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DINAR AND DIRHAM ADVANTAGES

Introduction

When the world uses gold and silver as a currency, monetary problems like fluctuations in the exchange rate, inflation, and falling purchasing power have never happened.

Professor Roy Jastram of Berkeley University, USA, in his book The Golden Constant has proven the nature of gold that is resistant to inflation. According to his research, the price of gold for several commodities over a period of 400 years until 1976 was constant and stable. (Nurul Huda et al, 2008: 104).

Monetary problems actually occur after the world breaks away from the gold and silver standard and moves to the paper money system (fiat money), which is a currency that applies only because of government decrees, which are not supported by precious metals such as gold and silver.

In the Bretton Woods system in effect since 1944, dollars are still associated with gold, i.e. US $ 35 can be exchanged for 1 ounce of gold (= 31 grams). However, on August 15, 1971, due to economic, military and political factors, US President Richard Nixon finally stopped the Bretton Woods system and the dollar could no longer be exchanged for gold. (Hasan, 2005).


Excellence Gold and Silver Currency Shaykh Zallum explained that there were at least 6 (six) advantages of gold and silver currencies as follows (pp. 224-227). First: gold and silver are commodities, like other commodities, such as camels, goats, iron, or copper. To do this, exploration and production costs are needed. This commodity can be traded if it is not used as money. Thus, gold and silver include commodity money / commodity money. (Nasution, 2008: 241). That is, gold and silver have intrinsic value (qîmah dzatiyah) in themselves. It is different from banknotes which do not have intrinsic value on the goods themselves. (Thabib, 2003: 326).

Begin the era of global floating exchange rates which invite many problems. The dollar is increasingly infected with inflation. In 1971 the official price of gold was $ 38 US dollars per ounce. However, in 1979 the price had jumped to US $ 450 per ounce (El-Diwany, 2003).

Such monetary problems can only be overcome by dinars (gold coins) and dirhams (silver currencies) alone. Why? Because, gold and silver have many advantages.

This study aims to explore more about the advantages of the gold and silver system, as explained by Shaykh Abdul Qadim Zallum in his book Al-Amwâl fî Dawlah al-Khilâfah (2004), especially the chapter Fawâ’id Nizhâm adz-Dzahab wa al-Fidhdhahah ._ (p. 224-etc.).

By using gold and silver currencies, a country will not be able to print currencies at will and then circulate them to the market. This is different from paper money; the state can print whatever banknotes it wants, because paper money has no intrinsic value in itself. (Zallum, 2004: 224)

Illustration, to print one US dollar bill, it costs 4 cents. Assuming 1 dollar is valued at Rp 10,000, then the value of 4 cents is only Rp 400 (1 dollar = 100 cents dollars). If you want to print 100-dollar bills, the fee is still around 4 cents. This is what causes the Fed (US Central Bank) is very free to print almost unlimited dollars, causing permanent inflation. (Hamidi, 2007: 37).

However, to print money worth 1 dinar of gold, gold weighing 4.25 grams is needed. Countries that use the dinar standard cannot print money as they wish, except within the quantity of gold they have. The money in circulation can only be added when the state receives a new amount of gold from an outside party. Conversely, money in circulation can be reduced if there are people who exchange some of their money for gold. (El-Diwany, 2003: 92).

Second: the gold and silver system will guarantee monetary stability. Unlike the banknote system which tends to bring global instability because of the sudden addition of banknotes in circulation. (p. 226). Gold is usually not easy to find in abundant quantities. In the best estimate, global gold inventories in the last 300 years have only increased by an average of 2% per year. This growth rate is far below the growth of money supply based on modern banking that uses paper money. (El-Diwany, 2003: 93). Within a year, the entire global gold mining industry only produced about 2000 tons of gold, far below the steel production in the US alone which produced 10,500 tons per hour in 1995. (Hamidi, 2007: 109).

