indians and 1.8 billion Muslims, together representing more than 60 per cent of the world population. If we unite to use gold as currency, there would be a definite shift of power to the East.

Imam Malik defined money as “any merchandise commonly accepted as a medium of exchange.” In the past, when people were free to choose, they chose gold and silver as their money, as their medium of exchange. Now, we are legally forced to succumb and agree to the use of paper currency. Perhaps, if we are given the freedom to choose again, it would be a completely different scenario, and gold and silver would enter the picture again. Increasing awareness of the importance of gold Dinar is a success for the Muslims.

More people are accepting that it is more Islamic to use gold as currency. More people are believing that monetary crisis we face these days are caused by paper money, which can be printed over and over again. More people are realising that this repetitive problem will never stop unless something is changed. More people are opening their eyes, but sadly, only a handful of them are opening their mouths to make a difference. When asked about if the introduction of an Islamic Gold Dinar could be realised, Tun Dr Mahathir replied, “This is not a dream, it can be realised.” To many, it is still a dream. Granted, the replacement of paper currency is a difficult thing to do, but with comprehensive research and meticulous planning, it can be done. All we need to do is to be able to understand, accept and adapt to a new era, a Halal-certified one.


article from "http://www.halaljournal.com/article/3362/gold-dinar-as-halal-money"

Dinar and Dirham

Abu Bakr ibn Abi Maryam reported that he heard the Messenger of Allah, may Allah bless him and grant him peace, say: "A time is certainly coming over mankind in which there will be nothing [left] which will be of use save a dinar and a dirham." (The Musnad of Imam Ahmad ibn Hanbal)

Gold and silver are the most stable currency the world has ever seen.Protect your wealth by buying gold and silver.

Zero inflation in 1,400 years

A chicken at the time of the Prophet, salla'llahu alaihi wa sallam, cost one dirham; today, 1,400 years later, a chicken costs approximately one dirham.

GUEST EDITORIAL
James E. Sinclair
Chairman & CEO of Tan Range Exploration Corp
The 5 Elements for a Long-Term Bull Market in Gold
Now Have a Nuclear Wild Card by James Sinclair
October 28, 2002


The planned introduction of the Gold Dinar is not an act revenge by Malaysia. It is true that there was a huge and devastating currency raid a few years ago by a famous US trader, who leveled Asian monetary units and caused the major Asian economies to falter. It is true that some of those economies have not fully recovered. However, it is also true that history may point to this currency raid and raider as the germination of the seed for the uniting factor of Islamic economic power that changed the economic and monetary world. That currency raid, which I believe never considered the ramifications to human life, is a watershed example of the devastating negative potential of personal enterprise versus the positive attributes of free enterprise.


I am however starting to think that the plan for the Gold Dinar and support from other Islamic nations is a planned offensive against the use of the dollar as a settlement currency for oil. It is perceived, and correctly so, that the Islamic world is controlled via the use of the US dollar as the main settlement currency. When I say "controlled" I mean whatever happens economically in the USA is exported there via the dollar. Dollars exchanged for the Gold Dinar currency as a measure for gold settlements quarterly or gold convertible to pay for certain oil imports would end all the debate of whether or not gold has a place in the monetary system.


What we are hearing now is that the Gold Dinar will be used as a "measure" settled quarterly in gold on an Islamic intra-nation basis, but that could change quickly. A review of the trade balances of Malaysia and its intra-Islamic trade partners indicates that if the Gold Dinar is employed as now suggested, it would tie up approximately 200 tonnes of gold production equal to 10% of new mine supply. If Malaysia went all the way and went to convertibility with a 15% gold cover, they would utilize more than 300 tonnes of new production. Either way, this is the Wildest of Wild Cards for Gold.


The advent of the Gold Dinar, as now envisioned, would remove any discussion of whether or not we are embarking on a very long-term bull market in gold. I have already told you that I believe this is not just a gold recovery, not just a gold bull phase, not just a gold bull market, but the advent of the return of gold to a monetary application in which gold will be in a bullish posture on balance for the rest of my life. I expect to live until at least 2030. Gold Producer Hedger Take Note.


