Numismatic oddities

The release of dinar and dirhams minted from pure gold and silver by the PAS-led Kelantan state government recently can best be described as a political ploy to convince Muslim voters that PAS is serious about reviving the glory days of Islam.

In those great days when Goldman Sachs was not in existence and Wall St was probably some muddy field, dinars and dirhams were the media of exchange of the Muslim world.

In Kelantan, the initial run of coins worth about US$640,000 (RM1,978,880 based on US$1 = RM3.092) ranging from one dirham - containing about US$4 (RM12.3680) worth of silver at current prices - and one dinar - worth US$189 (RM584.388) - to an eight-dinar coin worth US$1,518 (RM4,693.66) were issued and were sold out, ironically bought by buyers using the ringgit, Malaysia's official currency, to pay for them.

While the idea of reviving a currency from the time of the Prophet is romantic, it is also rather simplistic.

For any currency to be worth anything today - without the backing of gold - its value relative to other currencies has to be determined via trading on the foreign exchange markets. Thus the value of the ringgit is determined on a daily basis by the forex market (it is on a real-time basis for the traders).

And for a currency to be traded on a foreign currency exchange, it has to be recognised as the official currency of a nation.

This is where the weakness of the Kelantan dinar and dirham lies - how does one determine their value in ringgit or, say, US dollar terms?

Its proponents may say that it is very simple - just base it on the value of the precious metal it contains. Thus the gold dinar and silver dirham would be worth what the metals are worth in the metal exchange.

If that is the case, then the values of the dinar and dirham will be affected by fluctuations in the metal markets due to supply, demand and speculation and are unstable in value like any other paper currency.

If the price of gold shoots up, then the eight-dinar coin would be worth more than its current value of US$1,518 (RM4,693.66).

Thus to say that "1,400 years ago, a chicken cost one dirham. Today, it still costs approximately one dirham" (http://www.islamicmint.com/islamicdinar/uses.html) does not compute.

Today's Kelantan one-dirham coin has about US$4 (RM12.3680) worth of silver in it. Assuming silver doubles in value ceteris paribus, the one-dirham coin should be worth US$8 (RM24.736). Would a chicken cost US$8 (RM24.736) then or would it remain at US$4 (RM12.3680)?

Of more importance is the fact that those who authorised the issuing of the Kelantanese dinar and dirham have not heard of Gresham's Law, a concept that is found in any A-Level economics textbook.

The turbaned ones wearing Arabian robes and stroking their beards of wisdom obviously have not heard of the phrase "bad money chasing out good money".

According to http://eh.net/encyclopedia/article/selgin.gresham.law, "the proposition known as 'Gresham's Law' is often stated baldly as 'bad money drives good money out of circulation.' Ancient and medieval references to this tendency were informed by circumstances in which lightened, debased, or worn coins had assigned to them the same official value as coins containing greater quantities of precious metal. In this context the tendency, which had yet to be elevated to the status of an economic 'law,' was one in which 'bad' coins alone, that is, coins possessing a relatively low metallic content ('intrinsic value'), continued to be offered in routine payments, while 'good' coins were withdrawn into hoards, exported, or reduced through clipping or 'sweating' (that is, purposeful erosion by chemical or mechanical means) to an intrinsic value no greater than that possessed by their 'bad' counterparts."

According to wikipedia: "If 'good' coins have a face value below that of their metallic content, individuals may be motivated to melt them down and sell the metal for its higher intrinsic value, even if such destruction is illegal. As an example, consider the 1965 United States half dollar coins, which contained 40% silver. In previous years, these coins were 90% silver. With the release of the 1965 half dollar, which was legally required to be accepted at the same value as the earlier 90% halves, the older 90% silver coinage quickly disappeared from circulation, while the newer debased coins remained in use. As the price of bullion silver continued to rise above the face value of the coins, many of the older half dollars were melted down. Beginning in 1971, the U.S. government gave up on including any silver in the half dollars, as even the metal value of the 40% silver coins began to exceed their face value."

Economists have noticed the tendency for people (of all faiths) to cut/shave off bits of gold or silver from coins made from these precious metals which they would amass, melt down and sell off for a tidy profit. The debased or smaller and lighter coins would remain in circulation even though their content of precious metals would be worth less than their face values.

Some experts have opined that this led to the issuance of paper currencies and coins made of cheaper metals like copper, nickel and zinc.

In fact when the prices of copper and zinc shot up in 2006, the United States government banned the melting or mass exportation of nickels and pennies as the melted-down coins were worth more than their face value.

