The present weaknesses in the financial system led Malaysia last week to urge Organisation of the Islamic Conference member countries to reconsider the use of the gold dinar for trade, especially with uncertainties in the international currency market.  (1)

The 26 March 2002 proposal of former Malaysian prime minister Tun Dr Mahathir Mohamad to settle international trade balances in Islamic gold dinar included the proposal that the dinar be held as central bank reserve. (2)

Gold is wealth. Oil is the only commodity in the world that is large enough for gold to hide in.

The fact that the dollar is still being used as the intermediary numéraire for oil-trade settlement, as the intermediary basic “standard” by which values are measured for oil-trade settlement, gives this dollar paper the backing of oil (oil becomes an indispensable valuable).

Once oil will see no more reason to support/back the dollar, oil  will “openly” shift towards gold and back it (through demand for gold) so as to create the new market for physical gold in association with the gold-friendly Khaleej-dinar numéraire.
(Khaleej (Gulf) dinar is being considered as one of the possibilities for naming the Gulf Co-operation Council (GCC) single currency.)

On the US dollar, Dr Mahathir said last week that without gold it had no backing at all and was basically a useless piece of paper and that only the demand for the US dollar to settle trade payments kept its value up. (3)

Hence, in a 05 December 2008 Gulf News column, Dr Syed A. Basher, research economist at Qatar Central Bank, argued, on the one hand, that we should not focus our attention on the movement between a national currency and any major international currency such as the US dollar and, on the other hand, that high and rising inflation in Qatar has caused the dollar peg system to become increasingly unstable.
Based on this evidence, Dr Basher concluded that the existing exchange rate system in Qatar is unsustainable and thus immediate exchange rate reform is needed to prevent exchange-rate distortions caused by the riyal’s peg to the dollar. (4)

We could thus well be on our way to seeing the 29 and 30 December 2008 Muscat, Oman, GCC Summit, where the 2009 Gulf Monetary Council (GMC), a precursor to the 2010 Gulf Central Bank (GCB), will be set up, adopting the Islamic gold dinar as reserve for the Khaleej dinar.

In that case, every increase in the price of gold, that is, every increase in the value of the Islamic gold dinar, will lead to an increase in the value of the Khaleej dinar.
As gold is hiding in oil, every increase in the price of gold, that is, every increase in the value of the Islamic gold dinar, will lead to an increase in the price of oil.
By same token, the present indecently low USA dollar oil prices will immediately come to an end.

Ivo Cerckel
Siquijor, 08 December 2008

NOTES

(1)
2008/12/06
Malaysia wants OIC countries to reconsider gold Dinar for trade
http://www.nst.com.my/Current_News/NST/Saturday/NewsBreak/20081206162348/Article/index_html

(2)
Mahathir proposes gold dinar as currency for international trade
Muslim News, Thu, 28 Mar 2002 08:10:32 -0000
http://www.freelists.org/archives/news/03-2002/msg00060.html

(3)
November 27, 2008 16:15 PM
Asia Must Initiate Changes To Monetary, Financial Systems
By Mohamad Nasir Yusoff
http://www.bernama.com.my/bernama/v3/news.php?id=374756

(4)
Qatar’s currency in need of reform
By Syed A. Basher, Special to Gulf News
Published: December 05, 2008, 23:46
http://archive.gulfnews.com/articles/08/12/06/10265034.html