Chances are that you may not have heard of tiny Malaysian state called Kelantan. Even we hadn't until recently. Until it burst onto the world stage courtesy a story in the Wall Street Journal. The place, we believe, could well turn out to be a harbinger of a big, big change.
The change that we are talking about is of the financial world moving away from the fiat currency system to the one that is based on gold. Last month, the local Government in the state of Kelantan in Malaysia became perhaps the only one in the world to introduce Islamic-style gold dinar coins as an alternative currency.
The change was in effect the culmination of an effort by a group that began about a quarter century ago. The effort to wean people away from the US dollar and other paper currencies. After all, it is absolutely unfair that the US dollar be the reserve currency of the world. This in effect means that while other countries earn their income from only finite resources, the US can simply crank up their printing presses and pay for them.
This rather outrageous but rather true fact that the US manipulates its currency would have been thrown out of the window a few years back. But not anymore. The US has indeed resorted to big time money printing in the aftermath of the sub-prime crisis. And this has not escaped the eyes of the world at large. Thus, the US has tried to payback its creditors with dollars that could be of much lesser value than at the time it bought them. And this is certainly not being fair to the creditors.
Let us not blame the US alone. Quite a few countries have resorted to money printing in order to prevent the global economy from going into a tailspin. And this has reduced the value of their currencies enormously.
Such a change is indeed not good for the savers and the poor sections of the society as it leads to confiscation of their savings without them actually realising it. Thus, perhaps the only way out of this mess is to not let the Governments decide the value of the money. Instead, it is the people who should decide its value. And what better way to do this than move to the gold standard as its supply cannot be increased indefinitely by corrupt Governments.
Like with any change of old guard, there will indeed be teething problems associated with this change. And the state of Kelantan in Malaysia is also experiencing quite a few of them. People here are finding it difficult to accept gold and silver coins as their new currencies. And are instead keener on saving and storing them rather than spend them. But they should be persisted with we believe. For in them perhaps lies the solution to rid the world of periodic asset bubbles and severe economic distortions.