Few Islamic nations have affinity with Hussein, but fewer like the idea of the US attacking Iraq, an Islamic country. For what it is worth, I am told there is a significant possibility that when the US attacks Iraq, the united Islamic salvo back will be at the US dollar via the Gold Dinar -- not as a measure, but rather as a convertible currency. Confidence that the Saudis will come to the rescue of the dollar stands on thin ice. The Saudi Royal Family is under significant pressure from the fundamentalist influence there. They are less likely than most observers think to rescue the dollar this time. The Gold Dinar is the major wild card in the entire history of gold. It must be monitored very closely.


Translated from the "Al-Fath Al-'Ali Al-Maliki" pp. 164-165


"This Fatwa considers paper-money to be fulus, because it only represents money and does not have value as merchandise. It follows that since Zakat cannot be paid in fulus, which has no value as merchandise, it cannot be paid in paper-money, which value as weight of paper is null. On this basis, it becomes clear the urgent need to restore the use of the Dinar and the Dirham as payment of Zakat. If the millions of Muslims who now make their payment of Zakat in paper money would do it in newly minted Dinars and Dirham's, they will put in circulation millions of gold and silver coins into the mainstream of daily commercial activities of our communities. That single act will became the most important political act of the century, opening the path towards the establishment our own halal free currency breaking away from the usurious financial system.


The return to the payment of zakat in gold and silver is an essential part of the reestablishment of Islam."
Those are serious words and should not be taken lightly. You see, the establishment of a gold-based currency is rebellion against the IMF as it is distinctly forbidden under IMF rules. The advent of the Gold Dinar would be the "Nadir" of the IMF & World Bank.


These are uncharted times. I believe that the Islamic Nations are quite serious about this and that in some form, it will happen on schedule or sooner. Now we can add a "Nuclear Wild Card," an independent gold-based Islamic currency to the 5 elements for a long-term bull market in gold.
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The Seriousness of the Gold Dinar
A presentation made in Kuala Lumpur Malaysia
By
The Honorable Dr. Mahathir Bin Mohammed
Minister of Finance for Malaysia
"The Gold Dinar in Multilateral Trade"
Presented to the Community
by
James Sinclair

I have chosen to delete the first 17 points as they refer to subjects that might cause the western precious metals researcher to prejudice the rest of this extremely important document. There is no coverage in the West of this watershed event in monetary history which is clearly, really and powerfully in the making. Those that wish the first 17 points need only ask for them and I will provide them. They speak to the perspective of an Arab in today's Islamic world. This opening 17 points requires a perspective of high pan-determinish to deal with objectively. That is a quality that the West has always lacked and after September 11th probably will not acquire soon in matters dealing with the Islamic world. I have made the decision to make to present t to you in this manner as it must be read with an open mind.


There is an Islamic currency coming. That is a fact. There is a high chance that this is it. The Dinar is a tactic nuclear monetary weapon of self-protection in the Islamic perspective. It is a statement by them of Islamic Self Consciousness and Islamic Self Esteem. It is an Islamic rally point for all 1.2 billion of that persuasion. It is coming soon and it is real. It may not be viewed objectively by the West, in the environment of a weak dollar now existing. That weak dollar situation looks to me as if it will get significantly worse before it gets significantly better. This is not low amplitude noise. This is a NOISE that may scream soon the unthinkable word, Remonetization. Here are the words of its architect. Pay close attention to the final point in the words of this Minister of finances own words. They need to be understood completely in order to understand what is coming. Oleh/By : DATO SERI DR MAHATHIR BIN MOHAMAD Tempat/Venue: IKIM HALL KUALA LUMPUR Tarikh/Date: 23/10/2002 Tajuk/Title : THE GOLD DINAR IN MULTI-LATERAL TRADE SEMINAR


20. If the Muslims are going to protect themselves they must have sufficient wealth. Allah has endowed Muslim countries with inexhaustible wealth. These need to be administered for the good of the ummah.

21. But wealth can also be acquired through commercial activities, through the production and distribution of goods and services and through trade.

22. Today trade between Muslim countries is small. It is not suggested that we reduce our trade with the non- Muslims. But we should endeavour to increase the trade between Muslim countries.

23. We can trade through the exchange of goods, through barter. But today we use money. Since we don't have a currency which is strong enough and stable enough in exchange rate terms, we have to use the American dollar. But the dollar is also not stable. Today the dollar has depreciated against many other currencies. This means that despite the increase in the price of oil for example, we are actually earning less due to the devaluation of the dollar. It is the same with the other currencies. It is the same with our own currencies. They all fluctuate in value. And they are all subject to speculation and manipulation as happened in Malaysia and other East Asian countries, in Russia and in Latin America.

