One of the issues that might arise when implementing the use of Dinar and Dirham is how it will affect the banking business.
The introduction of Dinar and Dirham will retard the growth of the existing banking business. Banks that exist today are based entirely on the concept of interest-bearing instruments (Bexley, et.al, 2000).
At present, a major portion of bank’s income is derived from interest income.
Interest income is derived from the loan that was given out to a bank’s customer, from depositor’s funds after deducting the required reserve set by the law (Rose, 2000).
Banks will loan out a portion of depositor’s money and charge the borrower with interest.
The borrower will then deposits this loan into his account in the same bank or other bank, in which a portion of this money will be loan out to some other customer.
This is known as money multiplier or money creation (Fabozzi, et.al, 1998). With the implementation of Dinar and Dirham, such money multiplier activities will be difficult if not impossible to occur.
This is because each Dinar and Dirham must be represented with actual money that contains a certain weight of gold and silver. In this case Dinar will have 4.3 grams of gold and Dirham will contain 3.0 grams of pure silver (www.e-dinar.com).
Dinar and Dirham can be considered as ‘real money’ or ‘live money’ and it is difficult to simply create or print or controlling its supply and demand. This is due to the fact that gold and silver is limited in supply by natural factors and requires scarce resources to produce (Rose, 2000).
Therefore, it is different from fiat money, in which its existence promotes money multiplier and interest charges.
History of gold dinar
Muslims used gold and silver by weight and the dinar and dirhams that they used were made by the Persians.
The first dated coins that can be assigned to the Muslims are copies of silver dirhams of the Sasanian Yezdigird III, struck during the Khalifate of Uthman, radiallahu anhu.
These coins differ from the original ones in that an Arabic inscription is found in the obverse margins, normally reading "in the Name of Allah". Since then the writing in Arabic of the Name of Allah and parts of Qur'an on the coins became a custom in all mintings made by Muslims.
Under what was known as the coin standard of the Khalif Umar Ibn al-Khattab, the weight of 10 dirhams was equivalent to 7 dinars (mithqals). In the year 75 (695 CE) the Khalif Abdalmalik ordered Al- Haddjadj to mint the first dirhams, thus he established officially the standard of Umar Ibn al-Khattab.
In the next year he ordered the dirhams to be minted in all the regions of the Dar-al-Islam. He ordered that the coins be stamped with the sentence:
"Allah is Unique, Allah is Eternal". He ordered the removal of human figures and animals from the coins and that they be replaced with letters.
Gold and silver coins remained official currency until the fall of the Khalifate. Since then, dozens of different paper currencies were made in each of the new post-colonial national states created from the dismemberment of Dar al-Islam.
This command was then carried on throughout all the history of Islam. The dinar and the dirham were both round, and the writing was stamped in concentric circles. Typically on one side it was written the "tahlil" and the "tahmid", that is, "la ilaha illah Allah" and "alhamdulillah"; and on the other side was written the name of the Amir and the date. Later on it became common to introduce the blessings on the Prophet, salallahu alayhi wa salem, and sometimes, ayats of the Qur'an.
And among the People of the Scripture is he who, if you entrust him with a great amount [of wealth], he will return it to you. And among them is he who, if you entrust him with a [single] silver coin, he will not return it to you unless you are constantly standing over him [demanding it]. That is because they say, "There is no blame upon us concerning the unlearned." And they speak untruth about Allah while they know [it]
Characteristics of dinar gold
Real face value even if broken
Currencies is fluctuate accordingly
Universal usage and trade due to global the authorised
Made up of real gold (dinar) and silver (silver)
Can be convert into commodities from an authorised currencies
Advantages of Gold Dinar
One advantage would be that the government will not be able to exercise total control over it as is the case of paper money. The government will no longer be able to issue more gold than is available as was the case with the paper currency where the government can print as much currency as it wishes. After all, how much will it cost to print a piece of paper? The value of gold will only change when a new gold mine is found but that too will not be a severe change. Moreover; the value of gold will eventually stabilize after a period of time.
Second advantage of gold is that, there will be no Riba al- Fadhuly (interest with extra commodity) as the government will no longer be able to fully influence the circulation of gold or its creation. However, the chance of exploitation will still occur because the gold coin may be debased. Debasement of a gold coin would mean that, it will have less gold in it than is stated on the coin.
Comparison of gold dinar and euro Charecteristics Gold dinar Euro Reduce dependancy on US Dollar Many currencies including the Malaysian Ringgit are floated based on the US Dollar. As a result if the dollar pricing goes up the value of the ringgit goes up and comes down if the value of the dollar comes down. Once the gold dinar is introduced , currencies will be pegged to the gold which has its own intrinsic value and is more stable. Before the introduction of Euro currency,the currency of the member countries of Euro were more often pegged to the i s dollar.Eversince Euro introduced the demand of the currency is going up and more countries are now pegged to the euro currency.
