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?