24. The reason for this is that paper currency has no intrinsic value. You can print any figure you like on currency notes but in exchange rate terms the figure means nothing. The Malaysian Ringgit is 3.8 to one U.S. Dollar. The Turkish Lira is 1.5 million to one U.S. Dollar. The Indonesian Rupiah is 9000 to one U.S. Dollar. The purchasing power within the country is different from the purchasing power outside the country. Sometimes countries have as many as four exchange rates -- one official, one for domestic economy, one for export and one for import.

25. Clearly this situation in terms of international finance is chaotic and anarchic. But since the system benefits the powerful countries they are unwilling to correct it.

26. If we want to avoid being short-changed we must have a currency that has intrinsic value. Gold does fluctuate in price but the fluctuation is minimal. It is not possible to devalue gold by one hundred percent or one thousand percent. Nor is it possible to revalue gold by the same percentage. The fluctuation in the value of gold can only be by a few percentages, up or down.

27. When the Allied nations met in Bretton Woods to determine the principle for the rate of exchange of international currencies in order to facilitate trade, they decided to use gold as a standard. The value of the U.S. Dollar was fixed at one dollar for 1/35 ounce of gold or 35 U.S. Dollars per ounce. All other currencies were valued in gold through the rates of exchange with the U.S. Dollar.

28. This worked quite well until some countries wanted to devalue their currencies in order to become competitive in the international market. Then other countries also decided to devalue in order to remain competitive. Finally the U.S. Dollar was devalued against the Gold.

29. At this stage the gold standard could not be sustained. The market claimed that it could determine the exchange rate through the demand and supply of currencies freely traded in the market. But profiteers moved in and they manipulated the value of the currencies so that there was chaos in terms of exchange rates of currencies. Business became very difficult. Indeed many good businesses went bankrupt when the domestic currency gets devalued. The hedge Funds which claim to insure the value of the currencies made huge sums of money speculating and manipulating the values of the currencies.

30. This anarchy in the international financial regime will remain because it benefits the rich and the powerful. If we want to protect ourselves we must evolve our own payment system, our own trading currency.

31. The Gold dinar can provide the currency for trade between nations. If we value all trade items against gold, then we will have no problem with the exchange rate. We know that in the last resort we can melt the gold and sell it in the market. You obviously cannot do that with paper currency, worst still with figures on a computer. They have no intrinsic market value as gold has.

32. But gold is bulky. We cannot be carrying gold all over the world in order to pay for goods we want to import. But we need not do that.

33. It is not intended to use the gold dinar as currency for everyday transactions in the domestic market. For this we can use national currencies. If there is inflation then the currency can buy less gold and other goods. And vice versa. So there is no necessity to carry bags of gold coins for transaction within the countries.

34. But even for international trade the transport of gold bullions or gold coins would be very minimal. Through bilateral payments arrangements the imports can be balanced by the exports and the differences settled in gold dinars. The Central Bank can provide a guarantee for the gold required for the payments of the balance. In the following weeks or months the deficits may be reduced or a surplus achieved. In that case the payments of the balance can be made through accounting arrangements between the Central Banks. It is only occasionally that a necessity might arise for the actual gold dinar to be used to pay for the purchase of imports.

35. We cannot really verify the amount of money a country has. A country's own currency cannot be regarded as its reserve. But gold dinars or gold bullion or gold ingots can serve as a country's reserve. Still in the end we have to trust each other. If we are good Muslims then the cases of fraud by Central Banks would be minimal.

36. Assuming that Malaysia exports to a Dinar Area country a hundred million Dinars worth of motor vehicles and then imports 110 million dinars worth of oil, then the payment required by Malaysia would be just 10 million dinars. The ten million dinars is credited to Malaysia's trading partner. If in the following month the trading partner buys 110 million dinars worth of Malaysian cars and Malaysia buys 100 million dinars worth of oil, then no payment need to be made by either party. The 10 million dinars that has to be paid by Malaysia's trading partner for the motor vehicle can be offset by the credit of 10 million dinars from the previous month's transactions.

37. Today with computers we can close account and pay more frequently. Through this method it is not necessary to purchase or earn hard currency.

38. Of course there may be some countries which are so poor that they cannot have gold dinars. We can buy some raw materials to be paid in gold dinars. They can be helped to build up the reserves of gold dinars.

