Malaysia’s Consideration of the Gold Dinar in Reserve Currency Discussions

On October 16, Malaysia’s government announced its plan to potentially begin using the gold dinar as a reserve currency. Despite limited access, the nation wants to revisit the idea of using this gold-backed currency to reduce dependency on the U.S. dollar while strengthening its economy. Prime Minister Datuk Seri Anwar Ibrahim explained all of this in a statement last week to the nation’s lower house parliament, stating that the government will hold an additional meeting in December to discuss economic conditions, finances, and the gold dinar further.

“We want to start it [the use of gold dinar] despite limited conditions,” Anwar stated. “If we can get between five and six percent with Islamic countries [using dinar], it would be a positive start as it provides strength and reduces dependency on the U.S. dollar.”

The gold dinar is not some form of modern currency created to combat inflation; it’s been around for some time now. Caliph Abd al-Malik ibn Marwan first issued the medieval gold coin from 696 to 697 CE.

One traditional gold dinar weighs 1 mithqal, which is equivalent to 4.25 grams or 0.137 ounces. Following today’s prices, a gold dinar would be valued at around $263.38.

During the Prime Minister’s question period, Anwar made a few comments that offered further details. Ku Abdul Rahman Ku Ismail, a Member of Parliament, asked about how the use of the gold dinar would stand up in trade against countries using the U.S. dollar and whether it could match that level of strength.

Anwar’s answer centered around the general movement away from the U.S. dollar. Many of Malaysia’s trading partners are already lessening their reliance on the U.S. dollar for similar reasons, so Malaysia seems to be planning on following suit.

“As I have mentioned earlier, our trading with China using ringgit and renminbi is at 25 percent,” Anwar answered, discussing the national currencies of Malaysia and China, respectively.

Anwar believes the use of the Malaysian ringgit when trading with other countries for the purpose of “dedollarisation” offered encouraging development in the past, so it makes sense that the gold dinar would provide similar results. The Prime Minister stated that the strategy of using local currency for trade has been well-received, primarily by China and other Asian countries recently, like Indonesia and Thailand. Because of this, now could be the perfect time to reintroduce the gold dinar in Malaysia for trading purposes, currency use, and more.

Anwar also believes that the gold dinar provides nations with another currency option for trade. Essentially, this alternative could help strengthen the economies that choose to adopt it.

“Islamic countries are familiar with the dinar,” Anwar explained. “Furthermore, with growth exceeding $1 trillion in the halal industry, other countries are well-informed about the position of the dinar.”

Just earlier this year, the leaders of the Association of Southeast Asian Nations (ASEAN) declared to advance regional payment connectivity as a means of promoting local currency transactions. The effort sought to boost the usage of local currency, strengthen financial resilience, increase the integration of regional finances by improving Asian trading and investment, and deepen regional chains.

Essentially, the leaders agreed to take advantage of innovative opportunities for more seamless and secure cross-border payments.

A couple of months before this summit gathering, the ASEAN finance ministers and central bank governors agreed to begin reinforcing local currency usage in their respective regions to reduce reliance on major currencies (like the U.S. dollar). Local currencies would be used for cross-border trading and investing to hopefully provide more financial stability to the local economies. Ultimately, the movement aimed to prevent high inflation.

Based on these previous agreements from earlier this year, it’s clear why Malaysia and other nations in Asia have begun adopting local currencies rather than relying on the U.S. dollar. Malaysia’s recent announcement to potentially readopt the gold dinar is simply one step in the greater already-defined plan. The gold dinar could provide more stability and stored value because it receives backing from gold, which may be why the nation wants to begin using it again.

Given the overall plans that nations in Asia seem to agree upon, we can likely expect to see more announcements similar to this one in the near future. Zimbabwe recently announced its gold-backed digital token, ZiG, just a couple of weeks back. As similar currencies become regularized, gold could gain excellent price support.

As always, investors should consult their financial advisors before making any portfolio decisions.

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