The use of gold dinar was first raised by Dr. Mahathir bin Mohamad of Malaysia's fourth prime minister.
Dr. Mahathir is a world leader known for his loud voice and has a high resistance in the international political stage. He has played an important role in setting the vision 2020 - a vision for Malaysia as a developed nation.
In 2001, Dr. Mahathir had raise the idea of a gold payment system - the gold dinar system. To settle the two countries and multilateral trading countries and thereby avoid the risk of loss in trading currency. By this method gold will be used as a medium of exchange and unit of account instead of the national currencies.
Prices of imports and exports will be mentioned in the weight of gold.
The proposal was to seek an alternative system to the uncertain economic situation is vulnerable to currency manipulation and speculation.
To understand why Dr. Mahathir proposed the gold dinar, we need to look back to the currency crisis that occurred in Malaysia in July 1997.
In his book "The Malaysian Currency Crisis, How and Why it happen 'Dr. Mahathir explained that Malaysia is a country with strong economic growth. It grew by 8% a year, has a stable political and economic strength. Its currency is stable and its international debts are at a manageable level. Thus Malaysia is not a candidate for a recession.
But in July 1997, the Malaysian Ringgit currency began to fall rapidly and the stock market dropped to its lowest level. Malaysia ringgit value continues to fall without the resistance. Malaysians are confused by this situation.
The main factor depreciation of the Ringgit Malaysia is due to speculative attacks by currency trader. Dr. Mahathir blames speculators are contributing to the decline in value thus affecting the overall economy. The currency trader of currencies, not because they fear the currency will decline instead want to make money by selling the currency.
Dr. Mahathir understood that the currency is attacked because it is based on fiat money system. Fiat money is money that is recognized legally by the government not backed by precious metals such as gold and silver.
In a speech, Dr. He mentioned that the value of paper money to obtain government recognition. The government is placing value on the paper. For example, a value of RM1 as the government prints the values on the banknote. If the government prints RM5 or RM10 for the paper, the value of the paper remains the same. Government recognition and guarantee that makes the paper money gets its value.