39. There will be problems. But if we begin with just a pair of countries we would be able to minimise problems and demonstrate whether it works or not. We will be able to identify the weaknesses and the faults and correct them.

40. Gold is a precious metal. There has never been a time when there was no demand for gold. It is also not so plentiful that its price will fall the way paper currency or even other precious metals can fall. Yet it is not so limited in quantity that anyone or any trader can corner it and manipulate the price.

41. In different countries the price of gold will differ in terms of the currency of that country. That is a function of the currency of the country. The value of one gold dinar is one gold dinar no matter what the exchange rate of a currency is against the gold dinar. If the value of goods or services is expressed in gold dinar, the value remains the same no matter which country is involved in the trade.

42. Thus an exporter can declare the agreed price in dinar to the importer in another country and to the Central Bank in his country. Depending on the agreement reached the Central Bank will pay the exporter the current local currency equivalent to the gold dinar price. At the importer's end, he would pay to his country's Central Bank the local currency equivalent of the agreed price in dinar. At the end of the week or month the Central Banks will total up the value in dinar of the exports and imports between the two trading countries. If they are not balanced then the country with a surplus will have a credit account against the country with a deficit. The difference can be paid in dinar or in goods or the country with the surplus can hold the dinar for future purchase from the country in deficit.

43. In multi-lateral trade, the process may be a little more complicated but it is entirely, manageable. A clearing house can be set up for a group of trading countries and the deficit and surpluses balanced. The process is not unlike the clearing of the cheques of numerous banks at a central clearing house.

44. Provided there are goods or services to be supplied by all participating countries, the amount of gold dinars that needs to be kept as reserve backing and for payment in the last resort is very small. Ideally there would be no need to transport and pay in dinars. The imports and exports in most instances would cancel themselves. The profits come from disposing of the goods or services domestically when the local currency would be used.

45. There will be problems of course. But there are problems now. Countries with no "hard currency" i.e. U.S. dollars cannot pay for their imports anyway. In addition the U.S. currency is not as stable as gold. Not only can it appreciate or depreciate widely but a country's currency can be made to depreciate so much against the U.S. Dollar that its imports cannot be paid for, priced as they are in U.S. Dollar. The gold dinar cannot depreciate much against the U.S. Dollar.

46. Gold price can also be manipulated but not as easily as U.S. Dollar or other currency. No one can sell gold at below market price because he just will not be able to deliver when called upon to do so. Short-selling will be very difficult if not impossible.

47. However local currency prices of gold can still fluctuate if left to the market. It is up to the country concerned whether to control exchange rates or not. But speculation and manipulation will not be as easy as when local currency is valued against the U.S. Dollar.

48. It must again be stressed that the Gold Dinar is exclusively for international trade. It is not to be used as local currency. In a sense it is like the U.S. Dollar now. Some countries of course use the U.S. Dollar locally for paying hotel bills by foreigners. But the dinar is heavy and cumbersome to carry. So it cannot be used as freely as the U.S. Dollar locally. This again lends credibility to the dinar and the local currency, which has to be used for local payment.


49. We should not be too ambitious as to launch the Gold Dinar for multi-lateral trade at one go. We should begin by pairing off the countries willing to use the Gold Dinar. A pair of good trading countries with a fairly well balanced trade should initiate the use of the Gold Dinar. Problems that arise can be resolved and the system improved. After the bugs have been got rid off then the trade using the dinar can be expanded gradually to involve more countries.


50. Traders in particular will be happy because their prices in Gold Dinar would not be affected by changes in the exchange rates of the importing countries or the exporting countries. In dinar, the prices will always remain the same.


51. It is not the intention to make the dinar a common currency for all countries. It is not really the Gold Standard with a fixed value against local currency. If countries print more local currency there would still be inflation within the country. But trade would be stable and enhanced. Speculators and manipulators will not be able to undermine international trade.


52. Of course the Gold Dinar can be a trading currency, for all countries, not necessarily Muslim countries. But Muslim countries are in the best position to demonstrate the viability of the system. They are in a position to manage their economies rationally and in the process show the world that they are capable of growing with stability and in peace. And this will do more towards countering oppressions by their enemies than the futile violent retaliations.


