Mohi-Al-Deen Technologies

"The dollar is no longer as good as gold. It's no longer better than any other currency."

 

..."The dollar continues to be best of breed of the major currencies," said economist Ed Yardeni of Yardeni Research Inc. "Despite all of our flaws and faults and economic and financial woes, the dollar still looks as though it should remain a strong currency relative to the euro, the yen, the British pound and other currencies."

 

...C. Fred Bergsten, a former U.S. Treasury official who is director of the Peterson Institute for International Economics in Washington, D.C., points out that after losing about 25 percent of its value on a trade-weighted basis from 2002 to early 2008, the dollar has regained about 12 percent in the past year.

 

It has gained even more against Europe's currency - the euro now fetches $1.34, down from $1.60 a year ago. And the dollar is up more than 10 percent against the yen since mid-December.

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Before 1971 gold was linked to the US Dollar. After the delinking, the price of gold in USD has fluctuated. Now there is consideration of introducing gold in a basket of currencies to become the reserve currency. When gold was the reserve currency the central banks stocked large volumes of gold. If gold reenters the mix as reserve, countries are bound to accumulate gold. Such accumulation is not approved in Islam.

 

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The words "dinar corruption" appear in 1 hadith(s) in Muwatta translation.

 

(1) Yahya related to me from Malik that Yahya ibn Said heard Said ibn al-Musayyab say, "Keeping gold and silver out of circulation is part of working corruption in the land." Malik said, "There is no harm in buying gold with silver or silver with gold without measuring if it is unminted or a piece of jewellery which has been made. Counted dirhams and counted dinars should not be bought without reckoning until they are known and counted. To abandon number and buy them at random would only be to speculate. That is not part of the business transactions of Muslims. As for what is weighed of unminted objects and jewellery, there is no harm in buying such things without measuring. To buy them without measuring is like buying wheat, dried dates, and such food-stuffs, which are sold without measuring, even though things like them are measured " Malik spoke about buying a Qur'an, a sword or a signet ring which had some gold or silver work on it with dinars or dirhams. He said, "The value of the object bought with dinars, which has gold in it is looked at. If the value of the gold is up to one-third of the price, it is permitted and there is no harm in it if the sale is hand to hand and there is no deferment in it. When something is bought with silver which has silver in it, the value is looked at. If the value of the silver is one-third, it is permitted and there is no harm in it if the sale is hand to hand. That is still the way of doing things among us."  (Book #31, Hadith #31.16.37b)
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The country could buy the gold from the population at times of need. The patriotic population would be more than willing as the women in the Tradition above.

 

Gold has multiple uses in industry. Hoarding gold by the central banks of the countries denies the use of gold for other purposes. Thus we should move away from insisting on backing of a currency with gold. That leads to another problem.

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To finance its asset purchases, the Fed has effectively been printing money which shows up in the financial system as reserves that banks keep on deposit with the Fed.

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Such printing of the reserve currency gives an unfair advantage to the country that owns the reserve currency. This is revealed by the demands to change the reserve currency. Is there a way to make gold as reserve without it getting hoarded?

 

How about making gold as the medium for all accounts? We consider an example to see the effect.

 

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He is three months and 26,000 rubles behind on repayments of a loan for 129,000 rubles that he used to buy PVC windows to protect his two children against the winter cold. It charges interest of 39 per cent a year.

 

It should be noted that the loan gets repaid in virtually 19 months. Further we see that the price of gold seems to drop occasionally. This was due to some central banks selling a part of their gold reserves.

 

It is our expectation that once we move to the 'Gold Standard' without gold backing, the central banks could slowly sell their gold to control the price of gold around decent limits. This would take time. We cannot switch to the 'Gold Standard' overnight. The switch must be gradual. We propose the following:

 

1. We make a basket of USD and Gold to be the reserve currency. At the time of switching, we assign 99% weight to USD and 1% weight to gold.

2. In the next year the weights become 90% for USD and 10% for gold.

3. The year after it becomes 80% for USD and the weight of gold is 20%.

4. By increasing the weight of gold in the basket by 10% every year and decreasing the weight of USD by 10% every year, we reach the 'Gold Standard' in about ten years.

 

Such a decade long switch to the 'Gold Standard' would allow all currencies to become reserve currencies as gold is traded in all currencies. Then the market forces would takeover. If any country prints more of its currency to absorb its debt, it would make gold costlier in that currency.

 

The above scheme of gradual easing of USD gives enough time for America to balance her trade. Let us not forget that President Clinton turned the US balance of payments from deficit to surplus. It was unfortunate that President Bush and his team squandered the surplus and landed America in its misery. We do hope that President Obama and his team would again bring surplus.

 

Ya Allah! Help us in bringing equitable trade and allround happiness by switching to 'Gold Standard' without gold backing. Aameen, Aameen, Ya Rabbil Aalameen.

Please forward to all friends so that Inshah Allah most, if not all, countries move to the suggested standard.

 

Your brother,

Mohideen Ibramsha

Was Salaam