~stand together~

http://www.btimes.com.my/Current_News/BTIMES/articles/wkn20-2/Article/

So what was it that Kelantan was trying to do by reintroducing the gold dinar into the state's financial system?

The northeastern state of Kelantan surprised everybody last week when it announced all systems go for its gold dinar and silver dirham initiative. It took a bit of time before the federal government digested what Kelantan was doing and even then, response from Putrajaya and the central bank in Kuala Lumpur were generally guarded.

So what was it that Kelantan was trying to do by reintroducing the gold dinar into the state's financial system?

Of course it would be easy to think it was all political play. Kelantan is, after all, held by the opposition party, Pas. Analysts say by putting the gold dinar into the state's financial system, Kelantan managed to thumb its nose towards the federal government and scored what could well be precious political points.

Others, however, said that it was not all political and that Kelantan was not doing anything new. It was reintroducing a payment system practised in the Islamic world more than a thousand years ago.

They said based on the increased doubts cast on the valuation of currency after the 1998 crisis, what Kelantan did made some sense. Today's paper money, in actual fact, has no value other than the paper it is printed on, plus perhaps other costs incurred in producing and circulating them.

Enter one of the five tenets of Islam, the zakat, which some currency experts think was the single largest push factor that strengthened Kelantan's resolve to reintroduce the gold dinar into its financial system. In Islam's early years, zakat could only be paid with tangible merchandise. It cannot be paid with any instrument which denotes a promise to pay or a debt.

In the early days, metal objects were first introduced as money, which later emerged as coins. Value of the coins were attached to the value of metals they were made of. Some of the earliest known paper money can be traced to China and with its introduction, money, which was earlier backed by a commodity, became just representative money. It means what the money is made of no longer matters but the currency was backed by a governmen or a bank's promise to exchange it for a certain amount of silver or gold. For instance, the old British pound bill or pound sterling was exchangeable for a pound of sterling silver. And for most of the nineteenth and twentieth centuries, the majority of currencies were based on representative money through the use of the gold standard.

Later, the gold standard was done away with, replaced by what is known as fiat money. Fiat is the Latin word for "let it be done". Money is given value by a government fiat or decree and enforceable legal tender laws were made. By law, the refusal of "legal tender" money in favour of some other forms of payments became illegal.

Herein lies the doubt over use of paper money for payment of zakat as the important tenet of Islam cannot be settled with just a promise to pay in which money in its current form is. There were views that if zakat was to be paid with paper money alone, only the value of the paper as merchandise can be accepted which means the value printed on the paper currency is irrelevant. Some currency experts said much of what Kelantan was premised on its efforts to once and for all put away doubts surrounding accuracy of the zakat payment.

The Kelantan state government said they have further plans as regards to the gold dinar but it was too early to be elaborated upon. What is certain however, is that the state cannot go to the extent of doing away with use of the national currency, the ringgit, because only the ringgit issued by Bank Negara Malaysia is recognised as legal tender.

As for the practicality of what Kelantan is doing, only time will tell. It will surely have to construct a comprehensive system to handle all the gold and silver in circulation, even if it is only within the state. And as for Bank Negara, the sole issuer of currency in Malaysia, it has not come up with a firm stand on the issue as yet. Many were asking why Bank Negara have remained relatively quiet on the issue. Perhaps the simplest explanation is that there is just no issue at all here, at least for now.