Sinclair conclusion:Dear Friends of the Gold Community new and old, this is a very young gold market with a long way to go. It is only in the crawling stage and has done magnificently so far. Soon it will stand up, become strong and be recognized. This time Atlas will not Shrug but rather Gold as an economic Atlas will be used to bolster and restore confidence in the US dollar through a revitalized Gold cover Clause. When the next bull market in equities begins it will be gold that will stand as the foundation to that event and not more paper foolishness from any central bank or international derivative traders. The really millennium begins when gold revitalizes world economies not through convertibility but rather through the gold's real role in the monetary system. Gold is a control item that disciplines the creation of monetary aggregates. That is what the Gold cover clause does and that is why Nixon sterilized it. Mark my words. It is coming and it brings good times, not the four horsemen now looked for as the specters coming over the hill. The ascendancy of gold will be hard fought but will be finally embraced as now popular central bank tools of interest rate manipulation and monetary aggregate expansion are destined by their own definition to fall flat on their political faces. It is amazing that out of Islam comes what will save the Western World's economic system. I am certain that Divinity, whatever He, She or It is or is not, has a unique SENSE OF HUMOR and loves Infinite Variety.


4 of the 5 elements for a long-term bull market in gold are in. The 5th element may well be here as well. Now the Wild Card has raised it's head. Where is the greatest risk in gold now?


In my opinion, the short side of gold has infinite risk. The long side of gold has significant fundamental support.

© 2002 James E. Sinclair

This article appears in the Nov. 15, 2002 issue of Executive Intelligence Review (www.larouchepub.com).
Gold Dinar: An Economic and Strategic
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Response to Chaos
by Michael O. Billington


Mounting concern around the world that the Bush Administration is madly threatening to drive the world into perpetual warfare, while doing nothing to address the global financial-economic collapse, has led to the introduction of a number of defensive measures by nations and groups of nations acting in concert. One such measure is the proposal for creation of a Gold Dinar, intended as a replacement for the dollar as the currency of trade among nations. With a war against Iraq looming on the horizon, and U.S. threats against Saudi Arabia escalating in the establishment's institutions and publications, it is increasingly probable that the Gold Dinar policy will be implemented in the near term, among certain Islamic nations at first, and potentially expanding to include non-Islamic nations.


Malaysian Prime Minister Dr. Mahathir bin Mohamad hosted a two-day seminar in Kuala Lumpur on Oct. 22-23, called "The Gold Dinar in Multilateral Trade." This was the second major conference in Malaysia on this subject involving representatives of members of the Organization of Islamic Conference (OIC). The first conference, "Stable and Just Global Monetary Systems," held in August, announced that the Gold Dinar would be implemented as a bilateral arrangement between Malaysia and certain unspecified partners by the middle of 2003, and extended to multilateral agreements over time. At the more recent seminar, Bijan Latif, the head of Iran's Central Bank, offered to support the establishment of a secretariat in Malaysia to coordinate the development of the Gold Dinar policy. Dr.Mahathir supported the idea.


Not a Gold Standard


In his speech to the October seminar, Dr. Mahathir made clear that the proposal was not intended to establish a gold standard (as put forth by fixated "gold bugs" around the world), but to return to the Bretton Woods policy of a gold-reserve system, which was destroyed when President Richard Nixon removed the dollar from a fixed peg to gold on Aug. 15, 1971, allowing currencies to float at the whim of speculators. Dr. Mahathir reminded the participants, that after World War II, "when the Allied nations met in Bretton Woods to determine the principle for the rate of exchange of international currencies in order to facilitate trade, they decided to use gold as a standard." This worked until 1971, when "the market claimed that 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."


The Gold Dinar policy intends to return to the former, superior policy. Tan Sri Nor Mohamed Yakcop, an economic adviser to Dr. Mahathir, explained the system at the August conference as follows, using trade between Malaysia and Saudi Arabia as an example: "Malaysian exporters will be paid in ringgit [the Malaysian currency] by Bank Negara [the Malaysian National Bank] on the due date of exports.... Similarly, the importers will pay Bank Negara the ringgit equivalent of their imports. The Saudi Central Bank will do the same for its exports and imports. Say, at the end of a three-month cycle, the total exports from Malaysia to Saudi Arabia is 2 million Gold Dinar, and the total exports of Saudi Arabia to Malaysia is 1.8 million Gold Dinar. Therefore, for that particular three-month cycle, the Saudi Central Bank will pay Bank Negara 0.2 million Gold Dinar. The actual payment can be by way of the Saudis transferring 0.2 million ounces of gold in its custodian's account in the Bank of England in London, to Bank Negara's account with the same custodian. The important point to note here, is that the relatively small amount of 0.2 million Gold Dinar is able to support a total trade value of 3.8 million Gold Dinar."


