PETALING JAYA: Some economists have welcomed Dr Mahathir Mohamad’s proposal for a new currency backed by gold, saying the change will benefit the economy on various levels.

Nazari Ismail, an economics professor at Universiti Malaya, said a gold-backed currency would curtail currency trading and place a curb against the uncontrolled creation of money by international banks.

Excessive currency trading, he said, could create volatility in exchange rates and excessive creation of money would lead to inflation and high levels of debt.

“When currency is backed by gold, then you are obligated to make sure the creation of money or loans will not be more than the amount of gold you have,” he told FMT.

 

He added that banks might oppose the idea as it would reduce their growth and profitability.

The prime minister, in making the proposal yesterday, complained that current currency trading was manipulative.

He also said gold could be used to evaluate import and export activities among East Asian countries.

Carmelo Ferlito, a fellow at the Institute for Democracy and Economic Affairs, said setting a gold standard would be one way of restoring trust in the government because it would limit its power to create money.

“It will help bring public accountability back to monetary policy,” he added.

He also said a stable currency would augur well for business, although the business community, being in favour of “competitive devaluation”, might initially dislike it.

 

“But such devaluation helps business only in the very short term,” he told FMT.

He agreed with Nazari that a gold-backed currency would be stronger and more stable than conventional currency, but he said it must be properly managed.

“Whatever creates a stable scenario will help foreign direct investments,” he said.

Barjoyai Bardai of Universiti Tun Abdul Razak said a gold-backed currency was “definitely a big merit” as the country needed the ringgit to be backed by a stable asset.

He noted that Muslim countries prefer it to conventional currency but it has not taken off because of the international reliance on the US dollar.

“We should seek support from Middle Eastern countries and other Muslim nations,” he said, suggesting that Malaysia spearhead an initiative to introduce a gold-backed dinar as a crypto token made available globally.

“But can we find enough gold stock to be kept as reserve?” he said, adding that a gold-backed dinar would likely push up the price of gold.

Gold was once used to back fiat currencies. It was also used as the world reserve currency through most of the 20th century. The US used the gold standard until President Richard Nixon discontinued it in 1971.

 

 

Source: https://www.freemalaysiatoday.com/category/nation/2019/05/31/economists-hail-proposal-for-gold-backed-currency/

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