According to Islamic Law, the Islamic Dinar is a specific weight of 22k gold (917.) equivalent to 4.25 grams while the Islamic Dirham is a specific weight of pure silver equivalent to 3 grams.

These specifications were established by Umar Ibn al-Khattab based on their weights: "7 dinars must be equivalent to 10 dirhams." Umar reigned as Caliph from 634-644.

Gold and silver dinars and dirhams were in use in the Muslim world till the fall of the Caliphate. Later, they were replaced - as in many other parts of the world - with paper currency which is still in use today.

Several Muslim nations still call their legal tender paper currencies dinar.

As for the gold dinar and silver dirham in Kelantan, it is unlikely for them to gain legal tender status and replace the ringgit as the medium of exchange. They will also not revive the glory of the Muslim world during the Caliphates.

At best they will be numismatic oddities.

Mexico and Malaysia

I just read a story (posted below) about Mexico celebrating its bicentennial even as many Mexicans say there is nothing to celebrate.



After 200 years of independence, Mexico is still struggling with inequality - it is home to the richest man in the world while half its population (107 million) are stuck in poverty - and corruption, which has become a way of life.


Drug traffickers rule parts of the nation like warlords even as the people lose faith in their political leaders.


A majority of Mexicans are not satisfied with the country's direction and the oil that once financed the nation's growth is running out. Mexico is slipping behind the Emerging Markets and its influence in the region is weakening.


A Mexican director made a movie for his nation's 200th anniversary and named it "Hell".


After reading the story, I realised that there are a lot of similarities between Mexico and Malaysia although Malaysia is a much younger nation.


Is corruption a way of life in Malaysia? Is there great inequality? Are the majority of Malaysians satisfied with the nation's direction? Is Petronas' oil running out? Is Malaysia slipping behind in global competitiveness? Is Malaysia losing its regional influence?


Though drug warlords are not controlling segments of Malaysia, other criminals are - just look at the Ah Longs (moneylenders) who paste their phone numbers all over phone booths, signboards and Tenaga Nasional power distribution boxes and the number of prostitutes from China, Russia and Central Asia who ply their trade in the red-light districts of Malaysian cities and towns. Look at the amount of smuggled cigarettes and liquor flooding the market. Look at the number of people selling pirated and porn DVDs.


These criminals are contributing very much to the black economy and the authorities don't seem too bothered about their activities. If you believe the rumours, some people in positions of power are partners in these 'grey' market 'business ventures'.


And, finally, how many Malaysians at this moment feel that Malaysia is 'heaven'?


By MARK STEVENSON (AP)


MEXICO CITY - The movie that Mexican director Luis Estrada is putting out for his country's bicentennial is bluntly named "Hell."


Like many Mexicans, Estrada says there is little to celebrate in Mexico today, with its violence, corruption and inequity. Yet in another way, the harshly critical movie shows how far the country has come - it was made with government funding, and nobody tried to censor it.


"I think this should be seen as enormous progress," Estrada says.


As Mexico limps into the bicentennial of its 1810 independence uprising, it is battered and full of self-questioning, but with more openness and debate than perhaps at any other time in its history.


The bicentennial marks the 1810 uprising led by Catholic priest Miguel Hidalgo, who gathered a band of Indians and farmers under the banner of the dark-skinned Virgin of Guadalupe. He was caught and executed soon afterward, but by 1821 the movement he started ousted the Spanish, a feat Mexicans celebrate Sept. 15-16.

"A bicentennial should inspire and generate hope, and this one hasn't," notes longtime environmental and consumer activist Alejandro Calvillo. "It comes at a time of deep crisis."


Why couldn't it have been in 1977, when Mexico was flush with oil money? Or in 1993, when Mexico negotiated the North American Free Trade agreement with the U.S., portrayed as a ticket to prosperity? Or in 2000, when the country experienced the first democratic transition of power in its history?


But all those "victories" proved hollow. The oil is running out. NAFTA failed to lift Mexican wages or stem migration. And democracy - in a country with no ballot initiatives, independent candidates or open city council meetings - has only strengthened the grip of the three main political parties.


A Pew Research Center poll released in August shows 79 percent of Mexicans are dissatisfied with the country's direction. Even U.S. Secretary of State Hillary Rodham Clinton jumped into the fray last week, saying that Mexico, plagued with drug-running and violence, is looking more and more how Colombia looked two decades ago.