The weakness of the system as it is now proposed is that gold, too, is subject to speculation, especially if it is pegged to a currency such as the dollar, which is heading for a plunge due to the collapse of the U.S. banking system. Dr. Mahathir is aware of the problem: "Gold prices can also be manipulated," he said, "but not as easily as the U.S. dollar or other currencies.... Speculation and manipulation will not be as easy as when local currency is valued against the U.S. dollar."


EIR Founding Editor Lyndon LaRouche has proposed that the necessary return to a Bretton Woods system of fixed exchange rates must also peg currencies to a "basket of commodities" rather than to gold, as a means of basing currency valuations to the real economy, rather than tying the real economy to a speculative entity (see Documentation). Although the Gold Dinar proposal assigns a value to gold in terms of dollars, Dr. Mahathir suggested in his speech that he is thinking along the lines of a "basket of commodities": "The value of one Gold Dinar is one Gold Dinar, no matter what the exchange rate of a currency is against the Gold Dinar. If the value of goods and services is expressed in Gold Dinar, the value remains the same, no matter which country is involved in the trade."


Whatever the case in this regard, the discussion and implementation of the bilateral or restricted multilateral Gold Dinar policy can provide a much-needed defense against the collapse of the dollar-centered financial system, and could contribute to a more durable global solution in the near future.
Strategic Necessity


Dr. Mahathir emphasized that the Gold Dinar policy is being driven by the crushing reality of the economic and strategic crisis. The disastrous situation in the Holy Land, the terrorist attacks of Sept. 11, 2001, and the threatened war on Iraq, have resulted in "the whole world's economy being unable to grow," he said. "The West, and in particular the Americans, are very angry. So are the Muslims. Angry people cannot act rationally." He concluded his speech: "Of course, the Gold Dinar can be a trading currency for all countries, not necessarily Muslim countries. But Muslim countries are in the best position to demonstrate the viability of the system, ... and in the process, show the world that they are capable of growing with stability and peace. And this will do more towards countering oppressions by their enemies, than the futile violent retaliations."


Other voices are also warning that the current folly in Washington will only hasten this break from the bankrupt IMF system. James Sinclair, the head of the mining company Tan Range Exploration, said in an Oct. 28 editorial in Financial Sense Online: "It is perceived, and correctly so, that the Islamic world is controlled via the use of the U.S. dollar as the main settlement currency.... I am told there is a significant possibility that when the U.S. attacks Iraq, the united Islamic salvo back will be at the U.S. dollar via the Gold Dinar." The Saudis, he says, "are less likely than most observers think to rescue the dollar this time."


In fact, the Saudis are already repatriating deposits from the United States, as reflected in the increase by $30 billion in deposits in Saudi banks in September.


Sinclair also notes, as did Bijan Latif of the Iranian Central Bank, that "the establishment of a gold-based currency is rebellion against the IMF, as it is distinctly forbidden under IMF rules." Sinclair adds: "The advent of the Gold Dinar would be the 'nadir' of the IMF and World Bank."


Other commentators have noted the concern in Saudi Arabia that the United States may freeze Saudi assets in U.S. banks, forcing them to consider the Gold Dinar as a replacement for the dollar, and dumping dollar holdings altogether if necessary. As amazing as this sounds, given the long history of U.S.-Saudi friendship, there has been a drumbeat of anti-Saudi hysteria in the United States recently, escalating since the infamous presentation before the Defense Department's Defense Policy Board on July 10 by the RAND corporation's Laurent Murawiec, which declared Saudi Arabia the mother of all terror, and calling for the overthrow of that country's government and other Arab "dictatorships" (see EIR, Aug. 16, 2002). Although Murawiec was fired by RAND for this mindless diatribe, Richard Perle, who runs the Defense Policy Board, was never publicly reprimanded, let alone fired, and the Saudis took note.


