THE GOLD DINAR CONVENTION（DEWAN TUN HUSSEIN ONN PUTRA WORLD TRADE CENTRE, KUALA LUMPUR／2003年７月１日）
It is a pleasure to be here today to deliver the
keynote address at this Convention on gold as an
alternative to the traditional methods of trade
financing. Trade can only flourish if the value of
the goods can be easily assessed and paid for in money
or tokens that can be equally easily valued. Otherwise
only the exchange of goods, i.e. barter can enable
trade between different countries to be carried out.
Obviously barter trade is inconvenient as it involves
each party trying to value the goods of the other party
to determine whether he is getting a fair price, when
translated into his own currency and what his market
2. Today most countries accept payments made in a
common trading currency, such as the US dollar. This
is possible if the buyers or importers can have access
to the trading currency, a foreign currency that would
only be available if the country has exported goods
paid for in that currency.
3. Malaysia has devised a way to trade with countries
which are unable to earn much foreign currencies.
Under this arrangement called the Bilateral Payments
Arrangements the exporter is paid in his local currency
by the country’s central bank or designated bank while
the importer pays in local currency to his country’s
central or designated bank.
4. At the end of an agreed period the designated
banks will contra their accounts to determine which
country has a deficit and the balance in the trade
would be settled in an agreed foreign currency such as
the US Dollar or Yen or Euro. As the balance is far
smaller than the total trade, the need for foreign
currency would be minimal. Alternatively the balance
can be brought forward for future trade.
5. This system can be expanded to cover several
countries. It reduces the need for countries to earn
foreign currencies in order to import.
6. Through the Bilateral Payments Arrangements
Malaysia has been able to increase trade by 400 percent
with some developing countries. But still a reference
currency agreed by both sides must be used. And such
currencies, even the most stable, change in value.
Currently the US Dollar, the most frequently used
trading currency has depreciated by almost 30 percent
against the Euro in the last two years. This means
that exporters are getting less for their exports. To
a certain extent this can be mitigated by accepting
payment in the Euro equivalent or changing the receipts
into Euro or other stronger currencies.
7. All these problems arise because the world went
off the Gold Standard. The Bretton Woods Agreement was
about fixing the exchange rate of the currencies of the
major trading countries against gold. The value of the
currencies were however fixed against the US Dollar
which in turn was fixed at 1/35 ounce of gold or 35 US
Dollars per ounce.
8. This fixed exchange rates worked quite well until
major trading countries found their exports becoming
uncompetitive. Then they reneged on their undertaking
and devalued their currencies.
9. Malaysia had remained in the “Sterling Area” after
independence. All the reserves were in British Pounds.
The British decided to devalue the Pound without
informing Malaysia. Suddenly the value of the
Malaysian Ringgit and the Malaysian reserves plunged.
Since, even then, Malaysia was trading with numerous
countries, exporting rubber and tin and buying
practically all the manufactured goods it needed, not
only were the imports from non-sterling areas costly
but buyers of Malaysian tin and rubber insisted on
paying the Malaysian Ringgit equivalent in their
currencies or the US Dollar.
10. As a result Malaysia decided to exit the Sterling
Area, and convert its reserves into a basket of
11. But following the official devaluation of the
Pound the currency traders moved in and insisted that
the market determine the value of the Pound and other
currencies. The US also decided to reduce the value of
the US Dollar against gold.
12. Effectively this means that money became just
pieces of paper on which certain figures were printed.
Without any gold reserves, money could be printed to
any value. If the market believes in the currency then
it will have a value. But when the economy of a
country did not do well the printed value of the
currency will not fetch the former equivalent of the
currency in foreign currency. And so exchange rates
fluctuated and made trading difficult.
13. Although the US Dollar had devalued against gold,
it remained strong because the US economy was strong.
The US Dollar thus became a reference currency to quote
prices and to trade. Currencies began to be devalued
or revalued against the US Dollar. Speculators could
then speculate on the exchange rates of currencies
based on the economic performance of the countries.
14. Then the currency traders became greedy. They
decided to make money into a commodity like rubber and
tin. And like all commodities selling large amounts
would lower the price and vice versa.