Mexico seems to be slipping behind: Chinese auto workers who once earned wages their Mexican counterparts wouldn't stoop to take now earn more. Mexico's cherished role as defender of Latin America's right to self-determination has largely been taken over by Brazil and Venezuela. And Mexico's view of itself as the protector of refugees was badly shaken when drug cartel gunmen massacred 72 mainly Central American migrants in the north in August.


"We are a generous and hospitable people, without doubt, but now we are realizing with shock and shame that we have become a corrupt and murderous country," the Catholic Archdiocese of Mexico wrote in an editorial.


Perhaps what Mexicans have to celebrate is their own endurance - the real glue that's held the country together for centuries.


"We won't migrate, and we won't allow ourselves to be defeated," says Victor Suarez, 57, who started a national farm cooperative movement in 1995, right after NAFTA opened the door to imports of U.S. grain. Suarez' group now negotiates better prices for about 60,000 small farmers, and has built 200 grain warehouses.


"Farmers are the country's future," he says. "We are fighting to save something that is key to the national identity."


Yet in the past 15 years, Suarez says he's seen increasing numbers of poor farmers migrate to the United States, or be recruited by drug gangs to work as hitmen or lookouts, or to plant marijuana or opium. In a country where roughly 10 percent of the population has migrated abroad - and a Pew Research Center poll shows another 33 percent would like to do so - merely remaining is often a statement in itself.


That's especially true in Ciudad Juarez, where drug violence has killed more than 4,000 people since 2009, making it one of the deadliest cities in the world. The violence is so bad that the city canceled its Independence Day celebration for the first time since Pancho Villa raided towns along the border during the 1910-1917 Revolution.


A restaurant owner in the violence-wracked border city - he asked for his name not be printed to avoid reprisals - isn't leaving, even after gunmen barged into his eatery one year ago to demand protection money. He moved his family to El Paso, Texas and opened another eatery there, but he remained in Juarez to keep his business open and continue providing jobs for his 10 employees.


"My dad started this place on a shoestring," he says, amid the warm smell of his family's turkey burritos. "I want to stay here, I'm from Juarez, and I'm going to stay and help my employees' families as long as I can....I'm not going to let some bastards run me out."


Mexicans are losing faith in many institutions. After the hero in Estrada's movie bursts into a bicentennial celebration and mows down corrupt figures - a drug lord, a mayor, police chief and local priest - with an assault rifle, audiences in Mexico City clapped.


But the search for new values is somewhat disorienting. For most of its 200 years, Mexico was dominated by three institutions, whose buildings loomed over hundreds of town squares: the church, the city hall and the house of the most prominent family.


The church - whose falling number of priests can hardly serve their flocks anymore - now strives to be relevant in a country where most still list themselves as nominally Catholic, but hardly ever attend mass anymore.


Rev. Alejandro Solalinde runs a shelter for Central American migrants in the southern state of Oaxaca, where he has braved threats from corrupt officials and drug gangs. Even Solalinde questions his church and his country's direction.


"I think that nationalism isn't much help any more," he said. "I think what we need is new humanism, that places value on the individual human being."


Today, one of the buildings on a Mexican town square is likely to be an evangelical temple. Evangelical and Protestant groups provide involvement and a sense of revivalism, holding "prayer meetings for peace" in places like Ciudad Juarez.


Other aspects of life are changing; today, a Mexican town square is likely to hold an Internet cafe, a money exchange for migrant remittances, and a store selling plastic Chinese sandals instead of leather huaraches.


The family remains a bulwark, albeit one that is often split by mass migration. But the enormous, close-knit Mexican family may be a thing of the past; Mexico's birth rate has fallen from about 7 children per woman in the late 1960s to 2.1 today.


Upper-middle class Mexicans today are firmly implanted in the developed world, with iPhones, modern apartments, high education levels and small families. They sometimes feel ignored amid all the talk of violence: Mexico's nationwide murder rate, after all, is a relatively low 14 per 100,000, well below the average for Latin America.


"The dangerous, violent, tragic, corrupt and cynical Mexico is not the country most Mexicans belong to," philanthropist Manuel Arango wrote in an open letter in August. "The millions who go to work everyday, despite street protests that often block traffic, who work to get ahead and support their families ... this invisible Mexico is the real Mexico."


Today, Mexico has strong civic movements on issues like crime, human rights and environmental protection that didn't exist 25 years ago. And despite suffering the most severe recession since the 1930s in 2009, the country has sound government finances and growing accountability. There is also now a truly independent Supreme Court.