Even more blatant was the report issued by the leading think-tank of the American establishment, the Council on Foreign Relations, in October, "Terrorist Financing." The report is the work of a task force, headed by Maurice "Hank" Greenberg of the AIG insurance cartel, himself a notorious money-launderer. The report castigates Islamic charities in general, but hits Saudi Arabia in particular: "For years, individuals and charities based in Saudi Arabia have been the most important source of funds for al-Qaeda; and for years, Saudi officials have turned a blind eye to this problem," says the report. Making their intentions clear, the CFR adds: "It may well be the case that if Saudi Arabia and other nations in the region were to move quickly to share sensitive financial information with the U.S., regulate or close down Islamic banks, incarcerate prominent Saudi citizens or render them to international authorities, audit Islamic charities, and investigate the hawala system-just a few of the steps that nation would have to take-it would be putting its current system of governance at significant political risk." Nonetheless, they argue, the Bush Administration must proceed, and stop pretending that "Saudi Arabia is being cooperative, when they know very well all the ways in which it is not."


With this madness as establishment policy, the Saudis, and others, may well see no choice but to pull out of the dollar-based system. This is one reason for the great interest in LaRouche and his proposals in the Mideast today. It may well lead to the timely adoption of the Gold Dinar policy among Islamic nations, and progress toward a New Bretton Woods monetary system.



11/3 J. DOUGLAS BOWEY and ANTAL E. FEKETE - M E M O R A N D U M

M E M O R A N D U M TO:

The Right Honorable Dr. Mahathir Mohamad, Prime Minister, Malaysia
FROM: J. Douglas Bowey and Antal E. Fekete
SUBJECT: Islamic Gold Dinar and Silver Dirham Initiative
DATE: 1 November, 2002


Authors of the Islamic Gold Dinar and Silver Dirham initiative are to be congratulated for their ingenuity, courage, and timing on designing and instituting an international monetary system based on hard money. The following points may be useful to further improve the efficiency of this bold initiative inaugurated by Malaysia.


1. No Monetary Role for Gold and Silver without Free Coinage. The Gold Dinar and the Silver Dirham will not be money and can’t have any monetary role until and unless at least one government officially opens the Mint to gold (silver). This means "free coinage of gold (silver)," that is to say, the Mint must stand ready to convert gold into Gold Dinars (and silver into Silver Dirhams) in unlimited quantities free of charge, on the account of anyone tendering the right amount and fineness of gold (silver). In the absence of this commitment, the Dinar and the Dirham, just like the U.S. Gold and Silver Eagles, will remain souvenirs and keepsakes, having no monetary role to play whatsoever. They will not enter into monetary circulation, and will not be used for accounting purposes. This is one of the critical points missed by virtually all hard-money advocates today. It goes without saying that all taxes, duties, imposts, restrictions on the import and export of gold and silver must be abolished and declared unconstitutional.


2. First Step: Open the Mint to Silver. As the IMF has imposed a ban on monetizing gold (but not silver), for tactical reasons it might be advisable to test first by declaring the Mint open to silver only. This would have the effect of attracting capital in the form of silver to countries with a Mint open to silver. A bill market would spring to life more or less spontaneously. It would then finance the production and distribution of crude oil and other important commodities in terms of the Dirham. There is no need unnecessarily to affront and offend the U.S. by declaring the dollar ineligible for billing crude oil deliveries. However, opening the Mint to silver would be just as effective in puncturing the balloon of dollar-hegemony. The dollar would start fading away as the trading currency of the world.


3. Second Step: Open the Mint to Gold. Once the principle of billing in Silver Dirhams is accepted, as a second step, the Mints can be declared open to gold as well. IMF fulminations notwithstanding, Islamic and other countries can go safely ahead with their gold and silver circulation and bill markets trading bills payable in gold and silver, because the denial of IMF dollar-credits can no longer hurt them. They will be able to attract all the capital they want in terms of gold and silver.


4. Third Step: Finance the Trade in Crude Oil with Gold Bills. A gold bill is just an invoice evidencing the sale of goods in urgent demand (such as crude oil, grain and other agricultural commodities, copper, etc.) by the producer to the distributor. It has to be "accepted" by the latter, must mature in 91 days or less without the possibility of extension, and it must be payable in Dinars at maturity. The bill is a "self-liquidating" instrument. This means that, at maturity, the bill is paid out of the proceeds of the disposal of the underlying merchandise by the distributor. A spontaneous trading in gold bills will spring up. In the bill market, outstanding gold bills are bought and sold at a discount, which depends on the number of days left to maturity and the discount rate. The discount rate varies inversely with the "propensity to spend." The greater the demand for the underlying merchandise, the lower is the discount rate. Sellers of bills are those who have salable merchandise to ship; buyers of bills are those who have short-term liquid funds to invest. The discount rate may move up or down in such a way as to facilitate the clearing of outstanding bills in the market. The discount rate should not be mistaken for a rate of interest, as explained in (9) below.


