Friday, December 05, 2003

Gold dinar

Malaysian Prime Minister Mahathir Mohamad has proposed that a unit of currency called the gold dinar be used to settle bilateral payment arrangements between Islamic countries. The gold dinar was the currency of the Ottoman empire, and disappeared with the empire in 1924. This new gold dinar would not exist in physical form, but would be used to periodically settle trade balances between countries, with the settlements made by the transfer of gold reserves held in central banks. Use of a nominal currency effectively backed by gold would increase the value of gold, decrease the value of the American dollar, and remove some of the danger caused by speculation in local currencies when the American dollar is used as a reserve currency in developing countries. The general philosophy of Dr. Mahathir was that Western and American influence on trade and business in developing countries was detrimental to the economic health of these countries, and his failing to accede to the free trade orthodoxy saved Malaysia from many of the problems other Asian countries faced in the mid to late 1990's. Iran has already agreed to such a bilateral relationship with Malaysia, and the Saudis are also signaling agreement (read between the lines of this rather vague statement), with the Saudi-based Islamic Development Bank considering the issue. Of course, the unstated long-term goal would be the trading of oil in gold rather than dollars. Some have seen this as part of a larger battle between the rest of the world and the United States for world hegemony, now that the American government appears to have flipped its wig. While the Americans fret over their wars and bogus threats of terrorism, China is increasing its position in Asia, the Europeans are working to strengthen the position of the Euro in world trade (with obvious great success), and the Russians are even working to reestablish a form of the old Soviet Union (the recent uproar in Georgia appears to be an American reaction to the reassertion of Russian strength, and appears to have at least temporarily scuppered a Russian move to bring Moldova back into the fold). I wonder whether the silly overreaction to Dr. Mahathir's recent speech, and the general anti-Saudi attitude in the United States, relates to the shifts in power which we are starting to see in reaction to the current American insanity.