Friday, August 20, 2010

Thu, Aug 19, 2010

IT WOULD be easy to dismiss the Kelantan PAS state government's attempt to revive the use of gold and silver coins for trade as a quixotic way to hearken to the glory days of the Islamic civilisation. In fact, current politics is at the very core of the scheme. It was designed to burnish the Islamic credentials of the theocratic party.

A new currency not based on debt, but on its intrinsic value, would show which of two Malay-based parties in Malaysia - Umno and PAS - is on the right side of the theological divide and which is the outlier. Kelantan's leaders may also be circumventing the federal laws on legal tender, which sets Bank Negara as a sole issuer of legal tender currency.

The issue of RM2 million (S$857,000) worth of gold dinars and silver dirham coins, it is claimed, can be used as an alternative currency in about 1,000 shops that have voluntarily agreed to accept the dinar and dirham in exchange for goods and services.

As it is voluntary, it is a unit of account only, not legal tender. As well, the coins are being touted as a better store of value than the ringgit, or indeed, any other fiat currency.

Of course the scheme is not practical. How does a shopkeeper make change for a 4.25g gold dinar (worth about RM582 at the current price of gold) when the silver coin is worth only RM13, unless he uses ordinary notes and coins as well.

Indeed, the very fact that the coin issue was 'oversubscribed' - as one state leader put it - reveals the true situation: coin collectors have decided that these items will soon be rarities and thus have appreciating numismatic value. In any event, RM2 million in coinage is hardly enough to support even the small-agrarian Kelantan economy.

But what the scheme does reveal is the current state of jockeying between Kelantan (and the other opposition-ruled states) and the federal government led by Prime Minister Najib Razak's National Front coalition.

Despite the fact that the Front has managed to regain the Perak government via defections and is watching keenly for an opening as politicians in opposition-ruled Selangor squabble among themselves, it has not made headway against the entrenched PAS government in Kelantan.

The state's leaders seem to have devised this project as a way to retain and buttress support of those disaffected Malay voters who helped drastically cut down the size of the Front's victory in the March 2008 general election.

Kelantan's coin scheme should thus be seen as a strategy to set the political agenda and to push Mr Najib's administration on the back foot. If Mr Najib attempts to ban the use of Kelantan's coins, it would diminish his Islamic credentials. If he allows it - it would be perceived as a victory for PAS. So far, apart from Bank Negara's warning about legal tender, Kuala Lumpur has said nothing. The political pace in Malaysia is quickening.

Mr Najib is reported to want an early election - not due until 2013 - to get his own mandate. Expect more political games in the meantime.

This article was first published in The Business Times.

No comments: