KL sees Islamic gold trade system

KL sees Islamic gold trade system

Reuters, Kuala Lumpur

Malaysia and a handful of other Islamic countries plan to bypass
western currencies and use gold to settle bilateral trade from
2003, a senior Malaysian government official said on Monday.

Prime Minister Mahathir Mohamad's economic adviser, Nor
Mohamed Yakcop, told an international conference on the proposed
trade system -- based on an electronic unit of value called a
gold dinar -- would foster trade among the world's 1.3 billion
Muslims.

"The gold dinar could be an important facilitating
mechanism...to move away from an inherently unstable and
ultimately unjust global monetary system," he said.

Currently most world trade is settled using major currencies
such as U.S. dollar or the euro, transacted through money markets
that have in the past been sharply criticized by Mahathir.

Mahathir blamed western currency speculators for the Asian
financial crisis of 1997/98, which spurred him to impose capital
controls and fix the ringgit's exchange rate against the dollar.

Some Islamic countries, at odds with the United States
particularly over its support for Israel, have expressed their
dislike of the super-power's dominance in world affairs.

Nor Mohamed said the system would help Muslim nations bypass
Western intermediaries as conduits for settling trade accounts.

"We find ourselves today trading through Europe or through
some third non-Muslim country," he said, adding that Islamic
nations' trade with non-Islamic countries were now worth eight
times the size of trade among Islamic nations.

Under Islamic law the gold dinar is equivalent to 4.3 grams
(0.15 once) gold content.

Although its value would be derived from the international
bullion market it could be equivalent to one ounce of gold.

Under the system, central banks in member countries would
settle dinar trade balances every three months by transferring
the beneficial ownership of gold held in a custodian bank, such
as the Bank of England.

The Malaysian central Bank Negara would pay Malaysian
exporters in the local ringgit currency, while importers would
pay the central bank in ringgit.

Nor Mohamed told reporters that Malaysia hoped to start using
the gold dinar system in the middle of 2003 -- just before
Mahathir retires after 22 years as prime minister, and just
before he hosts an Organization of the Islamic Conference summit.