Economist calls for an interest-free, gold-backed economy

The author of a book on the Islamic gold dinar has suggested that Malaysia link the ringgit to gold. (Bloomberg pic)

PETALING JAYA: Malaysia should adopt an interest-free, gold-backed economy as a way to stabilise the ringgit and protect against cost-of-living increases, according to an economist and business consultant.

Ahamed Kameel Mydin Meera, who is also chairman of the Movement for Monetary Justice, told FMT that linking the ringgit to gold would safeguard against manipulation of the currency by the foreign exchange market and keep the currency stable.

Removing the payment of interest on loans would also stop commercial banks from artificially creating money, and thus protect against rapid increases in the cost of living.

“We can create an interest-free, gold backed economy parallel with the current system and give people the choice. Just like people have the choice between conventional banks and Islamic banks,” said Ahamed, who has previously advocated the use of an Islamic gold dinar.

Ahamed Kameel Mydin Meera.

However, he said he recognised that banking institutions might be resistant to such reform.

CEO of the Center for Market Education Carmelo Ferlito said that he, too, would be supportive of a system similar to the gold standard but believes that using actual gold might now be unrealistic, instead calling for a region-wide update of the monetary system.

“We could create an Asean currency and try to disconnect it from central bank manipulation by having it backed by a solid cryptocurrency, such as Bitcoin, rather than gold per se,” he said. “I think this is something that can be realistically achieved within 10 years.”

Ahamed also suggested a system of “netting” be implemented to minimise government borrowing while also stimulating the economy by encouraging purchases and business activity.

His proposal involves the government granting all citizens and businesses a credit limit that they can use to buy goods and services, which they only need to settle at a later date and can offset with earnings.

Carmelo Ferlito.

“For example, businesses could use their credit to buy inventory for which they don’t have the cash, and then pay off the debt with what they make from sales.”

Ferlito disagrees and said this sort of system, while effective in arenas like the stock market, might not scale effectively.

“I see this as difficult to implement on a large scale as it risks being difficult to manage for people that have limited financial literacy. I think it is a system that needs to remain confined to certain environments,” he said.

The US dollar was the last currency to be tied to gold, a relationship that was severed in 1971 by then President Richard Nixon. Since then, countries have issued fiat money, the value of which is decided by the government and subject to speculation.- FMT