By PROF DATUK DR AHAMED KAMEEL MYDIN MEERA / Pic By BLOOMBERG
THE Kuala Lumpur Summit 2019 called for a common cryptocurrency to be implemented among Muslim nations to avoid dependence on the US dollar and to be protected from sanctions imposed by the US on other nations.
Prime Minister Tun Dr Mahathir Mohamad also called for the use of gold among Muslim nations particularly for trade settlement.
The acceptance of a gold-backed currency by different quarters is sure to be mixed.
The return to some form of gold standard globally is going to be among the greatest events that will take place in this century.
The world is coming to understand the definition of money is at the root of achieving sustainability, ie it’s the ultimate missing link to socio-economic environmental sustainability as envisioned in the United Nations’ Sustainable Development Goals.
An interest-free gold-based monetary system is warranted to eliminate persistent inflation, rising cost of living, widening gap in income and wealth distribution, poverty, environmental destruction and even the falling birth rates observed in many countries.
Indeed, gold-based monetary systems would benefit all parties.
We at the Movement for Monetary Justice Malaysia (MMJ) believe the best form of money for the modern world is gold-based cryptocurrency with a netting arrangement.
Cryptocurrency issued by a government, say through its central bank, would provide new “revenue” for the government, ie the seigniorage. Today, most money is issued by privately owned commercial banks that enjoy money creation out of thin air.
This right is the single most cause for the worsening wealth distribution gap in the economy and the right to create money should be vested with the government alone.
Hence, we strongly support public banking initiatives, ie banks that are fully owned by the government, that alone has the right to create and issue new money. Since cryptocurrencies are highly secure and “tracked by the serial number”, it is almost impossible to do fraudulent activities, misappropriation of funds, embezzlement, bribery and even tax evasions.
All these would further substantially increase or save government revenue, and tax rates could be lowered as a result.
With the advent of e-Wallets and other financial technology solutions, cryptocurrency is surely going to be part of future money systems.
Netting arrangements simply give a right to every individual, business and the government to make use of credit to transact in the economy.
A credit limit is given according to each party’s ability to bring goods and services into the economy.
Periodically, the use of these credits is net-off before the differences are settled in hard money.
In this way, abundant liquidity is injected into the economy by everyone, according to each one’s productive ability, unlike in the present system where liquidity is created by means of interest bearing loans by banks.
This netting or clearing house arrangement substantially eliminates the need for hard money for transactions in the economy.
If the system is gold-based, we do not need much gold to run the whole system efficiently.
The greatest advantage is that it would practically eliminate persistent inflation. Homes would become affordable, people can retire comfortably and so forth.
One of the biggest things that would be observed under gold is that countries that face shrinking populations like Japan, South Korea and most of Europe would see their populations start to grow again.
Most of these countries have failed to link their shrinking populations to the interest-based fiat money system. A shrinking population would, in turn, bring about ageing population and labour shortages across all sectors of the economy.
Gold would bring about a fixed exchange-rate regime and eliminate speculation, manipulation and arbitrage in the foreign-exchange market and thereby, bring back the stability and sustainability not seen in decades or perhaps centuries.
Indeed, the Bretton Woods collapsed because the US printed more dollars without the gold backing to finance the Vietnam war.
When gold plays the role of money then it can indeed be invested in activities and projects that provide returns. Classical Islamic finance was indeed based on gold and silver as the standard.
The Islamic laws regarding business transactions, zakat, hudud, mahar, etc were all based on this bimetallism. Nonetheless, many Islamic scholars of today argue that money in Islam need not be necessarily limited to gold and silver.
Money must have intrinsic value and must have the characteristics required to play the role of money — acceptability, durability, divisibility, mobility and so forth.
Hence, money has to be some kind of a commodity or standardised service to play the role as a unit measure of value. Malaysia, therefore, can introduce palm oilor petroleum-backed currency, for example.
Prof Datuk Dr Ahamed Kameel Mydin Meera is adjunct professor at the International Islamic University Malaysia and chairman of the MMJ. The views expressed are of the writer and do not necessarily reflect the stand of the newspaper’s owners and editorial board.