Gold Dinar for the Islamic Countries?

34 Pages Posted: 1 Sep 2012

See all articles by Grace Lee

Grace Lee

Monash University, Department of Economics

Date Written: January 18, 2010

Abstract

The Malaysian state of Kelantan has made a historical launch of Gold Dinar and Silver Dirham on 12th August 2010. For the first time in almost 100 years since the fall of the Ottoman Caliphate, a Muslim government introduces Shariah currency. In the eyes of many Muslim scholars, the present interest-based fiat monetary system is flawed as it is incompatible with the objectives of the Islamic law or the Shariah. There have been calls for the resurgence of Islamic Gold Dinar (together with the silver dirham) as it is deemed to be the most appropriate medium of exchange to be used in the Islamic economies. Using data from 1970-2007, this paper assesses the empirical desirability of the Organization of Islamic Conferences (OIC) countries to an alternative monetary system (Islamic Gold Dinar) that can potentially enhance the exchange rate stability and credibility. The Structural Vector Autoregression (VAR) method is employed to assess the nature of macroeconomic disturbances among the OIC countries. Specifically, the symmetry in macroeconomic disturbances of the OIC economies is examined as satisfying one of the preconditions for forming an Optimum Currency Area (OCA). In addition, this paper also investigates the output and price responses of OIC countries of the underlying structural shocks used to shed light on the suitability of these countries to form a monetary union. The preliminary findings of this study suggest the lack of broad linkages within the entire OIC, although there exists scope among some smaller clusters for potential monetary integration based on the symmetry of their business cycles.

Keywords: Gold Dinar, Optimum Currency Area, Organization of Islamic Conferences, Monetary Union

Suggested Citation

Lee, Grace, Gold Dinar for the Islamic Countries? (January 18, 2010). Economic Modelling, Vol. 28, 2011, Available at SSRN: https://ssrn.com/abstract=2139228

Grace Lee (Contact Author)

Monash University, Department of Economics ( email )

Jalan Lagoon Selatan
Selangor Darul Ehsan
Selangor, 46150
Malaysia

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