Yet a few rich still hold the reins of the country's highly concentrated economy, where one or two firms dominate key sectors like television, telephones, cement, and food distribution. Half of the country's 107 million people live in poverty. Mexico is home to both the world's richest man, Carlos Slim, whose fortune is estimated at about US$53.5 billion, and about 20 million Mexicans who live on less than US$3 per day.


"Closing the gap that separates these two Mexicos is a commitment we owe to the heroes of the past, and to Mexicans of today and tomorrow," Calderon said in Sept. 1 speech.


In the meantime, social activists are trying change Mexico in various ways. Mothers whose children disappeared in counterinsurgency or police campaigns have taken to washing the Mexican flag in a tub of water outside the steps of the country's Supreme Court in the weeks leading up to the bicentennial. They say the flag has been stained with blood and needs to be cleaned.

A quasi-military group, the Pentatlon Deportivo, believes military-style discipline, personal development and an ardent, nationalist love of Mexico are the cures for the country's ills. In Mexico City, teenage Pentatlon recruits jog down the tree-lined main boulevard, dropping to calisthenics and chanting "I will train very hard, because I'm no coward/I will give my life for my country ... to end all the evil."


Others, like Calvillo, are trying to organize consumers to pressure the country's powerful, highly monopolized business sector, with campaigns to stop big corporations from selling junk food in schools in Mexico, where children simultaneously suffer from malnutrition and one of the world's highest obesity rates.


And some are trying to use the courts to introduce class-action lawsuits taking on big business. But activism can only do so much; for example, antiquated labor laws make union organizing nearly impossible, and wealth and power often prevail in Mexico's bureaucratic, opaque court system.


"It's a contradictory situation, because on the one hand, people are a little desperate and want to participate, but the lack of democratic processes discourages that," Calvillo said. "Because of the situation, people ... kind of retreat into their private lives and try to solve their own problems."


This year also marks the centennial of the 1910-1917 revolution, when the old heroes like Emiliano Zapata and Villa overthrew the dictatorship of Porfiro Diaz on behalf of small, impoverished farmers.


One hundred years later, most farms remain small and impoverished, and the "revolutionary" rhetoric that helped keep the Revolutionary Institutional Party in power for 71 years - a paternalistic government that would hand out subsidies, housing projects and sports complexes - has faded just like the paint on government-built apartment blocks.


The 2000 presidential elections - won by President Felipe Calderon's conservative National Action Party - marked the first peaceful transition of power in the country's history. Embarrassingly, Calderon's administration has had to delay a park and a commemorative arch for the bicentennial, because some of the work had to be done abroad.


Today, Mexicans are looking less to the government than ever before; they have largely tired of the official version of what it means to be Mexican.


At Mexico City's alternative music market every Saturday, Mexican Goths in black robes and white face powder mix with punk and rock fans known as "skaters." With shaggy hair, ripped jeans and skateboard, graffiti artist and high-school student Antonio Yanez, 19, likes U.S. bands like the Red Hot Chili Peppers and Flaming Lips, but defines his Mexican identity as something that strikes to the ageless core of the country.


"Being a Mexican is about working hard, getting ahead by your own efforts," Yanez says. "It's like, looking for some way to get ahead, even when there is no way, and just hoping to find it." - AP

Dinars and Dirhams

Here's a story on Malaysia that appeared in the respected financial newspaper Wall Street Journal. However, I'm not sure if it's for the right or wrong reason...



By JAMES HOOKWAY
The Wall Street Journal

KOTA BHARU, Malaysia: Umar Vadillo bounds into a hotel room here in northern Malaysia with several stacks of gold and silver coins in his hands and slaps them down on a coffee table. "This," Mr. Vadillo says, "is what it means to be free."


A quarter century ago, this Spanish-born Muslim convert set to work with other European Muslims to find a substitute for the U.S. dollar and other paper currencies.


State minister Nik Abdul Aziz presented certificates to local traders who accept dinar as payment.


Pricing goods in greenbacks, they argued, was unfair. Many countries earn their income from finite resources like oil and other minerals, they said, while the U.S. and other countries can crank up their printing presses to pay for them—especially after Richard Nixon helped break the Western world's historical dependence on gold as a measure of value by taking America off the gold standard in 1971.


Last month, Mr. Vadillo's solution took shape when the local Muslim-led government in Malaysia's Kelantan state joined forces with Mr. Vadillo to introduce Islamic-style gold dinar coins as alternative currency.


Mr. Vadillo and the Kelantan government have persuaded more than a thousand businesses here in the state capital, Kota Bharu, to paste stickers in store windows saying they accept the coins.


