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Malaysia, Iran bank on dollar
alternative
By
Kalinga Seneviratne
KUALA LUMPUR - Malaysia's
efforts to use the gold dinar for trade with Iran is
Prime Minister Mahathir Mohamad's latest initiative to
overhaul the international financial system, which he
has long criticized as being skewed toward rich
countries and speculators.
If successful, this
could be extended to 32 countries that have bilateral
payments arrangements (BPA) with Malaysia, Mahathir told
an international convention here on Tuesday on the gold
dinar as an alternative international currency.
It was the latest of Mahathir's attempts to sell
the concept of using, instead of the US dollar, the gold
dinar - a monetary unit whose value is based on the
price of gold - in international settlements between
national banks, for instance (see Malaysia goes for gold,
February 8).
The pilot scheme between Iran and
Malaysia, which officials hope to start this year, means
that their bilateral trade would be denominated in gold
dinars, and that they would settle trade balances every
three months. During this period, all Malaysian
exporters will be paid in the local currency, ringgit,
by Bank Negara (Malaysian Central Bank) and all
importers will pay the equivalent in the local currency
as well to it.
Iran's Central Bank will do the
same for the country's exporters and importers. At the
end of the three-month period, the two countries will
settle the deficit in gold dinars or an agreed currency.
But this experiment has bigger ramifications.
Some say it is time, years after the 1997 Asian
financial crisis, to develop an alternative to the
current financial system. Others see it as loaded with
political meaning, as part of Malaysia's campaign to
take up the cudgels for the developing world - and the
Muslim world.
"We need to make a stop to the
artificial manipulation of currencies," said Raja
Mohamad, vice president of the Malaysian Islamic Chamber
of Commerce and convenor of Tuesday's conference.
A publisher and marketing executive, Raja
believes that gold-dinar trade has another aspect to it
- it can help forge unity among Muslim nations. "It is
because of the Muslim world's dependence on the United
States that the neighboring Arab countries were not able
to stop the war on Iraq," he argued. "If we don't need
to depend on the US dollar for trade between our
countries, that will be a good foundation to forge
Muslim unity," he said.
Local businessman Rosali
Che Pin said: "If the gold dinar becomes a reality for
international trade between Muslim countries, we will be
very proud of it."
The gold dinar was the
currency of the Muslim world until the collapse of the
Ottoman Empire in 1924. Today, Malaysia believes that
using a currency apart from the US dollar would help
poor countries with small foreign currency reserves to
trade more freely.
But Bank Negara's assistant
governor, Latifah Merican Cheong, warned that "the
[real] challenge now is how to develop the gold dinar
and make it credible so that traders are willing to use
it".
Malaysia has already started talking to the
Saudi Arabia-based Islamic Development Bank and several
countries about the use of the gold dinar in
international trade. Earlier reports said Turkish
leaders had mooted the idea.
Malaysia hopes to
offer this to all its BPA partners - including countries
as diverse as Cuba, Brazil, Hungary and Myanmar - once
the scheme's credibility is established, officials say.
Malaysia also has an alternative trading
arrangement with some countries, which includes using
palm-oil credit to pay for its purchase of Russian jet
fighters, North Korean insulators and, soon, for Indian
and Chinese construction services for a railway project
here.
But the promoters of this scheme are quick
to point out that they do not want this trade to be
restricted to Islamic countries. Muslim countries can
come in first, then others can join in, Raja says.
Realistically, he says, while Malaysia holds the
chairmanship of the Non-Aligned Movement and can push
the alternative currency scheme, it may not necessarily
be welcomed by some member governments since "they have
been distracted by this Muslim terrorist tag" and may be
wary of taking action perceived to be anti-Western.
Thus far, Mahathir says, neither the US
government nor the International Monetary Fund (IMF) -
both of which had objected to earlier proposals for an
Asian Monetary Fund to help countries with financial
problems - have raised objections to the gold-dinar
scheme.
But Ralston Thiedeman, senior director
of the Singapore-based Swiss Asia Capital, told the
convention that the establishment of the gold-dinar
currency "is in direct contradiction to and forbidden by
the existing rules of the IMF".
He added that an
initial fallout of the scheme would be that countries
using the gold dinar would use fewer US dollars in their
international trade - and this would lead to the further
weakening of the US currency.
Thiedeman also
said that many of Malaysia's trading partners in the
Muslim world, which include Saudi Arabia and Kuwait, are
not large holders of gold in their central bank
reserves. Thus, he believes that the launching of a
dinar scheme will have a "bullish" effect on the
international gold market.
Malaysia has already
set up a secretariat for disseminating information about
the use of gold in international trade.
Mahathir
said that the gold dinar trade would bring more
stability to world trade and national economies. He
argued that currency traders have turned national
currencies into commodities and made transactions
"totally hidden from public eye".
While
speculation in gold can still take place, Mahathir
argued that it would be minimal, because it would not be
possible to deliver the gold upon settlement. "The
amount would be too big and too cumbersome for the rapid
transactions of the currency traders," he pointed out.
Raja admits that Washington may try to sabotage
the gold-dinar idea. "No doubt, the dinar [trade] will
affect US power," he noted, but "we want to ensure that
the Islamic world can start something to change the
world."
(Inter Press Service)
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