15. Unlike commodities where eventually they have to
be delivered, currencies need only to have the
ownership transferred to the buyer in the accounts at
the banks. There need not be physical delivery of
cash. This enables huge sums to be traded without
actually possessing the cash. It is estimated that
total trade in currencies is many times bigger than
world trade. There cannot be enough money issued by
the countries for these huge amounts. In almost any
country the total trade even within the country is far
bigger than the currency notes issued. The banking
system enables credits to be extended and payments
16. With the advent of the computer and the Internet,
trading in currencies is even easier. Huge sums of
money can be bought and sold by the traders simply by
changing the ownership of the figures representing the
currencies in the computers. The trading is actually
confined to a small group of traders who control hedge
funds. These funds large though they may be, cannot
cover the total sums traded. Off and on delivery
cannot be made and huge losses are registered. This
was what happened to the Long Term Credit Management
17. The effect of treating currencies as commodities,
is to devalue them or revalue them simply by selling
large sums or buying large sums of literally non-
existent money. When the time to deliver comes the
amount is simply credited to the buyers account. The
whole transaction is not transparent, totally hidden
from the public eye, because banks uphold the secrecy
of transactions of their clients. Not even Governments
can get access to the accounts of bank clients.
18. In the meantime the devaluation of the currencies
because of the currency trade impoverishes whole
countries and all the businesses. Payments for
imported goods, including food cannot be made because
in local currency term the prices have shot up sky
high. Unless the wage-earners and traders are given
increase in pay and higher profit margins, and all
assets and properties are revalued upwards, they will
not be able to buy even for their daily needs. There
will be rampant inflation and all trading and
businesses would be thrown out of gear. Local banks
would hold practically useless money, including the
savings. In other words the whole economy would be
paralysed. There would be a great deal of uncertainty
as the currency traders played around with the money,
devaluing and revaluing it at will and profiting from
every movement of the currency.
19. Thriving and even very profitable banks and
businesses would become stressed or bankrupt when
currency devalues. If money is borrowed from the IMF
to pay foreign debts, the Fund would insist that the
country allow in foreign companies and banks and that
all Government companies and agencies be privatised.
With the local currency devalued and all the business
in serious financial trouble, the foreign investors
would be able to buy all the banks and companies at
fire-sale prices as their currencies would have
appreciated greatly against the local currency. At the
end of the day all the wealth of the country would fall
into foreign hands. The country would lose control of
its economy completely.
20. Currency trading is only possible when paper money
and then computer money is regarded as legal tender.
The pieces of paper which is accepted as money based on
figures printed on them, and subsequently computer
money based on the number of zeros tapped out on the
key board have no intrinsic value. They cannot be used
for anything other than tokens representing money.
21. If money is to be truly worth the value that it is
purported to be then it must have an intrinsic value,
i.e. on its own it can be used to produce something of
value. Metals are lasting and can usually be used to
produce something useful. During the bronze and iron
age, these metals were used and were obviously valuable
enough to be made into currency tokens or coins. The
value of the tokens initially represented the actual
value of the metal.
22. Later gold and silver, because of the demand for
these metals for ornaments, were minted into coins.
The value was real until the feudal rulers abused these
coins by mixing with base metals and their value was
less than their true worth. Still gold coins with a
known degree of purity commanded a price almost
commensurate with their value in gold. Often enough
the coins were used as ornaments or melted down and
made into ornaments of different shapes. Whatever it
is the gold in the coins command a price, and can be
used in payments for goods within and between
23. But carrying gold and silver coins is obviously
cumbersome. As trade within and between countries grew
it was not practical to use the coins for payments.
Paper is more convenient and these days transfers can
be done very conveniently through telegraphic means and
now the computer. But as we have noted paper and
figures on the computer have no intrinsic value and can
be abused. Although gold has intrinsic value, it is
inconvenient to be used physically for payments and
there really is not enough gold in the world to pay for
the huge amounts of trade going on internationally and
24. In order to minimise the need to transfer gold, it
should be used only in international trade. Within a
country paper money can still be used with the money
pegged against gold at a rate determined by the
authorities. The authorities must however guarantee
that the gold can be purchased from the treasury at the
stated rate. Even for this there will not be enough
gold. But as with paper currencies a run on the bank
would bankrupt the bank, a run on the Government
treasury would have the same effect. However it is
less likely to happen simply because individuals cannot
really keep or carry large amounts of gold. Demands
for gold against currency would really be very minimal.
Still it is better not to use gold within the country
but to use paper currency that is guaranteed against
gold. The banking practices within the country should
be able to go on as usual.
