Sunday, September 5, 2010

Kelantan Gold Dinar Sold Out

Kelantan Gold Trade has run out of stock:

Dinar sold out in Kelantan

PETALING JAYA: Kelantan’s gold dinar that was recently introduced has been sold out with most people buying it for investment purposes.

Kelantan Gold Trade (KGT) Sdn Bhd that issues the dinar and the silver dirham said about RM1.5mil worth of dinar and RM1mil worth of dirham had been sold since it was introduced on Aug 12…

…KGT is the subsidiary of Kelantan Mentri Besar Corporation which also manages the syariah-compliant currency.

Umar said about 150,000 dinar and dirham coins were minted and many bought them for investment purposes.

Never mind whether it’s legal or not, the fact that many bought the coins for “investment” purposes rather than for actually use as currency points to gold’s current (and past) unsuitability as a monetary base.

Assuming gold were actually used as such, what happens when it is taken out of circulation like this? In economic terms, this is tantamount to a contraction in the money supply, which raises interest rates and reduces economic activity. The combination of limited supply as well as high demand ensures that the purchasing power of gold is effectively rising – but that implies deflation, which also slows economic activity.

Ever wonder why there are so many injunctions in the Quran against hoarding?

And I wonder how these “investors” will feel if the gold market bubble (which is where I think it’s at) ever bursts.


  1. Hi,

    a few ideas here:

    1) gold is not a part of money supply (not in M1 to M6) so technically saving gold is not a leakages of money.

    Gold is not and will never be in bubble. Gold is always a conservative assets used in store of value in inflationary environment. In other words, gold is a asset to offset the inflation and to maintain the real value of assets.

    The intrinsic value of gold is much higher than the level now and it is kept at low level to ease the speculation of inflationary fear as Feds no longer announce the M3, M4 and M5 figure.

    Furthermore, the value spend on investment in gold dinar is such a small figure compare to Malaysia Money Supply that it won't even be an issue in the macroeconomic scenario.

    BNM is in interest rate intermediate targeting policy which mean the reduce in Money supply will not offset in the reduce of interest rate. Credit creation by commercials bank will definitely rebalanced it.

  2. hi,

    In case I wasn't clear, I was referring to gold as the monetary base in a metallic currency system, not as an adjunct to a fiat money system. Otherwise you're quite right on the monetary impact.

    Secondly less than 10% of gold demand is for anything other than jewelry or investment. I don't consider gold to have any intrinsic value, hence to me a speculative bubble in gold is always possible.

  3. Gold just like any other commodity will become a speculative bubble when 'investors' forget that the golds futures market is just like any other casino. However,a physical metal currency system is the best cure for all the paper money printing activities of the central banks around the world. take the Opium Wars in China. They originated in the refusal of the Chinese to accept anything other than silver for their commodities. The imperialist powers could not sell anything which the Chines really wanted to get back the silver they paid the Chinese. Thus, the Europeans became drug runners so as to hook the Chinese on an opiate to get their silver back from the Chinese. In other words the Europeans refused to trade with the Chinese on an even footing where they had to come up with real money for their China purchases. The metal currency system in China collapsed not for the reasons you stated as weaknesses in the metallic currency system but because the Western Imperial Powers and Imperial Japan ganged up on the Chinese so to pry oepn the Chinese markets to their goods which was increasingly manufactured under a fiat currency system. This 'hoarding' of the metal as you put it will only happen when one fails to have anything to offer the other for the metal. Strangely, this so-called hoarding of the precious metal never happened in China where silver, copper and gold were used as a currency for thousands of years. There is a 'myth' that paper money was invented by the Chinese. There were however, promissory notes which allowed one to exchange it for silver at various 'banks'.

    Debasing of precious metal currencies is always possible but with the existence of simple, accurate testing devices to verify the purity of metals such debasement have become very easy to detect. Compared to a fiat currency where the government can literally print the currency at will, precious metals such as gold and silver are indeed inflation proof and that is the intrinsic value of precious metal currency. In all fiat monetary systems the Central Banks have consistently printed more and more money in the name of the modern financial system that today the once mighty USD will see anther devaluation on the scales of Sodom and Gomorrah which will make the Plaza Accord devaluation of the USD look like a tea party.

  4. vinnan,

    You mistake me. I fully understand the inherent stability of a metallic based monetary system. I also fully understand the fragility and inequities of a fully fiat money system - inflation is and always has been highly regressive in its effects, the predilection towards debt makes for a dangerously unstable financial sector, and the survival of the system is always conditional on the integrity and altruism of the monetary authorities.

    And a fiat money system backed by precious metal reserves is the worst of both worlds.

    I am not pointing out hoarding as a reason why a metallic currency system will fail, far from it. Hoarding is just one of the mechanisms by which a fixed monetary system affects the real economy.

    The stability and soundness of a metallic currency system is in fact central to my view of gold as a monetary system, and why it is so tragically evil.

    To me, the welfare costs of a metallic currency system far outwieghs its potential benefits in terms of soundness of money.