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 . 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.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved

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?

6 Responses to “[795] Of gold standard in Kelantan”

  1. on 23 May 2006 at 03:53 The Malaysian.

    I agree with you it is illegal. I personally think it is a gimmick more than anything else. Ive written on this at my blog and you’re welcome to peruse.
    Will PAS Ever Learn?

  2. on 21 Jul 2006 at 21:15 Kijang Emas

    Yes, PAS politicians ever read the Constitution and you got the whole idea wrong in the first place.

    You should consider reading from alternative media like the Harakah for the most reliable news from Kelantan.

    ” Husam Says Kelantan Has No Intention Of Using Dinar As Currency ” – http://www.bernama.com.my/bernama/v3/news.php?id=199363

    Btw,
    Bank Negara has been doing along with the Kijang Emas Gold Coin for quite some time and what Kelantan is going to do is in perfect parallel with what BNM is already doing.

    So, what’s the fuss?

    Maybe you should consider editing your entry here for your own sake.

  3. on 21 Jul 2006 at 23:22 __earth

    You should read a chapter in economics that covers money. Regardless of what PAS politicians say, that dinar fits the description of money. Even description by Harakah fits the bill (don’t assume only you read Harakah)

    Bottomline, I trust economics more than politicians. I think for myself instead of letting some politicians think for me.

    And yes, BNM has been issuing Kijang Emas (gold bullion), but only BNM (a federal institution) can issue it while Kelantan is not a federal institution. You should read the Ninth Article of the Constitution properly.

  4. on 28 Sep 2006 at 00:15 Anonymous

    ——————————————————————————–

    Kelantan first state to launch gold dinar and silver dirham coins

    Kelantan mints govt coins

    KOTA BARU: The Federal Government should stop subscribing to the international monetary system where the US Dollar is the major factor in determining the value of other currencies.

    “Kelantan wants Malaysia and other Islamic nations countries to revert to the old monetary system where gold and silver are used instead,” said Mentri Besar Datuk Nik Aziz Nik Mat.

    “We cannot allow one or two nations to dominate our currency value and our lives. We must utilise the foundations of Islamic economy where gold and silver were accepted as legal tender,” he said.

    Kelantan yesterday became the first state in the country to launch its own-minted gold dinar and silver dirham coins based on the Islamic financial system.

    Although there is no legal tender value, the state wants residents to invest in the dinar and dirham, the returns would be based on the trading value of gold and silver in the commodities market.

    Saying it was the Islamic legal tender since the days of Prophet Muhammad, Nik Aziz wants Bank Negara to better market the dinar and dirham.

    On the dinar and dirham usage here, Nik Abdul Aziz said the state would first generate awareness about its value and benefits.

    Then, it would try to standardise the value so that gold and silver could be used for monetary transaction in marriage dowry, haj pilgrimage and zakat payments, he said.

    Earlier, state finance planning committee chairman Datuk Husam Musa said PAS would invite former premier Tun Dr Mahathir Mohamad as a keynote speaker in a seminar on the use of the dinar and dirham.

    Dr Mahathir was a proponent of the system so it was only fitting to invite him, Husam said.

    He announced that since the launch, the manager of the scheme had sold some RM20,000 worth of dinar and dirham coins here.

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    “It would be difficult to exaggerate the psychological and social impact of the anticipated replacement of the jumble of existing monetary systems–for many, the ultimate fortress of nationalist pride–by a single world currency operating largely through electronic impulses.”

    Who Is Writing the Future?

  5. on 17 Jun 2009 at 23:00 afif

    In my opinion if PAS Kelantan still insist on pursuing the gold standard, they may not necessarily need to issue the currency by themselves. They can contract out the job to private enterprise. Then the constitutional barrier may can be overcome. We can’t legally bar people from producing, trading, receiving, or producing certificate of gold.

    Private issued currencies were prevalent in the past. US used to have 1800 different monies circulated in the economy by 1860. The good thing is there were less problems with money until governments coercively monopolizing money supply. In fact during early days when US trying to promote the state-issued dollar, there were resistants because people trusted the private currencies more.

    I believe in private-issued commodity-backed currency. It is free money and politicians have no say in it. Excessive inflation or deflation that we see today is modern age phenomena. We didn’t face such problem frequently in the past as currencies and interest rates are freely determined by market.

  6. [...] denominations of the commodity-backed currency is pegged to the Malaysian ringgit. Regardless of possible legal issues, this currency is bound to [...]