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THE GOLD DINAR RESEARCH GROUP

KUALA LUMPUR March 26 - Malaysia, having proposed the gold dinar as a currency for international trade, has worked out the mechanics for its usage, Prime Minister Datuk Seri Dr Mahathir Mohamad said today.

He said that any problem arising from the usage of the gold dinar could be resolved and the risks faced due to speculation would be reduced to almost nothing.

"World trade can actually expand because the cost of business will be much reduced as the need to hedge will practically disappear," he said when opening the International Islamic Capital Market Conference here. He also launched the International Capital Market week.

Dr Mahathir said that making the dinar a currency for international trade does not mean it would replace the currency of any country.

International trade requires the determination of the exchange rate of the currencies of the trading countries, he said.

Dr Mahathir, who is also Finance Minister, explained that paper currency has no intrinsic value, making the exchange rate arbitrary and subject to manipulation like what had occurred during the Asian financial crisis.

In comparison, gold has a definite value based on the demand for the metal, he said.

"Its value may appreciate or depreciate according to world demand and the demand in a given country. But the fluctuation will be minimal," Dr Mahathir said.

He also said that the gold dinar, made of gold, would largely follow the price of gold. The local gold price would then determine the exchange rate for the local currency against the dinar, he said.

Therefore, he said, the price of imported goods in dinar could be computed in the local currency and vice versa for local goods to be exported.

Dr Mahathir said that the dinar could be held as a central bank reserve with miminum need for its movement.

"Trade need not be paid in actual dinar, but the imports and exports of a pair of trading nations can be balanced and only the difference paid in dinar," he said.

He added that the surplus or deficit could be credited or debited against future imports or exports.

In a related development, Tan Sri Nor Mohamed Yakcop, the economic adviser to the Prime Minister on Financial Matters, said the idea of gold dinar is not to replace domestic currencies, or ringgit but to be used for trading with other nations in the context of bilateral or multilateral payment agreement.

"The gold dinar does not replace domestic currencies, in other words the gold dinar does not replace ringgit. When we trade and when we buy and sell among Malaysians we will not buy and sell in gold dinar," he said this on the sidelines when asked on the use of dinar by reporters here today.

He said the gold dinar would be used in trading with other countries and the trading would have to be in the context of bi-lateral agreement but more importantly it would also be in the context of multilateral agreement, more than two countries.

Earlier, he presented a paper on "Islamic Financial Market Development: The Malaysian Strategy," at the Kuala Lumpur International Islamic Capital Market Conference here today.

When asked on how close Malaysia was in implementing the system, he said: "This is just an idea stage. Eventually you will hear from us and that it had got nothing to do with the ringgit pegging to the US dollar."

Citing example on how the mechanism would work, he said if Malaysia entered into a bilateral payment agreement with Saudi Arabia, it would export and import with the Saudis.

At the end of three months for example there would be net balance either you import more or export more. You only settle the balance, he added.

"So if you determine trade in gold dinar then at the end of the three months, you just settle the small net difference, you don't settle the whole gross flow. And so the amount that you settle is very small, so you save on the usage of gold dinar on forex," he said.

He reiterated that the use of gold dinar was only for trading with other countries as in this case the domestic currency for Saudi Arabia is still in riyal and Malaysia is still in ringgit but when both countries buy and sell or export and import with each other it could be in gold dinar.