One week ago, I blogged on why conservative Muslims would prefer gold standard to fiat currency. Today, I found out that Kelantan, a state ruled by PAS, an Islamic party, plans to introduce gold dinar and silver dirham in three months time (tag). Gold dinar and silver dirham are gold and silver standards respectively. More at Bernama:
Kelantan Plans To Use Gold Dinar As Currency
KOTA BAHARU, May 21 (Bernama) — The Kelantan government will introduce the gold dinar and silver dirham as currencies in three months time and even plans to pay state public servants with the currency.
State Public Administration, Economic Planning, Finance and Community Development Committee Chairman Datuk Husam Musa said the dinar and dirham currencies would first be implemented in the Islamic system of pawnbroking, the Ar-Rahnu.
Husam said when implemented, the public could buy the dinar and then exchange it for cash at the Ar-Rahnu pawnshops.
Talk about economic crystal ball…
However, I’m not interested in the predictive power of economics in this entry. I’m questioning the legality of such move instead.
Under item 7(a) within the Ninth Schedule of Constitution of Malaysia, finance, more specifically, “currency, legal tender and coinage” fall under the Federal List. It doesn’t fall under the State List or Concurrent List but instead – I stress – in the Federal List. This means only the central government has the exclusive right on matters pertaining to issuance of currency. Therefore, I suspect Kelantan’s move is illegitimate.
The existence of two standards is detrimental to intrastate trade and the need to exchange currencies – ringgit to dinar and vice versa – acts as a trade barrier. Furthermore, the introduction of gold dinar just in Kelantan – instead of countrywide – will undermine the authority of Malaysian central bank, Bank Negara. The introduction will indirectly hurt the country’s economy as there will be no congruent monetary policies.
This move is unneeded especially when Southeast Asia is contemplating on monetary union. The region as ASEAN plans to increase regional trade instead of reducing it. Introduction of a new standard will take the dream of an ASEAN-wide monetary union a step backward. In short, the introduction is counter-productive towards the ultimate ideal of ASEAN.
Finally, who will manage the gold standard? The central bank of Kelantan? What a ridiculous notion! Revolting!
Unless Kelantan plans to secede from the Federation, this move must be stopped. Bank Negera, which is responsible to Malaysian monetary policies must come forward and knock some sense into the state government of Kelantan.
I’m vehemently against Kelantan’s move and the existence of two separate standards within the Federation. There can be either one currency or the other. Not both.
p/s – I’m right. Introduction of a different standard within the Federation is illegal. From The Star:
Kelantan plans new currencies
By IAN MCINTYRE
KOTA BARU: The Kelantan government plans to introduce the gold dinar and silver dirham as currencies in three months, saying that it also hopes to pay state public servants with the currency.
However, Prime Minister and Finance Minister Datuk Seri Abdullah Ahmad Badawi shot the idea down.
State governments were not allowed to issue their own currency, he told reporters covering the World Economic Forum in Sharm El-Sheikh in Egypt when asked to comment on the statement by Kelantan Public Administration, Economic Planning, Finance and Community Development committee chairman Datuk Husam Musa
This makes me wonder, do PAS politicians ever read the Constitution?