Third: the gold and silver system will automatically create a balance of payments between countries to correct deficits in payments without central bank intervention. (Zallum, 2004: 226). This mechanism is called an automatic adjustment that will work to resolve the gap in trade (trade imbalance) between countries. (Hamidi, 2007: 137; Nurul Huda et al, 2008: 103).

The mechanism: if a country (for example, country A) imports from country B is greater than its exports, then more gold and silver will flow from country A to country B. This is because gold and silver are used as a means of payment. This condition will cause prices in country A to fall, then cause commodity prices in country A to be cheaper than imported commodities from country B, and in turn reduce imports from country B. Conversely, in the paper money system, if it occurs this kind of perseverance, country A will print more money, because there is no limit to printing it. This action will only increase inflation and reduce the purchasing power of money in country A.

In the gold and silver system, it is impossible for the state to print money again, as long as the money in circulation can be exchanged for gold and silver at a certain price level. Therefore, the state is worried that it will not be able to service the exchange. (Zallum, 2004: 226).

Fourth: the gold and silver system has a very prime advantage, which is that any quantity in one country, whether large or small, will be able to meet the market needs in currency exchange. (Zallum, 2004: 227). If the amount of money is fixed, while goods and services increase, the money will be able to buy goods and services to the fullest. If the amount of money is fixed, while goods and services are reduced, the available money only experiences a decrease in purchasing power. As a result, whatever amount of money is there, enough to buy goods and services in the market, whether the amount of money is small or large. (Yusanto, 2001: 144).

The same cannot be said for the banknote system. If the state prints more and more banknotes, the purchasing power of the money will go down and inflation will occur. Clearly, the gold and silver system will eliminate inflation. Conversely, the paper money system will fertilize inflation. (Zallum, 2004: 227).

Fifth: the gold and silver system will have a stable exchange rate between countries. This is because the currencies of each country will take certain positions against gold or silver. Thus, in the whole world there is essentially only one currency, namely gold or silver, although the currency in circulation will vary in different countries (Zallum, 2004: 227).

True there is only one currency, because an ounce of gold coins (31 grams) in the US will not be different from an ounce of gold coins in Japan, Germany, or France. Maybe one ounce of gold will be given different names in each of these countries, whether named 20,000 Yen (Japan), 200 Deutschemark (Germany), 10,000,000 Rupiah (Indonesia), or 1000 Francs (France). However, there will be no significant transaction costs that illustrate the difference in exchange rates. Consequently, foreign currency (foreign exchange) speculation will no longer be possible and international trade will be even more excited, because gold and silver have prevented exporters / importers from the biggest source of uncertainty, which is a volatile exchange rate (El-Diwany) 2003: 97).

Sixth: the gold and silver system will preserve the gold and silver wealth owned by each country. So gold and silver will not run from one country to another. Any country does not need supervision to protect its gold and silver. Why? Because, gold and silver will not move freely or illegally. Gold and silver will not move unless it is the price of goods or services that are permitted by the Shari’a (Zallum, 2004: 227; An-Nabhani, 2004: 277)

Example: to import food, heavy equipment, weapons, or to pay experts from various fields from abroad that are needed to build the Khilafah state. In other words, there will be no foreign investment profits which can be translated as domestic currency losses. (El-Diwany, 2003: 98).

Closing

That is a glimpse of some of the advantages of gold and silver currencies explained by Shaykh Abdul Qadim Zallum in his book Al-Amwali fî Dawlah al-Khilafah (2004), with the enrichment of various other valuable references. By understanding the various advantages, we no longer need to doubt the ability of gold and silver currencies in overcoming the monetary problems that have plagued the people so far.

However, the ability of gold and silver currency is of no use if it only becomes an empty discourse in countries of the Islamic World that are still willing to submit to US-led Western hegemony. Obediently as Western slaves, they can indeed still live as “grass”, but not as “pine trees”. They were indeed not blown away by the wind, only being trampled with contempt. Only the Khilafah state will be able to carry out the task of glorifying the Ummah with gold and silver. Allah is the Greatest! [KH. M. Shiddiq Al-Jawi]

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