Ordinary people can also pay taxes and water bills in gold and silver instead of paper money.


"Our lands are being subjugated," says Mr. Vadillo, a powerfully built 46-year-old with a shiny suit, swept-back hair and a tidy goatee. "Today, in Kelantan, we're fighting back."


Plenty of people have their doubts about the dollar, as well as other currencies that aren't backed by gold or silver.


American libertarians such as Ron Paul frequently call for the reintroduction of a gold-backed currency, arguing that the Federal Reserve's ability to print money causes inflation and destroys savings.


Gold bulls have developed a cult following among investors who worry that precious metals are the only reliable store of value during rocky economic times.


If there's a utopia being formed for the globe's gold bugs, though, it's happening in a few unexpected outposts in the Muslim world like Kelantan.


Mostly that is because some Islamic thinkers teach that using currencies whose value is declared by governments is a form of usury. A piece of paper, they say, is just an IOU.


But with the global economy showing fresh signs of faltering, some believers think there's also a strong financial incentive to switch to gold dinars or the silver coins, known as dirhams.


At the Peter Libly tailor shop in central Kota Bharu, proprietor Ariffin Yusof reckons the new dinars "save people from exploitation."


Husam Musa, Kelantan state's economic policy chief, says he saves half his salary in dinars and believes it to be a good investment. "Its value is stated not by the World Bank, but by Allah," Mr. Husam says.


An initial run of coins worth about US$640,000 and ranging from one dirham — containing about US$4 worth of silver at current prices — and one dinar — worth US$189 — to an eight-dinar coin worth US$1,518 sold out quickly, prompting Malaysia's political leaders to say the paper-based ringgit, worth around 32 U.S. cents, is still the country's legal currency.


"Gold is money because people make it money. Paper money is money because governments make it money," says Peter Schiff, President of Euro Pacific Capital Inc. in Westport, Conn., and a notable dollar bear. "But what happens if people lose their faith in governments, and the U.S. government in particular?"


This latest quest to wean the world off dollars actually began in Adam Smith's homeland, Scotland, when an aspiring actor named Ian Dallas left his home near Glasgow to seek out the bright lights of London in the 1960s.


Mr. Dallas, now 79 years old, fell into the hippie circuit and played a telepath in the Federico Fellini movie "8½" before ultimately converting to Islam in Morocco.


Mr. Dallas took the name Abdalqadir al-Sufi and set up his own sect, the Murabitun—or "the people of the outposts"—before settling into a wind-blasted mansion named Achnagairn near Inverness in the Scottish highlands.


There, Mr. Dallas and his followers surrounded themselves with banks of computers and began work on creating an Islamic currency to replace the dollar and help speed up the collapse of the West's credit-driven financial system.


When Mr. Vadillo joined the mission, the Murabitun fine-tuned their thinking and began minting gold dinars—the same currency used in the early days of Islam.


The first coin was stamped in 1993 with a Jacobite sword in honor of one of Mr. Dallas's Scottish ancestors who fought against the English army at the Battle of Culloden in 1746. A silver dirham was minted with the Dallas family crest.


"People laughed at us," says Mr. Dallas, who now lives in South Africa and dressed up in an Afghan cap and navy blazer in a video recently released to mark the arrival of the new dinar in Malaysia. "People thought we were going back to the past. Now, the whole atmosphere has changed."


"1,400 years ago, a chicken cost one dirham. Today, it still costs one dirham," Mr. Vadillo says.


Mainstream economists are skeptical about how quickly Malaysians will take up dinars.


Tim Condon, chief Asia economist at ING in Singapore, says he regards gold enthusiasts as "monetary cranks."


He points out that central banks around the world have by and large managed to contain the worst ravages of inflation.


Paper money can also help economies avoid tough periods of deflation, which some economists associate with rigidly backing currencies with gold.


Either way, getting people to use dinars and dirhams regularly isn't easy, and already there are some teething problems in Kota Bharu.


Some people see dinars as a way to save rather than a means of exchange. Others aren't sure what to do with them or worry about how to store them safely.


Snack vendor Ros Abdul Rashid confesses she wouldn't know what to do if somebody tried to buy a bag of peanuts with gold or silver. "I'm not sure how it's supposed to work yet," she says.


One white-robed dinar dealer, 68-year-old Awaludin Mohal, has to offer paper bank notes as change when customers buy his gold and silver coins.


To read the story, click: http://online.wsj.com/article/SB10001424052748703882304575465623070689934.html?