Concept of Gold Dinar System

Topics: Money, Gold, Currency Pages: 23 (9161 words) Published: May 18, 2009
Gold Dinar system is a plan introduced for the first time by Tun Mahathir Mohamed Malaysia prime minister in 2002, in response to the currency crisis of the scale seen in Asia in 1997-1998.Malaysia’s concern since then has been the vulnerability and volatility of the money, a bane suffered by this country and others in the regions in 1997-1998 that it now wants to avoid or minimize. Having one of the most open economies, Malaysia is often at the mercy of swings in its currency. Though pegging the Malaysian Ringgit to US Dollar in 1999 has brought some semblance of stability, the currency is nonetheless still subject to constant volatility with other currencies. Just as the capital-control measures the government introduced in response to the financial crisis in 1998 were initially viewed with cynicism by many, the Gold Dinar plan has its share of critics and supporters. In order to understand the Gold Dinar system, it is extremely important to define some concepts such as, money, fiat money, gold- backed system, bank’s reserve requirement (section1). The historical background of the monetary system and the collapse of the Bretton Woods system in the seventies will help us understand why many economists refuse any return to Gold-backed system (section2). Section three will be devoted to elaborate on the Islamic Gold Dinar System, its advantages, applications in both domestic and intra national levels and the main objections that have been arise against it.

SECTION ONE: DEFINITION OF MONEY, FIAT MONEY, BANK’S RESERVE REQUIREMENT, GOLD & GOLD DINAR This preliminary section will be devoted to set the definition of the main concepts of the monetary system such as: money and money creation process, bank’s reserve requirement, Gold and Gold Dinar. 1.Money

Money is anything that is generally accepted as payment for goods and services and repayment of debts. The main uses of money are as a medium of exchange, a unit of account, and a store of value. Money includes currencies, particularly the many circulating currencies with legal tender status, and various forms of financial deposit accounts, such as demand deposits, savings accounts, and certificates of deposit. In modern economies, currency is the smallest component of the money supply. Money is not the same as real value, the latter being the basic element in economics. The absence of money causes a market economy to be inefficient because it requires a coincidence of wants between traders, and an agreement that these needs are of equal value, before a barter exchange can occur. The use of money is thought to encourage trade and the division of labour. "Money is a matter of functions four, a medium, a measure, a standard, a store." That is, money functions as a medium of exchange, a unit of account, and a store of value. Role of money as a medium of exchange is in conflict with its role as a store of value: its role as a store of value requires holding it without spending, whereas its role as a medium of exchange requires it to circulate. 'Financial capital' is a more general and inclusive term for all liquid instruments, whether or not they are a uniformly recognized tender. Money is used as an intermediary for trade, in order to avoid the inefficiencies of a barter system, which are sometimes referred to as the 'double coincidence of wants problem'. Such usage is termed a medium of exchange. A unit of account is a standard numerical unit of measurement of the market value of goods, services, and other transactions. Also known as a "measure" or "standard" of relative worth and deferred payment, a unit of account is a necessary prerequisite for the formulation of commercial agreements that involve debt. Divisible into small units without destroying its value; precious metals can be coined from bars, or melted down into bars again. Fungible: that is, one unit or piece must be perceived as equivalent to any other, which is why...
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