5. Making the Banks Irrelevant. The beauty of the plan is that it can bypass any and all banks that may be suspected of affiliation with or allegiance to the big multinational dollar banks. Banks are irrelevant to the bill market trading gold bills. There is no need to establish new dinar banks and train personnel either; that would take years. The spontaneous bill market trading of dinar bills would be a more than adequate replacement for financing domestic and world trade.


6. Attracting Capital from Abroad. Here is the mechanism whereby a country that has opened its Mint to gold can attract capital. The Central Bank stands ready to rediscount gold dinar bills at the posted rediscount rate. A higher rediscount rate will attract gold to the Mint resulting in a capital inflow. A lower rediscount rate will expel gold from the country, allowing capital to seek higher returns abroad. Foreigners will send in gold in response to a higher rediscount rate as they want to hold the most liquid short-term instrument: the gold bill of exchange.


7. Wages Must Be Payable in Gold Dinar and/or in Silver Dirham. In order to facilitate dinar and dirham circulation, employers must be requested to pay wages in Dinar or Dirham. Employers get Dinars and Dirhams by selling their gold bills in the bill market, or by rediscounting them at the Central Bank. The workers will spend their dinars and dirhams on consumer goods. The circle is now complete: the consumer’s coin is paying the bill at maturity, by which time the underlying consumer good is sold in exchange for the dinar or dirham.


8. Bimetallism Would Be a Mistake. Do not fix the bimetallic ratio between the Gold Dinar and the Silver Dirham. Let the market find and adjust the proper ratio, whenever necessary, without government intervention.


9. Islamic Law Banning Usury and Interest. It must be clear that there is no lending or borrowing, nor interest paying and taking, involved in bill trading. The function of the bill market is not lending; it is clearing. The producer bills the distributor for merchandise shipped, with "terms: 91 days net." The important point to grasp is that the producer is not a lender; and the distributor is not a borrower. The term 91 days net is part of the contract. Hardly any distributor pays cash to the producer for merchandise shipped for resale. Bills circulate spontaneously before maturity; the producer may use them to pay his suppliers, who will be glad to take the bills in payment for the supplies shipped. Alternatively, the producer may discount his bills in the bill market for cash. The transaction has nothing to do with lending and borrowing at interest. Discounting bills is part of the process of clearing. In more detail, discounting is an essential part of the trade in consumer goods. The amount of discount is of the same character as the markup on merchandise representing overhead and profit of the merchant, allowable charges under Islamic Law. The amount of discount depends (1) on the number of days the bill has to run before maturity; and (2) on the discount rate. The discount rate is not an interest rate. The former reflects the propensity to consume; the latter the propensity to save, the relation in either case being inverse. That is, the higher the propensity the lower is the rate and vice versa.


Note that gold distribution and the bill market are just the two sides of the same coin: neither could stand without the support of the other. In order to make the gold dinar an instrument of world trade, there must be a complementary bill market.


We would be pleased to answer any questions derived from this MEMORANDUM, or to act as consultants and/or advisors to Governments that are courageous enough to implement a plan to open the mint to silver and/or gold.

J. DOUGLAS BOWEY is a Private Merchant Banker living in Los Angeles, California. He has traveled extensively and lived in the Islamic world. Bowey’s specialty is strategic alliance finance.

ANTAL E. FEKETE is Professor Emeritus (Mathematics), Memorial University of Newfoundland, St. John’s, Newfoundland, Canada. He is a world-class economist specializing in monetary science and history. He lives between St. John’s, Newfoundland, Canada, and Budapest, Hungary. He has written extensively. A portion of his writings may be seen on the website www.goldisfreedom.com.

J. DOUGLAS BOWEY and ANTAL E. FEKETE have recently joined forces to create an opportunity. Together they will now begin to offer this opportunity (methodology) to "select" Central Banks/Governments. This methodology allows Central Banks/Governments to continually increase their gold and silver reserve holdings, with minimal risk, without the use of "financial engineering," and while retaining full physical control of those reserves.BOWEY and/or FEKETE may be contacted through:


J. Douglas Bowey and Associates
Beverly Hills, CA
Email: jdbanda@aol.com
Telephone: 310/820-0444

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