Increased price stabilty We find that in many Islamic countries, price of goods is determined by many other factors such as exchange value,price differentiation, demand ,supply and so on. But if the goods are priced in terms of gold the value of goods with respect to gold will almost always be the same. With the introduction of euro currency, tremendous price stability has already been achieved because all the 12 member countries of Euro have become a single economy of goods.
Strengthen their currency Currently most of the Islamic The member states of th euro countries do not issue their currency, were members of the currency based on the nation's european union previously,but some wealth,i.e their natural resources, countries because of their currency rather it is again based on U.S. weakness,example Spain, Italy currency which is a fiat money were unable to get favourable trade subjected to several trade cycles. agreements.Now since such weak This can be improved when they economies are integrated into the use Gold Dinar ,since gold dinar Euro mainstream their currency doesnt involve credit creation has automatically strengthened which means there will be no trade thereby strengthening the cycles also ,and in the absence economy also. of trade cycles,the currency gains stability.
To promote A common currency would help to Euro currency has been cooperation promote cooperation between participating countries in various spheres, as it vastly reduces speculation,arbitrage and in turn would boost trade ties and economic Development successful in promoting cooperation among member countries as in WTO talks,they are able to pose a common front and win many potential agreements.
Better representation Since all Islamic countries This has already been proven in trade dealing pose a common front, they are less likely to be rallied over by the superpowers using hedging and arbitrage and various trading tactics. Trading deals can be in terms of dollar equivalent to gold, and not fiat money equivalent to fiat money as is prevalent now in the case of euro where because of the strength of their currency many trading countries especially Asian countries prefer to keep their foreign exchange reserves in Euros rather than in US Dollar which used to be the norm in earlier days
Application in current day
3.2 In Malaysia
According to Dr Abu Bakar Bin Mohd Yusuf (2002), the creation of an Islamic Currency will be a challenge towards the western countries especially to the United States of America because with the implementation and the acceptance of use of Dinar the American Dollar will be less demanded. The Statistic from the Bank for International Settlement shows that almost 80 percent of the world trade use American Dollars as a medium of exchange (Bank for International Settlement, 1998). The dependency of the world countries towards the American Dollar gives the capitalist an extra competitive advantage in its overall economic condition. If the Islamic Dinar is successfully being implemented, the dominance of the World Bank and International Monetary Fund will also be affected. He then added, definitely the western will oppose the Malaysian intention with all might. Despite of the resistance from the west, Malaysia has its own reasons why the Islamic Dinar should be implemented in order to foster the Muslim economic conditions and activities. In Malaysia's planned adoption of the Islamic Gold Dinar to replace the United States dollar in international trade, Ringgit would remain for local transactions. Only Dinar will be used as the international trade currency that would help unite Muslim countries, especially those under Organization of Islamic Conference (NST, 2002). Dr Mahathir Mohamed in a press conference after addressing a public sector Workers' Day gathering at the National Institute of Public Administration (Intan) told that Malaysia's interest to use the gold Dinar for international trade is not confined to the more than 24 countries with which it has bilateral payment arrangement (Utusan Malaysia, 2002). Initially Malaysia is trying to implement the Dinar within a small group of countries before the Dinar system could be widely accepted as a trading currency.Consequently, the introduction of Gold Dinar and Silver Dirham in the state of Kelantan in 12 th August 2010 is not a new idea or experiment. It is the return to the medium of exchange that has been known for 1400 years throughout Dar al-Islam as Money of Shariah taking its legislation from Allah’s Revelation and Rasul’s Sunnah.
As Allah says in the Qur'an:
“ And amongst the People of the Book there are those who, if you were to entrust them with a treasure (qintar), he would return it to you. And amongst them is he who, if you were to entrust him with a dinar would not return it to you, unless you kept standing over him. (Surah Ali Imran: 75)
Bank for International Settlement, URL: http://www.bis.org/search/?q=gold+dinar&adv=1 , accessed 10 February 2011.
Dr. Abu Bakar Bin Mohd Yusuf (2002). The Implementation Of Gold Dinar Is It The End Of Speculative Measures: Published by Journal of Economic Cooperation, Statistical, Economic and Social Research and Training Centre for Islamic Countries. Jul 2002, Vol 23 (3). Ankara, Turkey.
Kelantan Golden Trade Sdn Bhd., Introducing the Islamic Dinar & Dirham, URL: http://www.dinarkel.com/islamicdd.html , accessed 9 February 2011.
Rais ‘Umar Ibrahim Vadilo (2004). The Return of Islamic Gold Dinar, UK & Europe: Madinah Press.
The Islamic Gold Dinar, Jay Taylor, URL: http://www.gold-eagle.com/editorials_98/taylor112598.html , accessed 11 February 2011.
Why Invest in Gold Now?, Dr David Evans, URL: http://www.gold-eagle.com/editorials_04/evans061304.html , accessed 10 February 2011.