25. To reduce the amounts of gold to be transferred,
trade between countries should only involve the
settlements of the balance of trade. In the Bilateral
Payments Arrangements as has been explained, the
payments to the exporters are made by a designated bank
in local currency and the importer also pay to a
designated bank in the local currency. At the end of
an agreed period the balance in the trade is settled in
an agreed trade currency.
26. All that is needed is for the settlements to be
made in gold instead of a foreign currency. But even
this can be inconvenient. It is easier for a credit or
a debit note to the value of the gold to be made. If
absolutely necessary only should gold be transferred.
Otherwise the gold should be held in the central banks
in the form of ingots or coins of a certain purity and
value to back the value of the deficit in the balance
27. It will not be possible for all trade between all
countries to be conducted using gold in the form of
gold dinars immediately. For a time the use of the so-
called hard currency such as the US Dollar or the Euro
or Yen will have to continue. But pairs of countries
can begin to use the gold in the form of gold dinars to
settle their balances of payment. It should be
possible to then advance by involving a group of
28. Actually since the Bilateral Payments Arrangements
have worked using the US Dollar as the trading
currency, switching to the Gold Dinar is simply done by
substituting the Gold Dinar for the US Dollar. The
value of the local currency against the Gold Dinar can
be determined by the authorities of each country, based
on the local market value of gold.
29. Gold prices in any currency will fluctuate. It is
not really the gold which revalues or devalues. It
will be the currency which fluctuates against the gold.
During the Asian currency crisis the currencies were
devalued against the US Dollar basically. The US
Dollar was not regarded as depreciating when an Asian
currency revalues. Similarly with gold. When a
currency strengthens against gold, gold is not
considered as having devalued.
30. But as we are now seeing the US Dollar can
devalue. Presently the US Dollar has depreciated by 30
percent against the Euro. It can devalue further. In
fact during the Asian crisis some currencies devalued
to one-sixth of its former value against the US Dollar.
But gold cannot be so devalued simply because it is a
metal that can be used for other purposes besides as
coins. The fluctuation in the gold price in any
currency would be quite limited. Gold is therefore a
more stable reference currency.
31. Since trade is conducted in gold, the prices would
be as stable as the gold prices.
Speculation in gold can still take place but as has
been pointed out the fluctuation would be minimal. It
is not possible for anyone to corner the gold market
simply because it will not be possible to deliver the
gold upon settlement. The amount would be too big and
too cumbersome for the rapid transactions of the
32. But the payment in gold is not the same as
speculation in gold. The payments of the balance of
the total trade over an agreed period will have to be
made by the designated bank, preferably the Central
Bank of the country, and such banks cannot renege on an
undertaking agreed upon by the Government under the
Bilateral Payments Arrangements.
33. There will be hitches in the early days but they
can be resolved.
34. The realisation of this proposal on the use of
gold for trade settlement, or for that matter, the
pursuit of alternative mechanisms for trade financing,
will depend, to a large extent on its acceptance by the
parties and countries concerned. The support and
endorsement of the trading community is of paramount
importance. In this connection, the Dewan Perdagangan
Islam Malaysia (DPIM) has a key role in mobilising the
support of its membership to ensure the success of the
35. The benefits of the gold-based BPA to the traders
and businessmen are quite apparent. By converting
commercial risk associated with trade into sovereign
risk, such a mechanism will assume a pivotal role in
enabling traders to penetrate new, non-traditional
markets with greater confidence. The BPA process would
also reduce the cost of doing business by dispensing
with the need for banks to confirm letters of credit.
At the national level, the gold-based BPA mechanism
would help to diversify export markets and avoid over-
reliance on the traditional export markets. In the
process, we can also reduce the over-dependence on
foreign currencies in international trade.
36. In moving forward this important initiative on the
use of gold in trade settlement, a Secretariat is being
established in Malaysia to coordinate the necessary
follow-up activities. The Secretariat can serve as a
focal point for the dissemination of information on the
use of gold in international trade, liaise with the
relevant parties, both domestic and foreign to develop
the operational framework on the use of gold in
international trade settlement. The Secretariat will
also serve to promote public awareness on the use of
gold as a mechanism for trade settlement. I would urge
DPIM members to give full support and cooperation to
this initiative for the benefit of the national economy
in general and the business community in particular. I
am confident that this convention will deliberate on
this matter in some detail and generate useful
suggestions on alternative proposals to the traditional
methods of trade financing and settlement, including
other options on the use of gold.
37. On this note, I am pleased to declare open, this
DPIM convention on the use of gold as an alternative